Best Buy CEO on how to lead a corporate turnaround (without making employees hate you)
Exactly three years ago, as Hubert Joly, the then-new CEO of Best Buy, prepared to meet Wall Street for the first time to unveil his plan to rescue the company, Hurricane Sandy bore down on New York. The storm forced the company to postpone its investor meeting in the city, so Joly had to wait a few weeks before he finally presented his 5-point “Renew Blue” plan.
His audience was impressed—if somewhat skeptical. A former partner at McKinsey, Joly had pulled off a successful turnaround at hospitality firm Carlson, which owns Radisson. But because that company was family-owned, Joly, a French native, was completely unfamiliar to Wall Street. “He was very matter of fact about how comps were negative and margins were declining, and he said ‘Yeah, I’m going to fix this’—and nobody believed him,” recalls Daniel Binder, an analyst at Jefferies. “Not that he was not credible, but hey, that’s a big task.” Adds SunTrust managing director David Magee, “Prior to that, it wasn’t obvious how they were going to win.”
Since then Joly—and his largely female leadership team—have pulled off an impressive feat, reversing declines in both the consumer electronics retailer’s same-store sales and profits. Best Buy (BBY) has returned 154% in the last three years, nearly triple the returns of the S&P 500. And while Joly has now earned a reputation as a respected turnaround artist, investors say he does not fit the negative stereotype of other such executives: “He’s more of a leader than just one of those guys that comes in and cuts the crap out of everything and leaves,” says Telsey Advisory Group analyst Joe Feldman.
Fortune detailed the full story of Best Buy’s comeback in its November issue (see “Meet the women who saved Best Buy”). But in addition to attributing much of the company’s success to the gender diversity of its leadership, Joly also offered specific tips for turning around a struggling company—and having your employees still like you when all is said and done. Here are seven of them:
1.The Bicycle Theory.
“The bicycle theory is that it’s impossible to ride a bicycle at standstill,” says Joly, who enjoys riding a bike in his spare time. Initially, as an outsider hired to fix a company, “you don’t know how good the company can become through better execution.” So for the first 18 months, don’t even worry about the company’s strategy, he says, referencing former IBM (IBM) CEO Louis Gerstner’s famous 1993 quote, “The last thing IBM needs right now is a vision.” Instead, says Joly, ask employees to start pedaling—in other words, challenge them to show what they are capable of, and to do what they can to take the company forward. “You get it moving, and if it’s not moving in exactly the right direction, you adjust the course,” Joly says. “So without being very clever or very strategic, you see how much improvement you can make.”
2. Cut jobs as a “last resort.”
In Joly’s “turnaround manual,” as he calls it, there are four “levers” to improve profits—but job cuts are the last one, only to be used if all else fails. First, leaders need to do everything they possibly can to increase revenue. But when it comes time to trim budgets, start by cutting non-salary expenses (such as overhead and transportation expenses). Then “creatively manage benefits,” says Joly, such as eliminating luxury perks or choosing a more efficient health insurance plan for the company. Only reduce headcount if those first three steps are not enough to right the company, says Joly: “For me, taking people out is the last resort. Because you need to capture the hearts and minds of the employees.” Though Best Buy ultimately laid off about 1% of its workforce, Joly purposefully never announced intentions to cut a certain amount of positions, as companies from Microsoft (MSFT) to Procter & Gamble (PG) have done in recent months. Joly doesn’t understand the point of such public layoff declarations, which may temporarily appease investors but also scare the CEO’s own employees: “It’s like he’s a hero, for killing jobs!” Joly says facetiously.
3. Quantity over quality.
Joly says that in order for a company to keep progressing forward, employees need to make more decisions faster. If people fret too much over whether they are making the right decision, or spend too much time in meetings debating a course of action or waiting for their superior’s approval, nothing gets accomplished. “The difference between great leaders and good leaders is not the quality of their decisions, it’s the quantity of their decisions,” says Joly. Of course, empowering employees to make rapid choices also necessitates tolerating more mistakes, he adds. But Best Buy staffers report that their bosses encourage them to follow their best instincts, and promise to back them up or smooth relations if their decisions end up ruffling any feathers. “If you make a lot of decisions, you’ll make some bad ones, but then you make more decisions to correct them,” Joly says. “As long as it’s not decisions that kill you.”
4. Replace “or” with “and.”
Joly also has a surefire way to make decisions easier: Make it so people don’t have to choose. “Eliminate the tyranny of ‘or’ and embrace the power of ‘and,'” Joly explains. For example, at the beginning of Best Buy’s turnaround, when executives wondered whether the priority was cutting costs or increasing revenue, Joly’s answer was, “Let’s do both!” And rather than choose between making the company’s retail employees happier or focusing on customer service, Joly wanted the former and the latter. “My view is that 98% of the strategic questions that are asked as ‘either/or’ are better answered as ‘and,'” he says. “It simplifies things because otherwise people are paralyzed.” By asking employees to go after dual goals simultaneously, they were actually able to accomplish more in less time—it became “a non-discussion,” Joly says.
5. Whistle while you work.
It’s rare to catch Joly without his signature grin—and that’s strategy as much as it is his personality. “Energy is not a finite resource in an organization, it is what you make it,” Joly says. “Irrespective of how much wind there is, how much white water there is, as a leadership team, you need to have a spring in your step, you need to be full of energy and lift. You need to have people believe.” When Best Buy was faced with negative press and predictions that it might go out of business, its demoralized staff looked to Joly and his top executives for motivation and reassurance that their hard work would pay off, and employee morale eventually improved. “Part of the reason I do these turnarounds is these turnarounds energize me,” Joly says.
6. Track your say-do ratio.
In a turnaround, accountability is key. When his staff comes up with ideas and promises to implement them, Joly asks them to tally their execution rate in what he calls the “say-do ratio”—in other words, he expects Best Buy employees to follow through on everything they say they will. Corie Barry, Best Buy’s chief strategic growth officer (and newest female member of its executive team), remembers being summoned to one of Joly’s early meetings and asked how soon she could deliver a return-on-invested-capital analysis. When she suggested first thing the following week, Joly laughed—then kindly dismissed her back to her desk to work on the report right away. She and her team finished it by the end of the day.
7. Spread bad news faster than good news.
Joly recognizes that when he’s asking employees to implement quick, transformational changes in a company, problems can also arise suddenly. So he has instituted another rule at Best Buy: “Bad news has to travel at least as fast as good news,” he says. This was one reason Joly was pleased to be woken up with a call around 4 a.m. on Black Friday last year from his head of e-commerce, Mary Lou Kelley, informing him that the company’s website had crashed as a surge of customers shopped for electronics deals in the dead of night. (He was also impressed with the way she worked with her team to bring the site back online quickly.) “We never shoot the messenger from that standpoint because everyone can mobilize around this,” Joly says.
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