Last week I was hearing the CEO of Circuit City Jim Marcum and executives from FTI Inc., the consultants to the company managing Chapter 7 and the restructuring process, talk about how and why Circuit City went bankrupt. The decline of Circuit City of course did not happen overnight nor was was the crash in the real estate market and the global economy the only reason behind its fall (as mentioned in their disclosures). The external events however, did accelerate the collapse of the company and make its recovery from bankruptcy almost impossible. (If CC could have raised approx $500 – $600 million in DIP, they would have made it. I believe they got very close but the tight credit market made it difficult to get the final $100 million they needed.)

What led Circuit City downhill was years of mis-management, wrong investments, lack of collaboration between different units and mis-understanding of the market. More importantly what was really surprising was that despite investing heavily into their IT infrastructure (approx $200 million anually) and having all the crucial data needed for analysis on their fingertips, the executives could not take advantage of it. Looking around, I realized that this is not unique to Circuit City at all but is a problem that many corporations face today.

So what is the right amount of investment in IT and Why do companies fail to leverage their investments?

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