Running head: OL645 ARTIFACT SUMMARY
OL645 Artifact Summary
Susan H. Page
Saint Mary's University of Minnesota
Running head: OL645 ARTIFACT SUMMARY
OL645 Artifact Summary
OL 645 Organization Change and Development explored organizational systems and
effective and ineffective change management. This artifact represents research and discussion
regarding an organization that ineffectively managed change and was selected as best
representation for this course due to the in depth research and critical thinking needed to create
better solutions. Due to this failure J.C. Penney’s nearly went out of business.
The paper aligns with program learning outcome number 2 (“Saint Mary’s University,”
2015). The paper discusses how J.C. Penney’s, under the management of former C.E.O. Ron
Johnson, failed at effective change management and then made suggestions for how this could
have been better handled by utilizing systems thinking for continuous improvement. The paper
also analyzed the strategic position of the company in relation to other companies in the same
industry. By identifying the obstacles to change and creating strategies for better change
management, creative and analytical thinking were utilized.
Examining organizational failure is a useful tool for better understanding how healthy
organizational systems operate and succeed. The research regarding J.C. Penney’s contributed to
better understanding of how environment, systems failure, and poor change management can
impact the success of an organization. The learning through this study of ineffective change
management developed the basis for the student to better understand and apply systems analysis
to organizational strategy.
Running head: OL645 ARTIFACT SUMMARY
References
Saint Mary’s University of Minnesota. (2015, March). 2013-2015 catalog and student handbook,
Organizational Leadership, M.A. Retrieved fromhttp://catalog.smumn.edu
/preview_program.php?catoid=17&poid=1710&returnto=1041
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4
Organizational Systems Analysis of J.C. Penney’s
While Directed by CEO Ron Johnson
Susan Page
Saint Mary's University of Minnesota
Schools of Graduate & Professional Programs
OL645 Organizational Change and Development
Jeffrey Eng
November 6, 2014
Running head: ORGANIZATIONAL SYSTEMS ANALYSIS
5
Introduction
J.C. Penney’s is one of the oldest retail organizations in the world and was nearly put out
of business under the direction of CEO Ron Johnson from June 2011 to his departure in
November 2012. How could a one hundred eleven year old company be nearly destroyed in
seventeen short months under the direction of a new CEO and his hand-picked circle? Retailers
everywhere are struggling to identify customer needs and trends while battling back from the
recession in the past decade. J.C. Penney’s has lower sales per square foot ($150) compared to
competitors such as Macy’s ($220) and Kohls ($230), Aisner (2013), but it had a strong and
loyal customer base of middle-income families. It was tough times for J.C. Penney’s as it had a
45% drop in sales from 2003-2011, going from 32.2 billion annually to 17.8 billion, Petro
(2013), when The Board of Directors decided they needed to make a big change and bring on the
man who turned Apple around by hiring Ron Johnson. One of the most critical aspects of
change management is managing communication to all the stakeholders; customers,
stockholders, and employees. Ignoring a customer base, seasoned high level employees, market
research and either failing to communicate at all with employees and broadcasting confusing
messages to customers, seems to have been the recipe for Johnson’s near destruction of J.C.
Penney’s. This paper will examine how both the micro-organizational and macro-organizational
behavior through communication issues maximized the failure.
A Brief Background of J.C. Penney’s
J.C. Penney was founded in 1902 by James Cash Penney as a small dry-goods store in
Kemmerer, Wyoming, Encyclopedia Britannica (n.d.) and grew rapidly to thirty-four stores by
1913 as it was incorporated to J.C. Penney Stores Company. The culture of the company was
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6
defined by the ‘beliefs, values and assumptions,’ Schein (2010), of James Cash Penney who was
extremely conservative. For instance, until well into the 1950’s a person could be terminated as
an employee for using tobacco or alcohol outside of work. In 1958, he finally agreed to going
from a cash-and-carry system to store credit, but had delayed this new trend in retail store
management in order to protect his customers from accumulating too much debt, Encyclopedia
Britannica (n.d.). He expected his employees to live by ‘The Golden Rule,’ – ‘do unto others as
you would do unto you,’ Farfan (n.d.). Today the mission statement is, “Superior service is
achieved through working together while following eight guiding principles of J.C. Penney’s that
include; Associates, Integrity, Performance, Recognition, Teamwork, Quality, Innovation, and
Community,” Farfan (n.d.).
Micro-Organizational Behavior Analysis
Micro-organizational behaviors include decision making, motivation, emotions,
impressions management and group behavior, Stanford.edu (n.d.) . Ron Johnson began his
tenure by using the company jet to fly from his home in Palo Alto to the company headquarters
in Plano, Texas once a week, working short hours and staying in the Ritz Carlton in Dallas,
Bhasin (2013). Perceptions of employees and the Board of Directors were that Johnson was
spending excessive amounts of money in a time of financial crisis and that he was not committed
to the organization because he did not live near Plano. Decision making was kept to a very close
group of insiders brought in by Johnson and the company went from transparency to secrecy,
Bhasin (2013), with no regional or national sales numbers publicized as they had been under the
former CEO, Michael Ullman, and who is back as CEO again at present. “Corporate culture is
very different than it was one year ago,” stated an executive who had worked at J.C. Penney’s for
over a decade, Bhasin (2013). Emotions of employees were suspicious and fearful as layoffs
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7
were taking place under Johnson’s regime as a result of plummeting sales due to a complete
overhaul of the marketing plan. Even when downsizing or layoffs are going to happen it is
critical and ethical to have clear and compassionate and personal communication with employees
from C-level to the front line, Jones (2010). Successful implementation of change requires clear
communication, especially to the middle-managers who are closer to the front line and can see
the impact of new policies on employees and the customers, Nguyen (2001). Middle managers
were definitely not brought into the communication plan under Johnson. It seemed as though
Johnson ‘didn’t even like or respect J.C. Penney’s, Tuttle (2013).
Macro-organizational Behavior
Macro-organizational behavior includes the relationship between the organization and
their environment, the dynamics of change, and relationships with industries and markets,
Stanford.edu (n.d.). Johnson had a successful career at Apple, by bringing the product closer to
the customer with a newly designed Apple Store, Buffett (2013). Steve Jobs had a very strong
impact on the culture at Apple which was cloaked in secrecy more to do with guarding
technological innovations in order to protect market edge, but Jobs also did not believe in focus
groups. His approach to the market was to tell the customer what they needed or wanted, Buffett
(2013), and that attitude and methodology was brought with Johnson when he became CEO at
J.C. Penney’s. Johnson assumed that he could re-brand J.C. Penney’s and tell the customer what
they wanted, but in retail there is one rule that is never broken; ‘the customer is always right,’
Buffett (2013). Customers at Penney’s wanted coupons and mark-downs because they felt like
they were getting a ‘deal’ yet Johnson went to ‘everyday low prices,’ which confused the
customers who were used to coupons and receive them from all other retail stores. Johnson
eliminated some hugely popular private label brands that were favorites of Penney’s customers
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such as Gloria Vanderbilt and St. John’s Bay, and developed higher end ‘boutique’ type shops
within the store, Petro (2013). The new marketing message to customers was, “Our old products
that you loved were low-class and we are re-inventing ourselves,” Springer (2013). In effort to
seem more ‘hip,’ Johnson had employees dress so casually and wear small name tags that many
customers had trouble identifying the retail sales associates from other customers, Bhasin (2013).
Mark Cohen, former CEO of Sears Canada, Bradlees and Lazarus said, “It is not the job of
retailers to retrain the customer. It is our job to give the customer what they want,” Petro (2013).
The customer base was alienated from the Penney’s that was a tried-and-true department store
for all of their lives. It became confusing to the customer about why they would want to shop at
J.C. Penney’s because they couldn’t understand the product, the pricing strategy or the
environment of the store, Aisner (2013).
The Change Management Process at J.C. Penney’s Under Ron Johnson
Johnson ignored any of the guiding principles of good change management by ignoring
his executives, employees and customers. Without taking the time to bring in the knowledge and
talent base that already existed at Penney’s to develop ideas about new marketing campaigns and
a new identity, he developed a plan that reflected literally zero research. Johnson never had
‘buy-in’ from executives or employees because he never invited them to participate in the
process of change, Jones (2012). He destroyed a culture built on old-fashioned values due to the
high stress and fear generated by the unknown about employment tenure, store openings or even
the long-term health of the organization. “Change efforts that start locally, not enterprise wide,
that are incremental, not revolutionary, and that were championed by middle managers, not the
visionary senior executive,” Frohman (1997), are the change efforts that have an opportunity to
work. If Johnson had taken the time to get input from his executive staff and market research, he
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9
would have been able to implement some changes, slowly, and possible made the correct
choices. After Johnson was replaced with the man who was CEO prior to Johnson’s 17 month
tenure, Michael Ullman, there continues to be changes but there is a strategy and the culture and
communication levels have returned to prior times. Many retailers have made the decision in the
past decade to pull their stores out of low traffic malls, Petro (2013) and under Ullman that is
happening. Coupons and sales are back, as well as favorite brands such as Vanderbilt and St.
John’s Bay.
Not everything that Johnson did or tried to do was a bad idea or a failure. His strength
was attracting more top tier brands and talent to an organization. He rolled out a more ‘hip’
advertising campaign and put Ellen DeGeneres as the face of the advertising that was not without
controversy. An anti-gay organization called ‘One Million Mom’s’ tried to rally support of
customers to boycott Penney’s but instead it seemed to have the counter-effect of bringing more
Ellen DeGeneres supporters to the retailer, Parekh (2012). ‘Language is not a neutral medium,’
Marshak (2002), and the language of the advertising in the environment of change was critical.
One could argue for or against the decision to bring Ellen DeGeneres into the marketing
campaign as the new face of J.C. Penney’s because of the risk that came with making a
potentially dangerous decision that did not reflect the century of values of the organization.
Conclusion
As was stated repeatedly in the many articles I read about what happened to J.C. Penney
during the seventeen months that Ron Johnson was CEO; ‘it was the worst retailing disaster to
date,’ and the perfect case study of ‘what not to do in change management’ as one man almost
single handedly put a company over a century old out of business in less than two years. The
economic climate was bad and sales had dropped 45% when Johnson took over, but there was
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10
potential to rebound, as they are today under Michael Ullman, with careful change management,
excellent communication from the top down and the bottom up, and preservation of a welldefined company culture. How would Johnson have been more successful? By not trying to
reinvent a company that had a solid core customer base, by not eliminating favorite brands, by
not changing pricing strategies so that there were no more coupons, by not redesigning store
layout to promote high-end goods that priced the regular customer base out of the market, by not
ignoring his talent pool and by not enraging his employees. There is nothing wrong with change
itself, especially when the environment has changed and the only way to survive is to adapt.
Reinvesting in a redesign of the store floor space with an appreciation and respect for the
customer base and their desires and comfort level, listening to feedback and ideas from middle
managers who understand what customers want and what employees need, and understanding
that pricing strategies that involve count-down sales, coupons, and special rewards for regular or
store credit holder customers is meeting the needs of the customer and in the end meeting the
needs of the organization.
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References
Aisner, J. (2013, August 21). What went wrong at J.C. Penney? Retrieved November 2, 2014.
Bhasin, K. (2013, February 22). INSIDE JCPENNEY: Widespread Fear, Anxiety, And Distrust
Of Ron Johnson And His New Management Team. Retrieved November 2, 2014.
Bhasin, K. (2013, August 20). J.C. Penney's New CEO Is Gradually Eliminating Any Trace Of
His Predecessor. Retrieved November 2, 2014.
Buffett, M. (2013, April 18). Why Did JC Penney Stumble So Badly Under Ron Johnson? It's
Culture, Stupid. Retrieved November 6, 2014.
Farfan, B. (n.d.). Company Mission Statements - Complete List of World's Largest Retail
Missions. Retrieved November 7, 2014.
Frohman, A. L. (1997). Igniting organizational change from below: The power of personal
initiative. Organizational Dynamics, 25(3), 39-53.
Jones, G. R. (2012). Organizational theory, design, and change. Upper Saddle River,
NJ: Prentice Hall.
Marshak, R. (2002). Changing the language of change: How new contexts and concepts are
challenging the ways we think and talk about organizational change. Strategic
Change, 279-286.
Organizational Behavior. (n.d.). Retrieved November 2, 2014, from
https://www.gsb.stanford.edu/programs/phd/academic-experience/fields/organizationalbehavior
Parekh, R. (2012, February 9). JC Penney Wins By Sticking With Ellen DeGeneres | News –
Advertising Age. Retrieved November 7, 2014.
Petro, G. (2013, June 19). JC Penney -- Are You Listening? Retrieved November 2, 2014.
Quy Nguyen Huy. In Praise of Middle Managers, Harvard Business Review,
September 2001. HBS Reprint # R0108D
Schein, E. (2010). Organizational Culture and Leadership (4th ed.). San Francisco: John Wiley
& Sons.
Springer, B. (2013, June 24). What J.C. Penney can teach us about change management.
Retrieved November 2, 2014.
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The Editors of Encyclopædia Britannica. (n.d.). J.C. Penney Corporation, Inc. (American
company). Retrieved November 2, 2014.
Tuttle, B. (2013, April 9). The 5 Big Mistakes That Led to Ron Johnson’s Ouster at JC Penney
TIME.com. Retrieved November 2, 2014.