Phoning It In
Skip to content
The Insightful Leader Live: What to Know about Today’s AI—and Tomorrow’s | Register Now
Feb 24, 2015

Phoning It In

By Kellogg Insight | Based on the insights of James Shein

When RadioShack announced this month that it was filing for bankruptcy, not everyone was shocked by the news. Although it was once a leading electronics chain with thousands of outlets across the country, the rise of Best Buy and Amazon seemed to have already sealed the company’s fate. As far back as 2011, the satirical newspaper The Onion ran a characteristically damning headline: “Even CEO Can’t Figure Out How RadioShack Is Still In Business.”

From a strategist’s point of view, however, its downfall was not inevitable—the company simply failed to make the necessary changes to stay relevant. James Shein, a clinical professor of strategy at the Kellogg School and author of Reversing the Slide: A Strategic Guide to Turnarounds and Corporate Renewal, says that when companies like RadioShack go bankrupt, it is usually because they never took a fresh look at their own fundamentals.

“Basically, what happened is they let the world go around them,” Shein says. “The funny thing is, they were first with so many things—small computers, some of the phones, a lot of popular gadgetry. Then they just let everybody pass them by.”

Complacency is a well-known hazard for companies that become household names. Borders was mostly caught off guard when Amazon stole its market share; the bookstore chain did little to change. And when Netflix launched, it took Blockbuster years to respond with its own mail-order video service. Neither company was quick enough to revise its core strategy. “We’ve seen RadioShack stumble in the same way,” he says.

For Shein, RadioShack’s late-stage efforts to cut costs and boost earnings were doomed to fail in the absence of a broader strategic vision. The larger problem was the company’s inability to define its competitive advantage. “When you’re setting strategy, you’re looking for a competitive advantage. Without it, you’re in trouble.”

Lack of competitive advantage leads to poor, haphazard strategic moves—for example, Blockbuster’s decision to merge with Circuit City at a time when both companies were struggling. “My analogy,” Shein says, “is two drunks staggering down the road who find themselves leaning against each other and think they’re doing fine.” It also leads to denial about one’s place among the competition. “When Montgomery Ward said ‘our niche is between JC Penney and Sears,’” Shein says, “that was it—I knew they were done. There’s not a lot of room there.”

How can companies avoid this fate? First, it is important to define core competencies, and then to ask: Are any of these competitive advantages? A company might do something extremely well; the question is whether it does it better than anyone else in the market. When it comes to determining strategy, Shein says, it is important not to confuse competitive advantage with competitive necessity.

“Sears might say to itself, ‘we have stores all over the place, and we have a broad array of merchandise!’” Shein says. “Neither of those are competitive advantages—those were competitive necessities if you were going to be in the retail business years ago. Pharma is another example. Ask most pharmaceutical executives what their competitive advantage is, and they’ll say, ‘we have FDA-approved plants, we have patents, and we have great scientists.’ But those are competitive necessities, not competitive advantages.”

It is not always easy for companies to redefine their competitive advantage—and it is harder the bigger they get. Still, some have succeeded. YouTube, now the second biggest search program outside of Google Search, started as a video dating service before discovering it had no competitive advantage in that market. J. Crew, under pressure from the private equity firm that owned it, switched to cheaper materials, but then reversed course when it realized it was throwing away the major advantage it had established over time: its high-quality clothing.

RadioShack offers a classic example of what not to do in a turnaround. Instead of identifying a clear go-to-market strategy, it focused entirely on operational changes in the name of cost cutting. Cuts are worth pursuing, especially if a company is in crisis mode and wants to stop the bleeding quickly. Sometimes it helps to strip out assets that no longer support a core competency, thereby rationalizing the balance sheet and improving the company’s short-term financial position. But unless a company defines its core competencies—and then determines which are competitive advantages—it may have difficulty determining which assets to strip and what kinds of people it needs.

As Shein sees it, that is what happened to RadioShack. “You need to have a competitive strategy and implement it,” he says, “and I didn’t see one in what they were doing.”

Photo credit belongs to Mike Mozart. Published under a Creative Commons license.

Editor’s Picks

A mentor puts capes on mentees.

Podcast: How to Be a Great Mentor

Plus, some valuable career advice that applies to just about everyone.

Kids decide whether to buy water or soda.

A New Way to Persuade Kids to Drink More Water and Less Soda

Getting children to make healthy choices is tricky—and the wrong message can backfire.

Computational Social Scientists discuss solutions.

How Can Social Science Become More Solutions-Oriented?

A conversation between researchers at Kellogg and Microsoft explores how behavioral science can best be applied.

An entrepreneur enters an established company.

Buying a Company for Its Talent? Beware of Hidden Legal Risks.

Acquiring another firm’s trade secrets—even unintentionally—could prove costly.


Take 5: Tips for Widening—and Improving—Your Candidate Pool

Common biases can cause companies to overlook a wealth of top talent.

Drug innovation at a pharmaceutical company

Everyone Wants Pharmaceutical Breakthroughs. What Drives Drug Companies to Pursue Them?

A new study suggests that firms are at their most innovative after a financial windfall.

How to be prepared

4 Key Steps to Preparing for a Business Presentation

Don’t let a lack of prep work sabotage your great ideas.

Healthcare workers meet in a hospital corridor.

Video: How Open Lines of Communication Can Improve Healthcare Outcomes

Training physicians to be better communicators builds trust with patients and their loved ones.

A man tries to improve OR scheduling.

Here’s a Better Way to Schedule Surgeries

A new tool could drive savings of 20 percent while still keeping surgeons happy.

Voters who do not trust each other.
Politics & Elections

Why Economic Crises Trigger Political Turnover in Some Countries but Not Others

The fallout can hinge on how much a country’s people trust each other.

A clerk scans brand trademarks.

Building Strong Brands: The Inside Scoop on Branding in the Real World

Tim Calkins’s blog draws lessons from brand missteps and triumphs.

Two coffee growers harvest safely

How the Coffee Industry Is Building a Sustainable Supply Chain in an Unstable Region

Three experts discuss the challenges and rewards of sourcing coffee from the Democratic Republic of Congo.