It's been interesting to follow the rise and fall of former Apple retailing executive Ron Johnson during his less-than-two-year stint as CEO at long-struggling retailer JC Penney. Johnson was often cited as the genius behind the generally outstanding Apple stores, but his approach didn't translate well into trying to fix a dying company… and he was fired this week (with a shockingly small severance package).
What went wrong? From a “Lean” perspective, some of the contributing factors might have been Johnson not understanding his JCP customers and a lack of “PDSA” when rolling out his “fixes.”
An article in yesterday's USA Today pointed out some of the problems, including moving too quickly away from the pricing and merchandising strategies (including lots of sales, coupons, and clearance specials). Granted, JCP wasn't exactly thriving, but Johnson's quick changes basically alienated existing customers without bringing in any new ones.
Apple rarely runs sales… they don't have to. From the article:
Johnson's decision on everyday pricing was misguided, critics say.
“This was one large test that failed and we all learned something in retail we already knew, that the consumer is ultimately in control of this process and you can't disregard her,” says Ellis Verdi, president of ad agency Devito/Verdi. “He took away the control. The consumer wants that control, to know they're getting a great deal.”
I can't find the exact words in the online version, but this appeared in the print version:
“New strategies must be tested first.”
That's the spirit of the “Deming Cycle” or Plan-Do-Study-Adjust (PDSA, aka PDCA). When we're problem solving, we have to first properly understand the problem and the root cause(s), then do small tests of change.
We often do small tests, or “pilots,” in a limited area to make sure a “mistake” or “failure” doesn't doom the entire organization. It limits our risk.
ThedaCare has used this strategy well in healthcare. They didn't immediately move all of the units in their hospitals to their innovative “collaborative care” model. They started small and then spread the idea after it was proven to work (by improving patient care, reducing length of stay, and reducing cost in measurable ways).
Current CEO Dean Gruner describes how their experiment with Accountable Care Organizations (ACOs) was a limited test (listen to my podcast with him). They didn't start by putting 100% of health system revenue under the unproven ACO reimbursement model.
When an organization wants to start a “Kaizen” approach to improvement, I always recommend starting small rather than trying to roll it out everywhere at once in a big splash. Many of our KaiNexus customers do the same thing – doing pilots and proving ROI in a small area first.
From a “Lean Startup” perspective, Johnson arguably didn't follow the “Build-Measure-Learn” loop for testing change.
JC Penney went “full steam ahead without seeing if it could work.”
I agree with the commentator who says “You can try really big innovative ideas without taking an entire enterprise with you.” This is why McDonald's and other companies introduce and test new products in limited areas to see how customers respond before rolling them out nationally.
Bruce adds, “[Johnson] just thought his ideas were right.”
If you think (or KNOW) your ideas are right, you don't go through a full PDSA cycle. You Plan and Do or you just Do (which is often a “Do Do cycle”).
One thing Johnson wanted to do was create mini brand boutiques in the store – changing the layout. That seems like exactly the type of thing you COULD test in some locations. The pricing would have been more difficult, since JC Penney relies on a lot of national advertising and it would be hard or impossible to NOT run sales in some locations. He thought he was right. But what was right for Apple wasn't right for JC Penney.
Johnson was probably the wrong guy for the job, given some of these accusations that compared him to Marie Antoinette:
“Ron had a Marie Antoinette-ish approach to the customers,” Ellwood said. “He always seemed slightly embarrassed that he was dealing in middle market product.”
Like the “let them eat cake” French queen, Apple store prodigy Johnson could not relate to the people he was representing. Middle Americans were frustrated and confused when JCPenney stopped discounting merchandise.
Although Johnson later backtracked on this philosophy, the damage was done.
Johnson also reportedly didn't wear JCPenney merchandise unless he had to, and supposedly kept a closet full of the retailer's clothing in the office for emergency TV appearances.
To be successful in business, you can't be embarrassed by your product. You have to “eat your own dog food” (or, more appetizingly, “eat your own cooking.”) Johnson seemed to know what his customers should want… and he was wrong. He backtracked (Study and Adjust) after sales (revenue) dropped 25% in the first year.
Oops.
Johnson adjusted, but it was too late.
That's the risk that comes with big bets. You often lose big.
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Johnson should have read this blog post from Paul Levy:
“All change begins with one small test”
One of my graduate-level econ professors was a big fan of discussing trade and demand issues in terms of the classic “guns vs. butter” argument. So here’s a twist on that, and another perspective on a possible root cause underlying this massive leadership failure: can an executive who successfully runs a butter factory run a guns manufacturer just as well? Or vice versa?
Certain world-class executives are indeed able to transfer their leadership skills and approach from company to company or even industry to industry. But before bringing aboard a new leader at this level the Board of Directors of the hiring organization must clearly and carefully assess that individual’s fit from the standpoint of business culture and systems.
The Apple way of doing things – execution – had been finely and precisely tuned over many years and had evolved into a systemic set of practices that worked very well for Apple. Apple executives succeed in the Apple culture because Apple-heads think the same way, communicate the same way, and clearly understand what they can and cannot expect from each other. Johnson understood the capabilities of the business process built into the Apple system, and in fact, had brought some new seed to Apple from his days at Target. And because the culture at Apple had been eager and receptive, he was able to build Apple’s retail operation into the success it is today.
Many CEOs with whom I’ve worked over the years once thought that they could begin their own company’s Lean initiatives by simply hiring an experienced Toyota (or DHR, UTC, PNR, etc. executive). But they often failed to reflect how much of that individual’s former success had been the result of a finely-developed continuous improvement system and culture, and not solely because of that person’s individual Lean transformation and technical skills. In a sustaining Lean organization the culture and business system are the fertile soil which support the continuing growth, profitability and improvement. But JCP had no fertile soil to speak of.
So when the JCP Board plucked Johnson out of Apple’s environment and plunked him into one which had not developed an infrastructure ready to support and thrive on his transformative ideas, he failed. His leadership initiatives simply evaporated like the occasional rain drops falling onto hot macadam running through the Mojave Desert. Even Monsanto’s best hybrid seed can’t possibly thrive if cast upon the rocks.
Oh, and so who’s the Board going to hire as Johnson’s replacement? Yep, the guy who previously had the job. And apparently his big idea is to go back to deep-discount sales and special coupons. Now there’s leading-edge stuff for you. The more things change…
Adam Zak, the Lean Executive Recruiter
Ron Johnson brought in a so-called “Chief Talent Officer” whose job it was to lay off people. What an Orwellian job title.
LINK from WSJ
Didn’t have the resources to fire people individually? Yikes.
Before Johnson, “Annual sales had hovered around $17.5 billion for three years, and operations were generating cash.”
“A year later, the firm was in crisis. Sales had plunged to $13 billion. Operations were consuming cash that analysts warned could run out in a year. And the stock had fallen by half.”
[…] the previous CEO of JC Penney, Ron Johnson, was fired (see my post “Lack of PDSA made JCP CEO SOL?“), it seems that new CEO Marvin Ellison might be taking a different […]