Maybe It Was Apple

By James Kwak

A little over a year ago, iconic but fading department store J.C. Penney hired Ron Johnson as CEO. Johnson was head of retail operations at Apple—which, in case you didn’t know it, is just about the most successful retailer in the world by a bevy of metrics.

According  to today’s Wall Street Journal article, Johnson quickly eliminated coupons and most sales at J.C. Penney.

“Johnson bristled when a colleague suggested that he test his new no-discounts strategy at a few stores. . . . ‘We didn’t test at Apple,’ the executive recalled Mr. Johnson . . . saying.”

Well, yeah. Apple doesn’t discount because they sell stuff that people really, really want and that they can’t get anyplace else. And they don’t test because Steve Jobs refused to. At Penney? Sales have fallen by about 30 percent.

This doesn’t mean Johnson is stupid, or that he’s going to fail as CEO. Apparently he has partially reversed his early decision, which is a good sign. But it brings up a common feature of external CEO hires. Companies in a perceived crisis often look outside for a new leader, hoping for a superman (or -woman) who can singlehandedly turn around the organization. Not completely illogically, they tend to look for people at successful companies. “Make us more like X,” they pray. In Penney’s case, X = Apple.

There are two important questions they tend not to ask, however. First, was Apple successful because of Johnson, or was he just along for the ride? Yes, he was the main man behind the Apple Store (although, according to Walter Isaacson’s book, Steve Jobs was really the genius behind everything). But was the success of the Apple Store just a consequence of the success of the iPhone?

Second, even if Johnson was a major contributor to Apple’s success, how much of his abilities are transferable to and relevant to J.C. Penney? There’s a big difference between selling the most lusted-after products on the planet and selling commodities in second-rate malls. When someone has been successful in one context, how much information does that really give you about how he will perform in a new environment?

Maybe Johnson will turn out to be a great pick; it’s just too early to tell. But the general problem is undeniable. In the rush to anoint a charismatic savior, hiring committees, search firms, and boards substitute leaps of faith for cold rational inferences, fastening on the bits and pieces of a job candidate’s resume that play to their desire for a superman and overlooking the vast amount they just don’t know (see Rakesh Khurana for more). And this is one reason why external CEO hires tend, in the aggregate, to do worse than people promoted from within, who have the benefit of years of insider knowledge and precisely relevant expertise.

28 responses to “Maybe It Was Apple

  1. Let’s call this “inexperience” and “pride”

  2. Prior to Apple, Johnson was VP of merchandising at Target, during the years when Target really made a name for itself as a premium low-cost retailer. So it’s not like he didn’t have any experience in the area.

    Of course, that was in the 90s and before the end of retail.

  3. Don’t forget the ability to manage properly, in the world of high finance and Apple, Mr Johnson is surely a Booker T waiting to happen. So all those so eager to hire him, must be like minded individuals or they would (as was mentioned) have promoted someone from within.

  4. Do you want to spend the rest of your life selling sugared water or do you want a chance to change the world? I guess in this case, Mr. Johnson preferred selling clothes to changing the world.

  5. The first Apple Store was in a shopping mall back in 2001, before the launch of the iPod or iPhone, when Apple’s most successful products were translucent iMacs and “toilet bowl lid” iBooks. Novel and successful products, but by no means world-changing.

    The early success of Apple Stores can not be attributed to selling the most lusted-after products on the planet.

  6. Another story in the same vein. Marissa Mayer has eliminated remote work (a fairly standard perk at most tech. companies) from Yahoo. The reason, as far as anyone can tell, is that remote work is discouraged at Google, from where Ms. Mayer hails. Now, of course, the difference is that Google is ascendant, and can have its pick of candidates even if it does not offer the same perks as other tech companies. Yahoo does not have that luxury. It will be interesting to see how much talent flows away from Yahoo because of this decision, and how this affects Yahoo’s (already tarnished) ability to attract the best talent in Silicon Valley.

  7. It’s way too soon to say. Go back and take a look at the early press on the Apple Stores

  8. Transferable acumen, the stuff of myths, until its not.

    Got fungiblity?

    kc

  9. oops… make that

    Got fungibility?

    … so much for my acumen.

    kc

  10. Thasswhatimtalkinabout

    Remember back in the 1980s, when Microsoft was eating IBM’s lunch? IBM was slowly (or not so slowly) going out of business. Yet if you saw the resumes of IBMers circulating on Wall Street, the company was full of brilliant guys whose careers were one shimmering success after another. IBM need only put them in charge and their touch turned that project/division/initiative into pure gold.

    I needed a veteran of Corporate America to point out the obvious: if these IBMers are so amazing, how is it that the company is taking a screaming nosedive into the crapper?

  11. Watching JCPenney’s fall from grace has been like watching a car wreck. Like others this wreck could have been avoided with more focus and less hubris. Lessons learned (?)… http://bit.ly/YJqAwR

  12. Watching JCPenney’s fall from grace has been like watching a car wreck. Like others this wreck could have been avoided with more focus and less hubris. Lessons learned (?)… http://bit.ly/YJqAwR

  13. I’m not some big business minded person – just a shopper. As many shoppers – the change at JCP wasn’t accepted because they didn’t acknowledge their customer. He did what he wanted to do without a second thought to who his customer was. The first rule of business should be to understand who your customer is and provide what they want – not try to make a big splash! Also, second rate or not I liked the old JCP.

  14. Fifty years ago and before we had a mall, my Grandmother rode the bus to our small downtown area to shop at a few department stores including JCP. JCP was the moderate priced store for the working class. You could buy anything from jeans to suits and kitchen to bedroom. I stopped shopping at JCP because I could go to Kohl’s and get the same thing less expensive. Now JCP seems to be a very clean and trendy store for teens and young adults. Not exactly the folks who have the cash to spend.

  15. One would agree that Jobs had the vision / gift to know, see, taste and feel what the consumer wanted …. Johnson could have had the know-how but apparently lacked the vision to see the future of Big Box Retail. It wouldn’t be so difficult to regain the lost 30% and increases sales by 100% yr ov yr if you had a person with vision. What is the value of this solution? It’s not as difficult as it seems.

  16. Bruce E. Woych

    https://supporters.eff.org/civicrm/mailing/view?reset=1&id=364
    Software Patents and the Rise of Patent Trolls

    In most issues of EFFector, we give an overview of all the work we’re doing at EFF right now. In light of this week’s announcement of the SHIELD Act, we’re doing a deep dive into a single issue: Software Patents and the Rise of Patent Trolls.

  17. Crisis mode in disguise:
    http://www.zerohedge.com/news/2013-02-25/guest-post-coming-water-wars
    and
    http://www.usbr.gov/uc/water/crsp/cs/gcd.html

    Use facebook to see photo’s of yesterdays, and then today’s level, of the lake. This has Japanese surprise style disaster written all over it , and can’t end well.

  18. The problem Johnson made was he came into a business that has no relevance to technology and tried to market it the same. He eliminated what JC Penny house brand, St Johns Bay, which customers were devoted to. He tried to make Penny’s like every other Maceys, Kohls, or other deparment store. He came into the game narrow minded and without consideration to the core customer and what made Penny’s a unique shopping place, a strong private label and a marketing strategy that attracted customers. Sure it needed some tweaking, but it did not need a complete overhaul and remake.

  19. Well, Apple does do discount, and they do it in a big way. They just do it differently than other retailers. Apple quietly sells a ton of product through their online Refurb store, at prices 10-40% off their original list.

    http://store.apple.com/us/browse/home/specialdeals

    Most people think refurbs are returns, and to some degree that can be true at Apple. But their refurb/discount strategy revolves around selling one or two generation back merchandise (often new or b-stock, and not returned goods). Newly manufactured, but older generation products may be built with legacy components — components that were purchased with huge volume discounts during mass production heights, or are now purchased when much less expensive than their state-of-the-art contemporaries.

    So Apple’s margin selling “discounted” products 10-40% off, built with components purchased at a 20-50% cheaper price due to their age, can actually be greater than selling new merchandise. People have even accused Apple of using its online Refurb store to continue to manufacture and sell older product (masquerading as “refurb”) at a discount as part of its retail strategy that doesn’t replicate other retailers’ “Sales.” Think Different, Sell different…

    I’ve made a living for a decade following Apple Refurb/Clearance Store deals, and purchasing generation-old — but still entirely functional and heavily discounted — computers and reselling them into the local small business and nonprofit markets, along with installation, setup, training and support.

  20. I think many people are missing something here. Johnson, whether JCP’s sales suffered or not, did the right thing. Coupons and discounts are ‘noise’ – you can’t get a real idea of what your business is doing. Johnson realized an essential fact of retail, and that is you have to know who your customers are and what they are willing to pay.
    Sure, you can keep going down the same road and tweak here and there, but Johnson realizes transformational change has to occur from a baseline level. By removing the impediments holding back his business, he recognized he would take a short-term hit and be able to restructure in a fashion which takes advantage of his company’s strengths.

    I work in pricing and inventory, and I fight this battle day in and day out. Salespeople love to negotiate prices, and they love giving “added value” in my business. The idea that you can discount your way to prosperity has limits. I continually argue about the power of information, and giving away inventory for free, or at irregular and confusing discounts, makes pricing opaque, which hampers inventory management.

    Johnson, and JCP, learned quite a bit from this experiment, I’m sure. Yes, sales fell, but it’s possible to rebuild sales in retail. Customers are loyal only to 3 things: Quality, Price, Ease of Use. When you determine what their main drivers are, you can then structure your business to cater to those needs and improve sales and profits accordingly.

  21. Yea, you can only duck certain issues for so long, and then it’s curtains.

  22. “When someone has been successful in one context, how much information does that really give you about how he will perform in a new environment?”

    A very good and always pertinent question.

    The answer is absolutely nothing.

    Just as with successful products and services, where the company responsible for them very often fails to understand the true reason behind the success of the product or service, successful people tend to get it wrong too. See actor-observer bias.

    Where things really get messy is when the success is large enough to attract the attention of the national media. Of course, the media also usually gets it wrong, and either exaggerates, or incorrectly attributes the success to somebody or something that didn’t actually contribute. This is the point at which “perception” becomes “reality” and also represents the point at which the ego of the person given the credit becomes inflated beyond all recognition.

    So when you hire a “successful” person, they tend to come with a lot of baggage, namely hubris, that can contribute to epic lapses in judgement.

    At any large organization, inevitably rife with politics and shifting alliances that can arbitrarily distribute credit for success or blame for failure, there is absolutely no way to know who is actually any good.

  23. Bruce E. Woych

  24. Bruce E. Woych

    http://open.salon.com/blog/stuartbramhall/2013/03/02/the_corporate_takeover_of_higher_education
    MARCH 2, 2013 6:26PM
    The Corporate Takeover of Higher Education
    This is Part I of a two part guest post by Dr Danny Weil. It’s a repost of an article Cornell University to Offer the “Hypodermic Needle Theory” of Education in an Attempt to Colonize Consciousness and Groom Future Elites originally published at Daily Censored

    Understanding history: The Powell Memo and the Growth of the Reactionary Right

    By Dr Danny Weil

    In order to understand how America’s ruling elites are bivouacking at elite universities with the aim of taking them over and assuring ideology replaces education, it is necessary to understand the historical development of the current colonization of consciousness.”

    http://open.salon.com/blog/stuartbramhall/2013/03/02/the_corporate_takeover_of_higher_education

  25. Anonyomouse

    I believe the ideology replacing education is a well establish concept that can never get it’s roots deep enough. It has many unforeseen flaws though, one being faith in money as a god. And the second painfully one, and always overlooked, is if you are a straight A student, you think too much.

  26. Classic Si Valley rule-of-thumber. All of the wildly lucky folks who come from the spectacularly successful tech companies think that whatever their “Company X” did must be right. I’ve seen it before. Though most of these folks are smart, they come to believe they are WAY smarter, insightful, and wise than other people especially if those people are from outside the tech industry. The bottom line is that they don’t know what they don’t know.

  27. Great post! A third question to ask would be does the previous company’s culture match well with yours. If the executive is coming from a company with a drastically different culture, then he/she many have a difficult time assimilating to the new company. Granted, you may bring that exec over hoping they will bring forth cultural change in your organization, but radical changes rarely work. It is better to have someone tweak and improve what you have already established, than change your company’s identity completely.

  28. Kangkang Huang

    Johnson should be credited for his work in Apple as Apple did not have any advantages when it entered the market. There was Sony and other brands that dominated the market at time. I guess JC Penny hired Johnson because he also had experience in Target, which is more similar to the JC Penny business style. Actually I think that Johnson’s Apple experience may negatively affect his decision-making thinking in JC Penny, because his successful experiences may constrain him from thinking outside of the box.

    Kang Kang Huang
    Tulane Student