So I’m enjoying reading The 101 Dumbest Moments in Business, 2007 (via Joe Sherlock) And then I come across the answer to an earlier post about Circuit City’s novel approach to cost cutting — firing the highest paid, i.e. the best, salespeople:

Since I’m not one of the people being fired, I can be detached and think that this will provide a nice economics case study in cost cutting. Arguably (i.e. I’m leaving wiggle room for later) it will be used as a case study in business school – but I will leave it up to an excercise for the reader to decide if it will be held up as an effective, an ineffective, or a disastrous way to cut costs.

And now, the rest of the story:

In a cost-cutting move, Circuit City lays off all sales associates paid 51 cents or more per hour above an “established pay range” – essentially firing 3,400 of its top performers in one fell swoop. Over the next eight months Circuit City’s share price drops by almost 70%.

I think, unsurprisingly, disastrous is the final answer. I guess companies will go back to laying off the bottom performers instead of the top.

Tags: Circuit City

I have never been a big fan of Circuit City and we usually go to Best Buy in the Murphy Family. I did buy a camcorder there a few years ago for which the salesperson knocked 200 dollars off the price just so I’d buy the 200 dollar extended warrenty. I later decided I was $200 down on the deal and haven’t been back. So I don’t see the latest news as out of character: Circuit City to Fire 3,400, Rehire Cheaper Workers .

“Firing 3,400 of arguably the most successful sales people in the company could prove terrible for morale,” Colin McGranahan, an analyst with Sanford Bernstein & Co., wrote in a note today. “The question remains as to whether Circuit City can rebuild in time for the all-important holiday season.”

I’m thinking that firing 3,400 of arguably the most successful sales people could prove terrible for more than just morale, I’m thinking perhaps, just perhaps, it could prove terrible for sales as well. Although if the salesman who moved money from the store’s pocket to his own is one of the highly compensated ones, maybe not.

Since I’m not one of the people being fired, I can be detached and think that this will provide a nice economics case study in cost cutting. Arguably (i.e. I’m leaving wiggle room for later) it will be used as a case study in business school – but I will leave it up to an excercise for the reader to decide if it will be held up as an effective, an ineffective, or a disastrous way to cut costs.

UPDATE: Disastrous way to cut costs is the answer

Tags: Circuit City