What Were They Thinking? Avoiding Corporate Strategy Disasters

Corporate strategies will never be perfect or foolproof, but there is no reason why strategy train wrecks like the one that occurred at JCPenney need ever happen. Strategies can be dramatically improved through strategic planning process changes – including the “testing” of hunches and assumptions ahead of committing to them and gambling reputations, jobs and the very life of the business. Half-baked strategic decision making based on wishful thinking, overly ambitious ideas or incorrect assumptions can lead to disaster. Just ask Ron Johnson.

Diagnosing What Went Wrong

Want to know the key ingredients to make a strategy disaster? Look no further than JCPenney’s debacle. Ron Johnson was a CEO with a golden track record and a retail pedigree unmatched in the industry. His impressive past accomplishments at Target and then Apple (Johnson was behind the success of Apple’s retail stores) should have come as close to a guarantee of success as you can get in turning around the sinking ship that was JCPenney (JCP) in 2011.

Before the Johnson era, JCP was seen as a poor performer that was losing ground to competitors like Macy’s and Kohl’s. At least then they were still making money. Now, that has changed. JCP is no longer profitable and is still yielding market share to its competitors. Worse yet, where the company had been in a stall, they are now in an all-out tail spin and facing a very expensive turnaround with cash reserves running low.

So what went wrong?

Too Much, Too Fast

Johnson may have committed one of the cardinal sins of business turn-around strategy by risking his reputation and proclaiming “transformation” rather than incremental change. Johnson rushed in. He boldly introduced sweeping change, including new advertising, new pricing, changes in the store layouts, a new logo and new merchandise collections created by a cadre of fancy new designers.

The Forgotten Customer Base

Johnson’s pricing, marketing and merchandise strategy was introduced without doing any small-scale tests or pilots. The changes overlooked the possibility that existing customers might be accustomed to the old JCP offering and perhaps would not appreciate the new concepts being forced upon them.

The newly installed and self-absorbed management team treated customers badly. They presumed to know their customers’ appetites for change and misread the situation epically. Customers were treated like livestock and JCP attempted to feed them what they fantasized they ought to want rather than attempt to discover what they actually desired.

Johnson and team abruptly scrapped JCP’s old model of offering discounts and coupons that had been combined with heavy promotions and sales. The new model of reasonable prices all the time alienated bargain hunters and was flatly rejected by JCP’s previously loyal customer base.

No Fallback Options

Johnson’s strategy involved destroying his existing business model before his new one was put in place. This approach included implementing changes to pricing with merchandise that was already in stores rather than waiting to make the changes with brand-new merchandise. Needless to say, it didn’t fare well with JCP’s customer base who stayed away in droves as JCP’s losses mounted.

Culture, Culture… Culture

The impacts of Johnson’s tenure also wreaked havoc within the company. The JCP culture suffered significant damage during his 17 months on the job. Johnson and other executives he hired commuted to Dallas from California or New York, often by private plane. While Johnson and his new team were redesigning JCP, the company was laying off more than 1,000 workers at the very headquarters the executives commuted into each week. Many of the employees released were highly experienced and loyal professionals – ousted intentionally to bring in twelve year olds lacking a strong work ethic and possessing no retail experience. With that approach, what could go wrong?

Take-aways

Ron Johnson’s fast and furious tenure cost thousands of employees their jobs and lost JCPenney almost $1 billion last year. The biggest take-away?Bad decisions never go unpunished.

JCPenney is now damaged, perhaps beyond repair. They have lost thousands of talented employees, their customers have rebelled, their traffic declined and industry analysts are wondering whether the company might run out of cash needed to fund its overhaul.

Don’t take this as a personal attack on Ron Johnson. He is not a maniacal monster and certainly had no intention of decimating JCPenney or destroying their brand. His mistakes could have been be made by any CEO. In fact, many of the miscalculations and strategic blunders Johnson committed have been made before by other well-meaning CEOs…many times over.

Lessons to Learn

Strategies that are based on decisions and assumptions which don’t get reviewed thoroughly enough and challenged enough to “harden” the overall premise are compromised from the beginning.

We should never forget that the entire point of the strategic planning process is to devise a plan of both offensive and defensive actions intended to maintain and build an advantage over the competition through strategic and organizational innovation. That is what strategy is all about.  First, we must endeavor to understand as much as possible about our own organization’s core values, culture, structure and core competencies (the internal aspect of the business ecosystem). Our strategy development process should facilitate drawing out and analyzing this information to use to our benefit.

Strategists must also understand their organization’s core values and culture in order to avoid violating those values and risking the destruction of the company’s culture. The executive leader’s personality, traits and beliefs collectively form a signature that is stamped into the organization’s social fabric. An egalitarian leader is more likely to spawn a culture of equals that is characterized by attributes like: teamwork, innovation, open and transparent communication. Conversely, a command and control top executive that fulfills the role as a dictatorship is more likely to produce a structure of silos and fiefdoms with a corporate culture that is characterized by closed doors, secrecy and fear. The core values of the leader form and shape the organization, and the stronger the leader’s personality – the stronger the impact.

Likewise, since businesses do not operate in a vacuum, the external environment is equally as important to understand and then to integrate into our strategic thinking. A strategy that neglects to enrich customer value through intentional strategic actions, misses the point.  Such inwardly-focused strategies signal trouble down the line for the business that commits this omission.

As leaders in our organizations, we must be aware of the core essence of goodness we provide in our products and services, whom we serve as our customers and what it is that we do better than our competitors. At a minimum, for strategic planning to yield competitive advantage, it must address value creation for the customers of our business – current and future. This additional value we can offer our customer base must then be effectively communicated in our sales in marketing.

We must remember that hope is not a strategy and strategies are only as good as the assumptions and data that they are based on. We must challenge the underlying strategic assumptions as part of the planning process and avoid deluding ourselves with “happy talk”.  If the strategy isn’t tested through critical evaluation, we put much at risk. Always harness the available creativity in your organizations and channel it through a process that puts a laser beam focus on developing a multi-dimensional and holistic strategy to fuel long-range planning.

In the end, corporate strategy can be regarded as a necessary risk that we must take.  When companies get it right, they thrive.  When they swing and miss, fallout occurs and sometimes business disasters follow. Just ask Ron Johnson.

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