Why Transformations Are Tough and What the Lessons Are for CEOs
June 6 2012 by JP Donlon
“Former Apple executive and current JCPenney chief Ron Johnson is getting a taste of what it’s like to run a retail operation without world beating products, and so far it isn’t pretty,” reports The Wall Street Journal. Penney’s shares have taken a beating and investors have recoiled in horror over the recent $163 million loss which is twice what analysts have predicted.
The truth is that turnarounds are hard particularly when they involve companies that have been around 100 or more years with a lot of history and cultural barnacles to prove it. Anyone expecting the former head of Apple’s retail unit to turn the Queen Mary around like it was a Sea-Doo needs to get a grip.
Luckily for Johnson and others like him that are wrestling with similar struggles, a recently published tome, “The Transformative CEO: Impact lessons from industry game changers, ” has several elements of helpful advice from CEOs who have walked in Johnson’s shoes. The book is written by Jeffrey Fox and Robert Reiss who have culled ideas and insights from CEOs who have been on the front lines.
For example, in the chapter devoted to “how to turnaround a company,” there is this from former Campbell Soup CEO Doug Conant who stepped into a situation that was arguably worse than the predicament Johnson now finds himself in.
“There are two primary groups that need to be focused on in the turnaround of a consumer products company,” observes Conant. “The consumers of the company’s products and the employees. The prior management, under enormous cost and earnings pressure, had compromised some of the products by cutting back on key ingredients while actually raising prices. Not surprisingly sales began to slip. As sales slipped advertising and promotion budgets were cut back to meet short term earnings goals.
Conant goes on to highlight the disaster that inevitably followed. “The first thing I did was talk frankly and honestly with all the stakeholders. We then put in a three year Transformation Plan to make the company competitive again—getting the leadership in place, establishing the right standards and disciplines, improving product quality, restoring the advertising and promotion budgets to competitive levels, and improving the work life of our employees.”
No doubt Johnson has started along similar lines. He’s faced with the dilemma that the Penney customer has been trained to buy on sale and only with coupons. But Johnson can also take comfort from another turnaround pro who is quoted at length by Fox and Reiss. Lynn Tilton, who leads Patriarch Partners, an $8 billion private firm built almost entirely on difficult turnarounds—MD Helicopters as prime example—says “I have learned through my failures and the failures of those around me. The most important thing is the talent of the management team and the momentum they create to rise from the abyss.”
“Every business strategy starts with the customers. The closer you can get to the customers the better your business will perform, because you will understand how the customers think and what they truly want and need.”
The Journal reports that JCPenney can point to positive developments. It has met or exceeded most of its operational efficiencies and more customers are buying at full price. Johnson revealed that the transformation may take as long as four years to complete. Whether or not he and his team have that long he can take consolation that many others before him have had it just as tough—but managed to succeed in the end.