In 2011 JC Penny was facing low to negative stock growth. The Board, obviously concerned with their organization’s lackluster performance, decided to make a change in leadership. They tapped Ron Johnson, a former Apple Inc. executive who left that company during a period of unprecedented growth. Johnson quickly identified a number of areas, which in his opinion, were the root cause of JC Penny’s poor performance. Taking decisive action he proceeded to direct systemic changes throughout their stores. At the beginning of 2013, almost a year after Johnson took the helm, JC Penny’s stock has fallen an additional 40%. There is no one reason why Penny’s stock fell so sharply, one could even make an argument about consumer spending on the whole. However, clear mistakes were made at the beginning of Johnson’s tenure that could have been avoided. I have discussed Michael Watkins book the First 90 Days in a previous blog. I couldn’t help but be reminded of his work while reading about the current state of affairs at Penny’s. In his book, Watkins outlines how leaders can make a successful transition into a new organization. Had Johnson only read the introduction he would have, perhaps, rethought some of his strategies.
One of the central principles in Watkins’ book is to create a learning plan. Watkins underlines the importance of learning the “…markets, products, technologies, systems, and structures, as well as [the] culture and politics” of an organization. At the very least Johnson failed to recognize at least two of these principles. He failed to understand the market he was catering to and he failed to understand the culture of the organization he would run.
Among his many strategies for updating Penny’s, Johnson ordered that large discounts and customer incentive plans be cut. He also eliminated the clearance racks from most Penny stores. Johnson went a step further with plans to completely overhaul the look of the stores. Arguing that customers will prefer a more boutique feel as opposed to the conventional department store floor plan.
One of the most important steps in learning about a new company is gathering information from the veterans of that organization. These people understand the history of a company, what’s worked, what hasn’t worked, and in the case of a retailer, who buy’s their products. Allen Questrom, a former Penny’s CEO, stated that ‘The customer has said she’s very much into value, and coupons and sales are very much part of her vocabulary.’ Had Johnson considered this statement he may have decided that eliminating the values that his customers have come to expect was ill advised.
Johnson also exhibited a flagrant lack of cultural awareness. Among his new hires was former apple executive Michael Kramer who became Penny’s COO. Mr. Kramer is quoted as saying ‘I hated the Penny’s culture…it was pathetic.’ Instead of attempting to understand the culture, Johnson and his cohorts attempted to bend the Penny’s culture to their will. To this end Johnson dramatically reduced the number of meetings between store managers. These meetings were seen as important by the incumbents within the organization and were historically used as a tool to discuss metrics and best practices.
Within 17 months of Johnson’s decision to ignore his customers, his employees, and his company’s history and culture, his tenure as CEO ended. J.C. Penny’s board decided to reverse their decision and reinstate their former chief executive.
I have to wonder, had Johnson been more willing to learn about Penny’s history and culture would he have had a different experience? I don’t think anyone would deny that Penny’s was in need of some fresh ideas. However, innovation was not Johnson’s problem. He simply failed to heed some fundamental principles about joining a new organization, especially as a top leader. If you are about to make a transition to a new organization I strongly recommend Dr. Watkins book. You can find a link to The First 90 Days in the space below.
“For Penney's Heralded Boss, the Shine Is Off the Apple”, Dana Mattioli, The Wall Street Journal, February 24, 2013.
The First 90 Days, Michael Watkins, http://www.amazon.com/The-First-90-Days-Strategies/dp/1591391105