A Future B-School Case Study

2014-04-18 02.08.47As evidenced by several articles in leading business publications of late, new CEO Ron Johnson, formerly of Apple, is having quite the impact at J.C. Penney. In fact, it’s the stuff that B-school case studies are made of – although clearly not the type of impact that Johnson sought to have. It’s hard to imagine how he could do worse.

Johnson clearly understands the importance of changing organizational culture in accordance with strategy, but it seems he’s making a huge mistake in implementation – assuming that what worked in the relatively new high tech sector (at Apple) will automatically translate to the 111-year old retail culture at J.C. Penney. New economy versus bricks and mortar. Silicon Valley versus Plano, Texas. I-phones versus retail clothing. Could you come up with more different organizational cultures? Worse, Johnson’s team seems to be showing little respect for the existing Penney employees – and traditions that have allowed the company to survive for more than 100 years – as they attempt to create a “new” J.C. Penney.

As Dana Mattioli reported in the Wall Street Journal this week, Johnson’s COO, Michael Kramer (from Apple) noted “I hated the J.C. Penney culture. It was pathetic.” How are employees expected to react to disparaging comments like these from their COO? Such comments can’t be taken back, but instead fester and create anger and fear – further damaging the culture and serving to degrade performance even further. Meanwhile, following layoffs of fully one-third of HQ staff, secret innovation teams were established to collect information not only from external companies (competitors) but also from internal departments – without explaining to fellow employees “why” they were seeking information. Secret teams operating internally? Not exactly the way to go about building trust in the workforce.

At the same time, Johnson seems committed to lauding the successes of Apple while running roughshod over the J.C. Penney organization. As Mattioli reports, he has refused to listen to suggestions to test new ideas before implementation – and he eliminated a large number of annual discounts despite the fact that before his arrival nearly 75% of items at J.C. Penney were sold at price reductions of at least 50%. He also advocated reducing frequent email contacts to customers – because Apple made few such contacts. But J.C. Penney isn’t Apple.

And now, in the face of abysmal operating results, Johnson seems to be changing course and reverting to prior policies in action – but not in words. As Mattioli notes, Johnson won’t refer to a reduced price as a sale, but rather as an “in season markdown” or “a new lower price.” And in referring to the new mode of operation, he notes “It’s more like the old J.C. Penney, but it’s not.” Confusing? That’s not exactly the kind of clarity that’s going to help align employees. It sounds more like denial.

Johnson’s “I know better” approach to implementing change, coupled with his refusal to listen to others at the company, has proven incredibly costly. Sales at J.C. Penney are down sharply, the company’s credit rating has been downgraded by S&P to CCC+, and the stock price is now down to $15 from about $38 two years ago.

Bringing new ideas in from other companies can – and should – be a great source of positive change. But no one should assume that it’s easy, or that such change can be “forced” through overnight. The challenge lies in implementing those ideas in a respectful manner that draws support from existing employees rather than alienating them. Listening, building trust, soliciting ideas, and being open to change are critical to creating a winning organizational culture, especially for a CEO who has only spent six months thinking about how to remake a 111-year old company.

Even if Mr. Johnson’s vision for the new J.C. Penney somehow succeeds in a few years, his implementation effort to date has been more of a case study on how not to drive change in an organization.

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