In This Issue:
Penney's Isn't Apple: Executives Can Easily Misunderstand Reasons for Success
When companies achieve unusually impressive results, their executives are often recruited away by other firms aspiring to replicate the apparent magic. These executives are thought to be capable of producing spectacular results, much like what occurred at their previous companies. They bring in approaches that seemed to work wonders before, and everyone has high expectations regarding the outcomes.
But, in many cases, disappointment soon sets in. The transformation the new executive was supposed to bring seems elusive. In fact, instead of improving as anticipated, the company's performance may actually become much worse.
Why does this happen?
Although executives from spectacularly successful companies have a great deal to offer their new employers, reasons for the prior success may not be obvious. Despite experiencing tremendous success, these executives may not fully grasp what it was that actually led to such stellar results. Thus, when importing practices from the prior company, executives can be quite vulnerable to misapplying what was thought to work.
Yet, steps can be taken to avoid adverse results from the vulnerability. This requires giving some good, hard thought to why the previous company did so well and how that company differs from the new one. It entails assessing not only what can be successfully transplanted to the new environment, but also why and how.
Penney's Isn't Apple
The turnaround attempt at Penney's is a classic example of challenges encountered after recruiting a top executive from a highly successful firm. Ron Johnson, former head of the spectacularly successful Apple Stores, was recruited to remake and revitalize Penney's, presumably by bringing in some of what worked so wonderfully at Apple. But, the early results have been disappointing, with Penney's sales plummeting since Johnson took over. A major reason for the dismal performance: Penney's made moves that might have been highly appropriate for Apple, but did not fit Penney's at all.
After researching business success and failure patterns for 25+ years, I find that Apple's spectacular performance follows those success patterns. If the attempt to bring Apple-like magic to Penney's is to succeed, it must also follow those success patterns. Yet, it is unclear whether Penney's management fully grasps how these patterns drove Apple's success and how those patterns apply at Penney's.
For example, under Ron Johnson's leadership, Penney's replaced all its coupons and sales with everyday low prices, which essentially meant raising its prices. Not a good move for Penney's, this pricing change seems like something suited for Apple, where unique, cutting edge products appeal to a more affluent market that pays a premium. In contrast, shoppers at Penney's resist higher prices and expect discounts and coupons, especially at a time when many of these consumers are still hurting from the Great Recession. So, Penney's sales went way down after the pricing change.
Furthermore, according to a recent Wall Street Journal article on February 24, Ron Johnson brought Apple's market research aversion to Penney's. Former Apple CEO the late Steve Jobs believed that consumers do not know what they want, and Apple avoided market research. Under Johnson, Penney's adopted Apple's market research philosophy.
For example, the Wall Street Journal reported that Johnson decided Penney's should offer more all cotton shirts, rather than cotton-polyester blends. Taking an Apple approach, this decision was not based on market research, but instead reflected Johnson's preferences. But, those cotton shirts were not a success for Penney's, whose customers prefer the cotton-polyester blend. And, as a result of Penney's missteps, its board has encouraged Johnson to do more market testing, according to the Wall Street Journal article, rather than adhering to the Apple way.
Apple's Testing Philosophy Followed Success Patterns
Just like for premium pricing, however, there are vast differences between what market testing is suitable for Apple versus what will work at Penney's. My 25+ years researching business success and failure patterns offers insights about these differences. In fact, I find that, for Apple, not doing market research actually does fit the patterns of business success.
According to my findings, many entrepreneurial successes do no market research, yet have thrived by offering what they--or someone close to them, like their children--would want. This is a success pattern when the market has enough similarities with whoever is determining what customers might want. Thus, it worked well for Apple, but not for Penney's shirt fabric decision. Steve Jobs and his team at Apple probably had similar wants regarding iPhones, iPods, etc. as do Apple's customers. In contrast, when the CEO of a major corporation like Penney's prefers cotton shirts, that preference may reflect the upscale tastes typical of executives. Those upscale tastes are not what sells to the mass market, often budget constrained consumers who shop at Penney's.
But, Johnson has expressed interest in attracting more affluent consumers to Penney's. So, like at Apple, key staffers at Penney's may be representative of the tastes of the market Penney's aspires to attract, making testing less crucial. However, Penney's seems to be missing a transition strategy for shifting to a more affluent market. Despite serving affluent markets in his Apple days, Johnson may not grasp what it takes to make the kind of major market shift he apparently plans for Penney's. As a result, things can go less smoothly, as they have at Penney's, where the early turnaround moves have been too Apple-like.
Nonetheless, Penney's future direction remains to be seen. Penney's already shows signs of moving away from being over-Appled. For example, just the other day, I saw an insert in our local paper promoting Penney's $5 tee shirts and clearance sales. This is a move toward the lower prices that appeal to Penney's shoppers. And, for Penney's, it entails less radical change , which generally is more successful for companies.
Since Johnson advocates a longer term view, it is possible he will strive to create something that fits Penney's, yet is unique and can command higher prices. This may tie in with plans for a superior in-store experience and could possibly entail developing something cutting edge that consumers do not yet know they want. I don't have a grasp of what that might be. But, if Penney's does have cutting edge concepts, then the Apple approach of eschewing traditional market testing may be very effective--but, only if done properly. It would be a shame for a cutting edge concept with consumer appeal to be killed merely because focus group participants do not yet know they want it.
In conclusion, just as Apple has done, Penney's must follow the patterns of business success. And, it is essential to pay attention to how those patterns apply at Penney's, not merely to repeat what worked for Apple. Getting a grasp on the patterns of business success equips companies to make "Winning Moves" and to thrive.
La Grange Park, IL