There are a lot of large corporations needing to make drastic changes in order to survive in the Social Era. But drastic changes don’t work unless the changes address the root of the strategic problems causing poor performance.
Last week the media was a filled with opinions as to what caused the demise of Ron Johnson at J. C. Penny. One things was certain, J.C Penny, like many others, needed to change its strategy and obviously Ron Johnson had the wrong one.
An HBR article by Rafi Mohammed titled With Ron Johnson Out, What Should J.C. Penney Do Now? states ” J.C. Penney and its CEO Ron Johnson have parted ways. The news wasn’t terribly surprising as 2012 had been a challenging year: sales were down by $4.3B, the company lost close to $1B, and its stock price dropped by more than 50%. Despite Johnson’s and his supporters’ pleas of “give us more time,” Penney’s board finally succumbed and exhaled, “No mas.” In a “meet the new boss, same as the old boss” moment, Penney announced that its previous CEO, Myron E. Ullman III, is returning to the helm.
What led to Mr. Johnson’s downfall? Two words: over ambition. First, he tried to wean customers off of coupons and sales in favor of everyday low prices. To be clear, Johnson was offering low prices, not the lowest prices, as Walmart does. This initiative failed miserably. A lesson for all businesses is when selling commodity-like products, unless customers believe you have the lowest prices all of the time, you routinely have to offer deep discounts. This pricing strategy failure could have been anticipated by testing the concept with customers as well as learning from similar attempts to ditch discounts. Both Macy’s and American Airlines previously tried to stop discounting in favor of everyday low prices, but quickly had to retreat due to poor customer reception.
Before Choosing A New Strategy Consider These Issues
A strategy is a plan with one or more goals to be achieved using the organizations resources effectively and efficiently. However, before you can create a strategy you have to have a clear understanding of your assets. Assets are capital for use to create more capital. There two kinds of assets considered as capital. One are the tangible assets, land, buildings, inventory, IP, machines etc. and the other are the intangible assets. The intangible assets represent four elements that drive the tangible results. These include:
- Human Capital: People, Training, Skills, Talents, Culture etc
- Strategic Capital: Purpose, Products, Services, Strategy, Value, Pricing
- Structural Capital: IT, Org Design Operations, IP, Infrastructure
- Relationship Capital: Customer Relations, Marketing, Sales PR etc.
It would seem wise that before any leader chooses a strategy, especially in turbulent times, he/she ought to assess the strengths and weaknesses of the current assets, both tangible and intangible.
It is unwise to change the strategy without considering the implications change has on the assets that create the results. In the case of J.C. Penny, Ron Johnson choose a pricing strategy and forgot about the implications his decision would have on the human, structural and relationship capital. Of course those are intangible and no one pays much attention to those anyway.
The root cause of a poor decision is only thinking about a result and not what creates your results.