Wednesday, October 26, 2011

What happened to egghead?

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From Egghead to its no yolk so let us eggsplain!

Introduction and Background

Egghead Software was founded in 185 in Spokane, Washington. Egghead was a well-respected retailer of computer software. Egghead enjoyed a period of incredible growth, with wide brand recognition with the quirky character, Professor Egghead.


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Rapidly expanding from the original store in 185 to over a hundred stores in 188, the company finally went public in 18. By 1, Egghead was considered an industry leader, partnering with Microsoft on the release of Windows .1, and IBM, on the 5.0 upgrade. 500 employees and 180 stores made up Egghead Software, by then, know as ¡§North America¡¦s Software Eggsperts.¡¨

The company relied on the expertise of their sales staff to help customers understand these wonderful new machines. Yet, as the market for personal computers exploded, competitors began experimenting with different business models. As customers became more sophisticated, Egghead held onto the notion that customers needed help in selecting software, and that they would be willing to buy software in a different location than hardware¡Kgiven the high margins on hardware, the computer superstore was born. ¡§Big box¡¨ retailers could afford to aggressively promote (lower margin) software with the hardware purchase. As consumers became more computer-literate, they needed less handholding, and demanded convenience and low prices.

Great Eggspectations Unmet

Egghead watched this fundamental dynamic develop without changing their business model. By 15, the company had changed CEO¡¦s three times, and was searching for a way out of financial troubles. The company had no consistent vision, no strategy for competing with the big box retailers, no strategy for Internet commerce, and revenues and margins were plummeting.

Finally, in 16, George Orban assumed the position of CEO, knowing he had two years to reorganize or liquidate. Clearly, the retailing operation was producing mixed results. A serious comparison of margins by location showed that some stores were bleeding cash. A decision was made to close about half the stores, cut back from ,000 employees to 00, and to look toward the Internet for the business of the future.

Nearing Eggstinction

The decision to transition from Egghead to was a bold strategic move that radically altered the way Egghead operated, but one that ultimately saved the company from bankruptcy and liquidation.

In the analysis that follows, our study group will analyze the internal and external forces that acted upon, and affected Egghead in their metamorphosis from brick and mortar retailer to successful E-tailer. We also have drawn some conclusions, and made some recommendations about where Egghead missed opportunities, and where they have capitalized on them.

Business Mission

The Egghead Company focused on selling software products to customers with a knowledgeable sales staff. The business mission changed in the late 10¡¦s when the company decided to close the brick-and mortar retail stores and begin selling computer products as an Internet business.

SWOT Analysis

Internal Strengths for Egghead

Upon the inception of Egghead in 185 Cictor Alhadeff¡¦s vision was to set-up a customer-friendly environment. His vision was an intricate part of the business and lead to the initial success of the company. The customer-friendly environment provided exceptional customer service and made shopping ¡§less intimidating¡¨ to the computer software customer. Customer service became a strong attribute to the company.

In 1, the organization had a large customer base built upon the premise of long-term software consultants. Direct sales in the corporate setting and government segment of the business provided a large revenue base for the company. The company also had a strong vendor relationship and marketing expertise that provided added strength to the organization. The strong growth in the company was attributed to marketing and allowed Egghead to develop and maintain a strong business relationship with IBM.

Internal Weaknesses for Egghead

The company had a poor management team with no long-term strategy and a lack of vision for the organization as a whole. The organization grew much too fast with a lack of internal controls and proper management expertise to guide the company productively into the future. The company missed many opportunities. They could have moved into the catalog business [they later moved into the catalog business, however, after competition and around the time of the Internet when catalogs shopping became obsolete] created spin-off opportunities, and moved beyond software and into the hardware segment of the market.

After the founder of the company left, the company suffered through three CEO¡¦s within three years. Poor management continued to plague the organization and lead to poor management of inventory and shrinkage became a major problem. The high turnover rate at the Egghead stores resulted in the company finding it impossible to keep a knowledgeable sales staff in the store locations, which was the core value of the company.

When the final decision was made to become and Internet business the company faced an enormous problem. The security was not strong enough on the website and customer credit card numbers where hacked into and this became a major lawsuit against the Egghead Company. This ruined the reputation of the company to the customer and customer loyalty drastically declined.

External Opportunities for Egghead

The opportunities for Egghead were to focus on the Internet business. This would reduce the cost of staffing, maintaining store locations, cutting inventory shrinkage, and this venue would allow products to reach an enormous customer base to grow the business and increase profits. This would allow the company to set growth plans on the new business and create order and structure to the company. Egghead would also keep all future options open and anticipate needed changes on time before competition.

External Threats for Egghead

The external environment was greatly overlooked by Egghead management. External competition sold hardware and Egghead continued selling only software products. The company guaranteed and promoted knowledgeable sales staff. Yet, the company found this harder and harder to find knowledgeable sales help and had a hard time retaining the sales staff to the rapid turnover of the retail environment.

The company was not aware of customer needs. Customers wanted all-in-one shopping mega stores and Egghead continued the same business of small stores and narrow product assortment. As external competition increased in the computer product market, Egghead was not advancing as fast as competition. Clearly, Egghead had no direction for the future. Growing the Egghead business could be a dangerous risk due to the lack of management knowledge or understanding on how to grow the business.

When the company made the bold move to change the business from a brick-and-mortar business to an Internet business this could be seen as a serious risk for the company. The company had a lack of management expertise to run the business in this new venue. Yet, the company new they had to make a serious change and they accepted the risk to make the company successful.

Conclusions and Recommendations was the former Egghead software store retailer with 180 brick-and-mortar locations. Competition from the mega superstores whittled Egghead down to 80 stores. Ultimately, the retailer decided to shut them down completely and run the business via the Internet.

Egghead Software began in 184 as a retail storefront for computer software, which grew quickly to an extensive chain with nationwide stores. From the beginning there was little discipline with no vision or business strategy. filed for bankruptcy on Aug. 15, 001. acquired the remaining assets of in December 001.

So what happened? Where did the magic go? Moving the Egghead business online was a great vision. Egghead forgot to keep an eye on the most important thing, its loyal customers. There were shortcomings in customer service. Even in the brick-and-mortar world, Egghead had a reputation for turning a deaf ear to customers. There was also a time that hackers broke into Eggheads computer systems and attempted to access customer credit card information, which did damage to Egghead¡¦s reputation.

Eggheads business model of selling new, liquidated, and refurbished goods at super-low prices also fell prey to reality when advertising and co-op marketing dollars failed to materialize in a significant fashion, just as other Internet players in the same period.

The following recommendations apply

„X Continue to maintain customer focus through business transitions.

„X Ensure and maintain security measures on customer data records.

„X Build better senior management teams with long-term focus.

„X Focus on inventory management and security to prevent retail theft.

„X Keep all options open and anticipate change.

„X Focus on strategic vision.

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