J.C. Penney Change Management Strategy
Introduction
Modern day fast-paced organizations are such that change is ever-present. From new technologies, changing market demands and internal need for growth among other factors, many organizations are in a constant state of change. However, the failure rate of many change initiatives in organizations is alarmingly high, which could prove detrimental to the organization since change initiatives cost money, financial resources and utilize both physical and human capital. J.C. Penney (JCP) is perhaps a perfect illustration of the nature of change and the cost of failure. JCP operates in department store and supermarket business environment, which is characterized by fast movements, not least because of the stern competition, but also because of the changes in products, consumer tastes, customer loyalty and the fact that most players in the industry sale largely undifferentiated products. While the company is easily one of the largest and oldest players in the US retail industry, it has over the past decade, struggled to keep up the industry competition. Its efforts to implement changes by bringing new managers and rapidly introducing changes throughout the organization without much involvement of the middle-level managers and other organizational members ended up alienating both the customers, as well as the employees. This led to the failure of the changes and the departure of the new CEO after serving for just 17 months.
Headquartered in Plano, Texas, JCP is one of America’s largest department store chains with upwards of 117,000 full-time employees and 1,100 stores. The company deals in family apparel, beauty products, accessories, footwear, fashion and fine jewelry as well as styling salons, portrait photography and custom decoration. In order to stem huge losses following the Great Recession and the seeming difficulty for the company to compete, JCP brought in a new management team led by Apple Store’s Ron Johnson, mostly drawn from outside the company. The new team implemented large changes, including laying off staff, changing sales commissions, scrapping coupons systems and completely redesigning stores. These changes, however drew criticism and resistance from the organizational members, which resulted in failure the replacement of Johnson’s team by another team led by Myron E. Ullman III.
SWOT Analysis
Figure 1: SWOT Analysis
Planning for Change
Adequate planning for change is easily one of the most important prerequisites for a successful change strategy. Key change management models including Kotter’s eight-step Change Management Model, Lewin’s Freezing and unfreezing model , Harris’ Five-Phase Model and Greiner’s Change Process Model, envisage change as a process that begins with elaborate planning, necessary to identify the changes required within the context of the organization. Appelbaum, Habashy, Malo, & Shafiq (2012) builds on Kotter’s eight-step change model in which planning comprises three distinct stages i.e. creating a sense of urgency, building a coalition to support the change and creating a vision to guide the change process. Appelbaum, Habashy, Malo, & Shafiq (2012) sought to collect contemporary strengths and weaknesses of Kotter’s model. It established that the majority of Kotter’s steps were founded in theoretical and practical evidence, besides the fact that the model was easily applicable. However, this study found Kotter’s model to be wanting in several areas, which in turn affected its acceptance and application.
It easy to see the utility of planning change and change management models such as Kotter’s in J.C. Penney’s change strategy. To begin with, prior to the changes that were initiated by the new Managing director Ron Jonson, the company was uncompetitive and loss-making. The company, which has been in operation since 1902, has been struggling with emergent competition from companies such as Wal-mart, Target Corporation, SEARS, Macy’s, Kohl’s Corporation and Costco Wholesale Corporation. Such is the competition and inability of J.C. Penney to compete that despite a market capitalization of $3.89 million and enterprise value of $5.96 billion, the company’s loss margin was 7.75% of the $12.99 billion in revenues in the year 2012. Further, its cash flow and operating cash stood as -$342.76 million and -10 million respectively. The Great Recession affected the company even further, but while its competitors emerged fine, JC Penney struggled. It is notable that the company’s business model has changed only slightly since its inception, and the dangerous sense of strategic compalcency had resulted in the company falling behind because of the changes in technology, competitive landscape, macroeconomic climate, and consumer needs.
However, instead of leveraging the urgent sense of change to gradually introduce changes, the company’s change strategy ignored the change planning stage and instead proceeded with creating and implementing the changes. The company brought in a new management, mainly head-hunted from outside the company and from outside the retail industry. The New CEO (Ron Johnson) arrived from Apple Stores in 2011, along with Preston Moxcey from Nordstrom, Eric Cerny from Abercrombie and Fitch and Jame Francis fro Target. Other members of the management team were also brought in from competing retailers in the US. It was hoped that the new management would break the strategic complacency entrenched in the company’s culture, and change the organization, but this strategy ignored the need for a context, change coalition, leadership and change resistance.
Leadership and Follower’s Change Commitment (Herold, Fedor, Liu, & Caldwell, 2008)
Herold, Fedor, Liu, & Caldwell (2008) speaks to the difficulty caused by J.C. Penney’s emphasis on leadership change as against building the momentum for change among the organizational members. To begin with, the company has a largely vertical leadership structure, with key decisions being made by the top management as against the store-level management. This alone presented a major disadvantage because it hindered the strategic flexibility of J.C. Penney, while at once leaving key players in the organization detached. According to Bhasin (2012), decisions were often made above the heads of junior managers. Junior managers were frequently criticized and blamed for the company’s bad performance, even when decisions were made by the senior managers, which in turn bred resentment and resistance. This was even further emphasized by the arrival of a top leadership that was largely perceived by some as comprising of outsiders.
According to Herold, Fedor, Liu, & Caldwell (2008), transformational leadership was ineffective, without the follower’s commitment to the change-specific leadership practices. This was even more emphasized when changes involved factors that had a huge impact on the followers. Change management practices were found to be best associated with follower commitment. Effectively, transforming the top leadership, while at once ignoring the middle-level management and other members of the organization set up the change strategy at J.C. Penney to fail. One aspect of Herold, Fedor, Liu, & Caldwell (2008) is especially important. This study shows that organizational changes that have a personal impact are most likely to cause resistance and are most likely to succeed with the commitment to changes by the organizational members. The personal nature of Ron Johnson’s changes at JCP can never be over-emphasized. To begin with, the new management ended the sales commissions and eliminated the company’s coupon system, which Johnson described as costly and only contributed to a 10 percent increase in the traffic to the stores and only a 20 percent conversion rate. Further, since JCP gives share options to senior, the huge share price reductions and a large number of past employees that do not add value to the company resulted in poor motivation and sense of organizational belonging. The new management also moved to lay off 350 managers and more than 600 employees .
Effectively, Ron Johnson’s changes directly impacted the pockets of many organizational members, but the top-down approach adopted by the management won very few allies. The lack of involvement in decision-making and personal impact of changes bred resistance and lack of follow commitment to change, which worked to the detriment of the change strategy (Herold, Fedor, Liu, & Caldwell, 2008; Bhasin, 2012). Many change management models highlight the need to build an organizational consensus or what Kotter referred to as the change coalition to ensure that the changes are owned by the organization and resistance is limited. Organizations are living and breathing organisms with entrenched cultures and ways of doing things, and thus it is not easy or even effective to impose change on it.
Communication of Change
One shoe associate at JCP is reported to have said that that there were new changes every week, without notice, and many associates did not really understand where the company was actually headed. There were also rampant rumors of staff layoffs, which occurred at random. The rumour-driven communication strategy not only creates confusion and resistance, but perhaps most importnantly hurts the organizational members’ motivation and commitment. Kotter eight-step model considers consistently communicating the change vision and other aspects of change to be critical to the success of the strategy. This is also included in the unfreezing stage of Lewin’s change model since it reduces resistance by introducing new information that makes the organization’s inadequacies clear, while at once marshalling support to move the organization to a better strategic position. Klein (1996) explores the effective communication practices when implementing major changes and established several key principles. These includes increased message redundancy, use of multiple media and face-to-face communication. Others included leveraging of the organization’s communication channels, reliance on direct supervision to channel formal communications, use of opinion leaders to influence other members and to couch the message in personal terms or media.
Using the benchmarks in Klein (1996), it is evidence that JCP’s new management missed clear opportunities to pass the message to people that were responsible for implementing the changes in the first place. The rumour-driven process, lack of formal communication, opposition from opinion leaders including middle-level managers and shop floor employees hurt the prospects of achieving the change vision. The findings in Klein (1996) are echoed by Barrett (2002), which goes further to provide a step by step process through which strategic change communication can be implemented. According to Barrett (2002), strategic change communication should take three distinct phases, which once again, JCP seems to have ignored. These are shown in the figure below.
Figure 2: Strategic Change communication
The communication plan for JCP should have begun with the creation of a liaison team, a detailed assessment of the communication needs and context, development of a clear plan, followed by an elaborate testing of the messages to ensure effectiveness. Continued measurement of the results and manipulation of the original message to suit the communication needs are also critical to ensure effectiveness. The failure by Ron Johnson’s leadership to implement such plans resulted in what Barrett (2002) anticipated as ill motivation/morale among the employees, low organizational commitment, high employee turnover, low productivity, resistance to change and possibly, failure of the change strategy.
Neutalizing Change Resistance Using Mid-level Management
Ron Johnson’s change strategy at JCP was famously top-heavy. Best practices in change management require that leaders create the change vision, but for it to be successful the members of the organization must own it. Further, while barriers to change are bound to exist in any organization, the change strategy must include clear measures (including communication) to overcome those challenges. Barriers to change may include the organizational culture (which include leadership, organizational structure, tradition and work practices among others). In JCP, the barriers to change included the fact that the organizational structure was horizontal at the store level and vertical above the store level. Effectively, while decision-making was decentralized among the store level managers and associates, autocratic decision-making above countered the autonomy below. Effectively, imposing changes initiated at the top on the bottom was bound to incur resistance.
According to Herzig & Jimmieson (2006), the key for JCP’s change strategy success lay with the store-level managers. In a study that sought to determine factors that inhibited or facilitated the middle level managers’ experiences of uncertainty during organizational changes, Herzig & Jimmieson (2006) established that the design and implementation of change affected perceptions of uncertainty. Prior to the implementation of change, uncertainty was associated with the strategic concepts of change, but during implementation, the source of certainty shifted to the proper implementation procedures. Uncertainty management among the middle-level managers dependent on the design of changes, communication, senior management support, role conflict and interaction among peers. Once again this was not the case. According to Bhasin (2012) and Heller (2012), the middle and low-level managers in JCP were none the wiser of the changes implemented. Upwards of 350 managers were laid off in unclear circumstances, alongside more than 600 employees while associates did not have a clear idea of the strategic direction taken by the company. These factors could only serve to breed uncertainty and confusion, which are ultimately detrimental to the effectiveness of the change strategy.
Implementation of Change
Even with proper planning, ultimately, organizational changes must be brought to life. Molineux (2013) argues that the best approach lies in transforming the organization’s human capital and culture to embrace and enable the change. Successful cultural changes are difficult to achieve, but by adopting a systemic approach to strategic changes in human resources can facilitate the change process. For JCP, the correct strategy would have been greater investment in the company’s human resources in order to create the capacity and willingness to facilitate change. Firstly, it is clear that the company’s decision to poach top managerial talents from outside the company and even outside the retail industry is indicative of JCP’s failure to invest in human capital development and succession planning. With proper human capital development, it is possible that the company would not even have found itself in a situation that it did over the past decade. According to Molineux (2013), the most important strategy is to cultivate the practice that reinforce the change, especially since the change is bound to occur throughout the life of the organization. Cultural changes, especially, those that re-orient the organization from an entitlement and complacency culture towards a performance-based culture will ensure that change intiaition and implementation process is successful.
While Bhasin (2012), Herold, Fedor, Liu, & Caldwell (2008) and Klein (1996) highlighted different factors in change management such as communication and planning, it is important to understand that these factors are part of the organization’s culture. The culture comprises a broad range of factors, including leadership, organizational structure, regulations, history, values, vision, and performance appraisal practices. All these factors play a decisive role in the nature of change and possibility of success. It is, however, helpful to appreciate the difficulty of changing organizational cultures and the fact that some changes may be short-term and urgent, which is why this strategy may not always be the best alternative. It certainly was not an alternative for Ron Johnson, who arrived at a company struggling and given the fact that cultural changes would have taken much longer, urgent measures were necessary to turn the company round (Heller, 2012; Molineux, 2013).
References
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Barrett, D. J. (2002 ). Change Communication: Using Strategic Employee Communication to Faciliate Major Change. Corporate Communication: An International Journal 7(4).
Bhasin, K. (2012, June 7). Here's What JCPenney Retail Employees REALLY Think Of CEO Ron Johnson. Retrieved Dec 16, 2014, from http://www.businessinsider.com/jcpenney-employees-talk-about-ceo-ron-johnson-2012-6?op=1
Heller, L. (2012, Jan 7). Why J.C. Penney Will Be The Most Interesting Retailer Of 2012. Retrieved Dec 17, 2014, from Retrieved 2 14, 2013, from www.forbes.com: http://www.forbes.com/sites/lauraheller/2012/01/26/why-jcpenney-will-be-the-most-interesting-retailer-of-2012/
Herold, D. M., Fedor, D. B., Liu, Y., & Caldwell, S. (2008). The Effects of Transformational and Change Leadership on Employees’ Commitment to a Change: A Multilevel Study. Journal of Applied Psychology Vol. 93, No. 2, 346 –357.
Herzig, S. E., & Jimmieson, N. L. (2006). Middle managers’ uncertainty management during organizational change. Leadership & OrganizationDevelopment Journal Vol. 27 No. 8 , 628-645.
J.C. Penney. (2013, Jan 4). The Executive Board. Retrieved Dec 17, 2014, from http://ir.jcpenney.com/phoenix.zhtml?c=70528&p=irol-govmanage
Klein, S. M. (1996). A management communication strategy for change. Journal of Organizational Change Management, Vol. 9 Iss: 2, 32 - 46.
Kotter, J. P. (2009). Four Ways to Increase the Urgency Needed for Change. Harvard Business Review, https://hbr.org/2009/04/four-ways-to-increase-the-urge.html.
Molineux, J. (2013). Enabling organizational cultural change using systemic strategic human resource management – a longitudinal case study. International Journal Of Human Resource Management, 24(8), 1588-1612.
Yahoo Finance. (2014, Dec 14). J.C. penney Corporation. Retrieved Dec 17, 2014, from http://finance.yahoo.com/q/ks?s=JCP+Key+Statistics
Appendix
JCP Latest Finances
Data provided by Capital IQ, except where noted.
