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Core Competencies: from Circuit City to Carmax

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Submitted By rayala3
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1. Do you judge CarMax to be successful? Why or why not?
They are successful. They were able to apply the core competencies of efficient and effective logistics also known as service, selection, savings and satisfaction from Circuit City to CarMax. Based on the VRIO framework, Circuit City had a competitive advantage which they applied to CarMax strategy. Their VRIO framework was based on efficient and effective logistics along with the 4w business model of service, selection, savings, and satisfaction which was valuable, rare, and difficult to imitate and organized to capture. By maintaining the same core competencies of Circuit City, CarMax has become the leading used car company with Fortune 500 status.
2. What type of diversification is Circuit City’s CarMax?
Circuit City was following an unrelated diversification strategy. Circuit City went from a market of electronics to used cars which has no linkage. CarMax had its own CEO and was managed as a standalone business with profit and loss responsibilities separate from Circuit City. The linkage between electronics and used cars is not apparent.
3. Looking at the core competence-market matrix depicted in Exhibit 8.8, does Circuit City’s CarMax diversification fall neatly into one of the four quadrants? Why or why not?
It falls neatly into the lower right quadrant. Circuit City was able to redeploy and recombine core competencies to compete in a new market for them of used automobiles. Circuit City was not building new core competencies to protect and extend current market position nor were the building core competencies to create and compete in markets of the future. They did not leverage their core competencies to improve current market position. They took their core competencies and applied them to CarMax to compete in a new market.
4. Was CarMax a good strategic for Circuit City? Why or why not?
It was a great move. They took their core competencies to another market and were able to create value. They diversified to a highly fragmented market which allowed them to apply the retail core competencies into nationwide standardization and cost savings.
5. In 2002, Circuit city sold off CarMax, which trades on the NYSE under KMX. Was this a good decision by Circuit City’s top management team? Why or why not?
It was not a good decision. The unrelated diversification strategy may have allowed Circuit City to prevent their eventual demise. They would have had a competitive advantage in the CarMax market which may have prevented bankruptcy because they could have overcome the weakness of Circuit City and their failings.

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