Three Lessons From JC Penney’s President’s Departure

Applying the lessons learned from a large company to a small company can be a recipe for disaster, but I think there are three CRITICAL lessons that every owner, leader or service professional can take away from JC Penney’s announcement this week.

Now, if you haven’t been following the story, JC Penney brought in the head of Apple’s retail store division, Ron Johnson, last year, as CEO, to help turnaround JC Penney. As part of that transition, Ron, brought in one of the key executives from one of JC Penney’s competitors, Target, Michael Francis (their top marketing guy for ten years), to be the President and to head up the turnaround effort at JC Penney.

Unfortunately, just eight months after accepting the job, Francis was shown the door two days ago (announced 6/19/12) and the shares of JC Penney plummeted to their lowest level in the past 21 months. So, what can we learn from that?

Lesson #1: Don’t Assume You Know Your Customers

Or assume you know better than they do themselves. Just because you or I believe something to be true, doesn’t mean it’s true. And just because we’ve had experiences with customers in the past doesn’t mean we know our current customers.

One of the bold strategic moves that JC Penney made this year was that they decided to do away with couponing and instead to go with the Walmart “everyday low prices” strategy. Now, there are a number of problems with the Walmart strategy, the number one being that competing on price is a losing battle. But the more fundamental problem for JC Penney was that their company had built a culture around couponing.

Now, I’m not a huge fan of couponing because it tends to create a culture always looking for a price reduction (even worse, “If I don’t have a coupon, I won’t buy”). Nonetheless, that was JC Penney’s culture. The people who have been their mainstay for the longest time have been people who liked cutting out coupons. In essence, they’re the people who like feeling like they’re getting a deal.

So, when the executive team at JC Penney decided to cut out couponing, they enraged their core customers and many stopped shopping at JC Penney simply because they couldn’t find any coupons. Now, I don’t have any access to JC Penney executives, but I feel reasonably confident in my guesstimate that most of the executive team weren’t or aren’t coupon people (million dollar salaries tend to do that to you :-).

But here’s the problem. Whenever you or I allow our personal experiences and perspectives to be projected onto our customers, we’re always in danger of making a mistake. In the case of JC Penney, they completely misread their customer’s desires—even though their executive team was manned by two of our country’s top experts in retail.

So, how about you? Where have you misread your customers? How have you allowed your perspectives to color how you think your customers or clients think? And what are you going to do to change that? Ultimately, the only way to really know your customers is to … talk with them. Don’t make assumptions. Ask them. You just might be surprised at what they have to say!

Lesson #2: Be Careful When Hiring From Big “Successful” Companies 

Just because someone has been successful at one company, doesn’t mean they’ll be successful at another. In the case of Ron Johnson, Ron was at Apple selling a high-end product that, “Everyone has to have.” Apple doesn’t have discounts. It’s not their culture. In fact, I’m an Apple fan so I’m getting ready to plunk down over $2K for the new MacBook Pro with Retina Display. My brother just bought his 15 inch PC laptop for $300 and can’t figure out why I would ever pay so much for a computer (i.e. being successful at Apple is no guarantee of success at JC Penney).

A similar experience happens in small companies all the time. In doesn’t matter what the industry, when the owner or CEO wants to find some top-level person to come in and help them grow their business, the siren song of “Hire someone from a large company” starts playing in their ear. And rarely does that hire from that big “successful” company turn out to be a good hire. Why? For a whole slew of reasons

But the most important is a culture mismatch. For example, in a large global company you have layers and layers of bureaucracy. In a small company, you don’t. In a large company, each employee has a clearly defined job description. In a small company, everyone does a little bit of everything. In a large company, most executives have lots of administrative support. In a small company, you rarely do.

So, here’s what I’d recommend. First of all, look for someone at the next stage of development. For example, if you have 10 employees, look for someone who’s been at a company with 25-50 employees (not 100 or 250 or, for goodness sake, 10,000). Note: This is a huge issue with non-profits. And secondly, look for culture match. For example, if they’re from a top down command and control business and you’re a team-oriented business, never hire the former. Or if you’re in the couponing business, don’t hire someone from Apple 🙂

Lesson #3: Be Clear on Who You Are and Where You’re Going

Besides irritating their core customers, one of the reasons the new JC Penny’s strategy has failed so far is that we, the general public, have no idea what JC Penney wants to be—or even who they are. For example, if you were to take out a piece of paper and write out who you think JC Penney is and who they want to be, could you? Probably not! And that’s a big problem.

JC Penney isn’t Walmart. Nor are they Target. Or Macys. Or Amazon. Or Nordstroms. Or any other large retailer. But exactly who are they? And how are they any different? And why should you or I choose to go to JC Penney over any other vendor in their market space? These are critical questions that clearly haven’t been sufficiently communicated to you and me and the rest of the hoi polloi. And the result has been that their stock price is at its lowest level in 21 months (and we’re supposed to be out of the recession).

That said, the more important question is, how are you and your business doing at this? Are you clear on who you are and where you’re going? Do your potential customers know that? Do they know why they should buy from you and not someone else? And how do you know your answers are accurate (remember lesson #1)?

So, if you want to avoid the mistakes JC Penney has made over the past year, make sure you don’t make any assumptions about your customers (i.e. talk with them), don’t hire someone from a big “successful” company and assume they’ll make your business a big success simply because they had an experience at a larger company, and finally, make sure you’re clear on who you are and where you’re going (and make sure your potential customers know that).

If you’ll make those three choices well, you’ll be way ahead of most companies on the growth curve!

To your accelerated success!

P.S. By the way, be on the lookout this fall for a new course I’m currently working on to help you clearly define your competitive advantages so you can be the obvious choice in your market.

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