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In 2001, Jim Collins used Circuit City as one of his examples of a company that had made the leap from good to great. It was a good choice.

Between 1982 and 1999, Circuit City rewarded shareholders with the highest returns to investors of any company on the New York Stock Exchange. By March 2000, the stock was selling at $60 per share.

Then things changed. Times got tough. A competitor nobody had thought much about, Best Buy, starting making inroads on Circuit City's market. Between 1994 and 2004, Best Buy generated a compound return to shareholders of 28 percent to Circuit City's 8 percent.

In October, 2004 the company hired Philip Schoonover as Chief Merchandising Officer. Mr. Schoonover had been with Best Buy for nine years at that time.

After reporting losses in four of the preceding eight quarters, Circuit City promoted Schoonover to CEO, effective in March 2006. What happened next is partly chronicled in Judgment: How winning leaders make great calls by Noel Tichy and Warren Bennis.

There seems to have been a lot of talking and exercises and drawing charts. A "Teachable Point of View" was developed. "Acceleration Initiative Transformation Teams" were staffed and worked long, extra hours in their "War Room" to create 100 day, one year and three year plans.

In the meantime, there was the great bloodbath of 2007. In March, Circuit City announced that it was laying off 3400 of its higher paid store workers. They would be replaced with less expensive hires to staff the sales floor. This was covered superbly by Kris Dunn at the HR Capitalist in his post "The Talent Commodity Trap at Circuit City."

Alas, those 3400 people were generally more highly paid for a reason. They knew what they were doing. By the time the Holiday Shopping season arrived, Circuit City was singing "Baby, come back" as sales per square foot, and add-on sales like extra warranties plummeted.

So, in November, they sent out another letter. This one was not just dumb, it was insulting as well, offering "a special invitation to rejoin the Circuit City team." The idea was that those laid off people would take the letter, like a coupon, into a local store to reclaim their job, though not their original pay. Once again, Kris Dunn covered the issue insightfully and in depth.

By early 2008, the investors were restless and the Wall Street Journal was running an interview with Schoonover titled: "Can Circuit City Survive Boss's Cure?" When asked about the layoffs, Mr. Schoonover, sounding like a politician, answered: "We want engaged associates who have fun at work, bring a passion about the products, and enjoy serving customers. We've made a lot of changes in how we interact with our associates so that Circuit City could become the employer of choice." Which, of course, is exactly the opposite of what he created at Circuit City.

When asked for turnaround management tips, Mr. Schoonover offers his number one as "Listen to employees. The best strategies come from the bottom up, not the top down." Which, of course, is exactly the opposite of what he did with his headquarters-only planning system.

On September 22 of this year, the Circuit City board handed Schoonover his walking papers with the stock at a then-historic low of $1.70 (today it's trading at .57). It wasn't such a bad deal for the now ex-CEO.

CNN Money reported that Schoonover "will receive his annual base salary and the target bonus for the current fiscal year, each worth $900,000, according to documents filed with the Securities and Exchange Commission. The 48-year-old also will receive health and welfare benefit plan participation for two years, up to $50,000 in outplacement services and the acceleration of the vesting of his stock options and restricted stock awards that would have vested prior to Oct. 4, 2009."

There was some bad luck in all this. But that same bad luck affected Best Buy and that company managed to post an increase in profit while Circuit City was posting more losses. I think there are some important lessons here.

When it's turnaround time, get to work turning things around. Do not start to prepare to begin to get ready to set up a task force to develop recommendations to create a new strategy. Remember that wonderful line from Lou Gerstner early in the IBM turnaround: The last thing IBM needs right now is a vision."

Pass on the consultant Kool-Aid. I'm sure that it's good for the ego to be mentioned in a top consultant's top selling book. But it might have been better for the ego to actually succeed. It's fun to be drawing all those cool charts on easel paper. It might have been better to make a profit.

Be smart about cost-cutting. Cost cutting is always part of a turnaround. But do it like Jim Kilts did it at Gillette and go for Zero Overhead Growth. Stop digging that hole. Circuit City could have closed underperforming stores and slowed its rate of opening new stores. That would have freed up more cash than firing 3400 of the best employees.

Distrust the bubble. When you're making better than a million bucks a year, and people spend their days kissing your behind, it's easy to think you have it all figured out. You don't. None of us does.

Find a way to get your own direct sense of reality. When Schoonover was at Best Buy he spent a lot of time re-designing the store concepts. When he did visit store is was a state visit. Take donuts to the folks on the loading dock, buy coffee for the associates at a nearby shop and you'll be amazed at what you hear.

Value your people. It's easy to put people at the top of your list during your Journal interview. That's what they teach in "CEO Interviewing 101." But Schoonover clearly thought that anyone below a certain level in the company was an interchangeable part.

Successful businesses grow from people and relationships that deliver value to customers. They do not spring full-blown from the brow of the CEO, following the advice of a best-selling consultant.

Wally's Working Supervisor's Support Kit is a collection of information and tools to help working supervisors do a better job. It's based on what Wally's learned in over twenty years of supervisory skills training. Click here to check it out.

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Wally Bock has helped people learn to be great bosses for more than a quarter century. His latest book, Performance Talk: The One-on-One Part of Leadership, makes learning key leadership principles almost effortless by teaching through a story and providing lists of resources for further growth.

Click here to find out more about Wally's coaching services.

For weekly tips and resources pointers, check our Wally Bock's Three Star Leadership Letter.

Click here to find out more about having Wally speak to your company or convention.