Wednesday, March 23, 2016

J.C. Penney: “The Astrologer Who Tried Astronomy” [1]

J.C. Penney’s profits from the just-completed year were 37% down from its 2006 peak [2]. Ron Johnson, J.C. Penney’s previous CEO, lead the company towards its decline by instigating a series of strategic screw-ups.  It is an example of a company that lacked clear vision, effective metrics, and the ability to revolutionize strategy in an evolving environment.

Core Values and Core Purpose are intrinsic within a company. They do not waver regardless of the state of the market. A clear vision helps the company evaluate which direction it must go in the future without relinquishing its principles and reason for being. [3] J.C. Penney tried to re-position itself as a boutique; a high end retailer with a more extravagant offering. In two years, the transformation had dire effects. They were down to a fraction of their original customer base and were hindered financially. It was like “an astrologist trying to become an astronomer: it’s not only too unrealistic, it’s downright seeking a totally new identity.”[1] J.C Penney’s strategy was not guided by a defined vision, there was no forethought into who exactly are we. J.C. Penney abandoned their vision to “become the preferred shopping choice for Middle America” [4] Selling high-end merchandise to their bargain-hunting customer base was an antithetical strategy for their vision.

Financial measures and operational measures alone may not be a holistic set of metrics to determine where a company is and where it would be profitable to go. Customer perspective, business perspective, innovation factors, and financial measures are accounted for in the Balanced Scorecard Method [5]. This allows managers to gain all-inclusive insight about the company’s position. J.C. Penney ignored their customer’s perspective in two key ways before morphing into a high-end merchandiser. It did not conduct customer surveys to determine which products customers value, and at what prices. Their customers looked for coupons and sales, whereas the new business plan incorporated a steady pricing strategy [6]. Decisions were made intuitively, there was no data involved. Second, J.C. Penney ignored the fact that they were losing foot traffic due to the advent of online shopping. [1]

Finally, J.C. Penny was not prepared to change its strategy to cope with online shopping.             Online shopping created stress on retailers, resulting in decreased retail space. Foot traffic was less predictable and online sales were twice as much as the sales made in the physical J.C. Penney store. J.C. Penney’s ability to predict and shape the industry [7] changed with the introduction of online retail, and it proved to be strategically inflexible.

[1] http://www.forbes.com/sites/investor/2014/01/28/sears-and-jc-penney-bad-management-or-sign-of-the-times/#5bbc7623441a
[3] Building Your Company’s Vision (Collins and Porras, Harvard Business Review, September-October 1996)
[4] http://ir.jcpenney.com/phoenix.zhtml?c=70528&p=irol-newsArticle&ID=1975474
[5] The Balanced Scorecard—Measures That Drive Performance (Kaplan and Norton, Harvard Business Review, July 2005)
[6]http://www.forbes.com/sites/stevedenning/2013/04/09/j-c-penney-was-ron-johnsons-strategy-wrong/#671760c0283c

[7] Your Strategy Needs a Strategy (Reeves, Love, and Tillmanns, Harvard Business Review, September 2012)

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