The media news lit up last month with the ouster of the much heralded Ron Johnson as CEO of JC Penney. After 17 months at the helm, share value plummeted by 50% and sales slid 25%. What happened? How could this outstanding merchant and retailing innovator fail so completely, leaving the company in crisis rather than on the path to renewal. There are lessons to be learned here for the CEO’s charged with turning around underperforming middle market companies and the boards they answer to.
Lesson #1 – Industry expertise counts but experience is critical.
Ron Johnson while a retail merchant and co-creator of the extraordinarily successful Apple stores, had never been a CEO. His experience was in high growth environments, certainly not turnarounds. He had no experience with issues of cash flow. The Apple stores had unlimited funding. Quite the contrary for JC Penney. With unequivocal board support and a complete lack of oversight by the board, Johnson burned through $1.0 billion in cash while sales dropped nearly $4.0 billion in 2012. He further planned to spend an additional $1.0 billion in Q1 2013 without even recognizing that he had no cash available to do so. In a turnaround situation, an experienced CEO knows that the first priority is to build and preserve cash and to minimally bring the company to cash break-even before embarking on a growth plan. Johnson’s lack of experience in cash-strapped situations is an example of a mistake that companies make in selecting a CEO. They are so impressed by the candidate’s achievements that they fail to consider the mindset and assumptions they are used to working under—and how compatible these are with the situation they will be walking into.
Lesson #2 – The first 100 days are the Game Changer.
A new CEO entering a troubled situation must spend the first 100 days learning the company’s operations, culture, meeting with employees, suppliers and, yes, even customers. For a retailer; store and distribution center visits are crucial. There is no other way to determine, identify and define the company’s issues and obstacles. The new CEO must do this with confidence but without attitude or ego. From here and only from this perspective can the CEO develop a viable turnaround plan, present it to the board for approval, and communicate it carefully to all of the company’s constituents including investors, employees, suppliers and, yes, customers.
What did Ron Johnson do in his first 100 days? In the first month, he held a press conference in New York describing his growth plan for JC Penney. He revealed the new JCP logo and launched the new marketing campaign with Ellen DeGeneres and ended the sales and coupon discounts for JC Penney customers. He then instituted a first round of layoffs, terminating more than 17,000 people including much of the senior management team at corporate headquarters. He brought in his own team, many from Apple.
Johnson never communicated to the organization. He never visited the stores. He only spoke to the suppliers he wanted to develop and promote. He cared little for the culture or the history of this 100+-year-old company. In short, he began his first 100 days with a public relations campaign to promote himself and his pre-determined plan for JC Penney. He failed to do what a turnaround CEO should do: construct and communicate a narrative that stresses the urgency of action while setting the change program in context of the company’s history and strengths. He began executing against that plan without concern for cash or the market realities about to descend on him. He was doomed to fail as a result of those first 100 days. And where was the board? Had they, too, fallen victim to PR and wishful thinking?
In the second part of this article, I will discuss another key lesson: not underestimating the competition.
Helen’s career has focused on developing and executing strategies for business development and growth for leading retail and consumer companies. Learn more or contact Helen on her Newport partner page.
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