Penney Wise, Penney Foolish

Penney Wise, Penney Foolish

by Mark Chussil

A venerable company is in trouble. The world is changing, competitors are changing, the company is not. A rescue is required.

A star is brought in as the new CEO. Of course the star wants to make changes. So does the Board; making changes is the whole point of bringing in the star. The star has achieved huge success previously (that’s what made the star a star). So what should the star do?

On leadership:

A) Stake out a bold, new, inspirational path.
B) Stick to tradition.

On action:

A) Move fast! There’s no time to lose.
B) Go slowly and carefully.

On decision-making:

A) Make use of what made the star a star.
B) Adopt the advice of those who got the company into trouble.

On product offerings:

A) Dazzle customers with new and improved.
B) Bore customers with same old same old.

Put it this way: We’ve got a big problem, we want to fix it now, and we won’t fix it by staying on the old path. We need change and a sense of urgency. That’s why any Board of Directors would advocate four A’s. That’s why any credible candidate for the job would promise four A’s.

That’s what Ronald B. Johnson, the star behind the Apple Stores, was brought in to do at J.C. Penney. That’s what he did for 17 months. And, on April 8, 2013, that’s what he was fired for (or despite) doing.

So, if he did what he was supposed to do, then what went wrong? Retail sales in the USA grew 5% in 2012. At J.C. Penney they fell 25%. Of course that factoid doesn’t mean his moves were misdirected; perhaps it takes more than 17 months to turn around a company high on the 2012 Fortune 500 list with over 100,000 employees and, early in 2012, over 1,100 stores. (See also Netflix Gone Vile.) Plus, renovating many stores took lots of floor space out of commission.

Some have suggested that Mr. Johnson’s mistake (if there is a mistake) is that he didn’t listen to experienced executives at Penney. Except that he too is an experienced executive, and a very successful one. Refer also to the “decision-making” bit a few paragraphs ago. (See also “Experience: Threat or Menace.”)

I’m not saying Mr. Johnson was right. Or that he was wrong, for that matter. I’m saying that he did what his board surely wanted him to do, what conventional wisdom would tell him to do, and that we ourselves would have told him to do (the four A’s). Maybe the problem is not underperforming but overexpecting. Expecting too much: maybe Penney cannot be restored to performance that peaked in a competitive environment that no longer exists. Expecting too fast: the 17 months allotted to Mr. Johnson qualifies as a demand for instant gratification.

Getting expectations right is not a new problem but it is a notoriously difficult one. People don’t want to be held to impossible goals. People’s bosses don’t want to set goals that are too easy to hit. Common methods to set goals — trends, “needs,” benchmarks, etc. — suffer from flaws too numerous and familiar to enumerate here. What those flaws have in common, though, is that they focus more on negotiation and magic numbers than on competitive reality.

I’ve run many business war games in many industries in many countries. Most of them have used custom-built strategy simulators that quantify what will happen if we do this and they do that. (The “and they do that” part is missing from common expectation-setting methods.) I’ve seen Fortune 500 companies use war games with simulations to make strategy decisions and set performance goals that everyone thought were reasonable and realistic… goals that were very different from what one side (or both) initially advocated. (See also “What If?”)

The point isn’t that my business war games or my simulators are uniquely able to achieve that feat. True, my war games and simulators are terrific, but others do terrific work too. The point also isn’t whether Penney used those techniques. (What I’ve read suggests it didn’t.)

Here’s the point: not telling the difference between underperforming and overexpecting can lead to underwhelming and overawful outcomes. Penney doesn’t have the performance it wants, Mr. Johnson has been tarred and “pundited” as a failure, employees and investors are dispirited, and customers are baffled.

Help wanted: CEO. Not allowed to change much. Must achieve miracle in less than 17 months.

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