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High Risk Innovation: Risked Big, Lost Bigger

by Langdon on April 21, 2013

Ron Johnson, the former head of Apple’s magnificent and uber-profitable retail empire, left Apple to take over as CEO of JCPenney in late 2011.  Johnson was brought in to transform the staid and failing retailing giant into a modern retailer, but alas, his Apple Store mojo didn’t translate to well to the department store format, and he was fired this month after only about 5 quarters on the job, following an uninterrupted string of disappointing sales reports.

What went wrong?

From an innovation perspective (and relying only on published reports) he seems to have made two rather large and in the end fatal mistakes:

First, he did not undertake to transform JC Penney with a deep understanding of the company’s customers.  Where Johnson saw chaotic discounting, customers saw bargains.  But by getting rid of the discounting in favor of “fair prices every day,” a surprising number of customers lost interest.  The most surprised of all was apparently Johnson himself, and that should not have been the case.

The second error, equally fundamental in character, was that he changed everything in all of the stores without testing the new ideas in, say, five or ten stores first, to see if the changes would actually work.

It may at minimum be ironic that he made this mistake, as we know from our own observations that the Apple store concept was carefully crafted based on a deep understanding of what Apple’s customers and not-yet-customers wanted and needed, and then through rigorous experimentation the company slowly and carefully added features and capabilities, and removed unnecessary and unwanted features, on the way to creating a global retailing powerhouse.  (It certainly helped, of course, that Apple’s products during Johnson’s tenure were the very desirable iPods, iPhones, and iPads.)

So while Johnson came to JCP with a vision, it was a vision that was apparently tested only at the full scale of the entire company.  In other words, Johnson risked big, and lost bigger.

Sound innovation methodology tells us that it would have been much better to risk small to learn fast, and then take the learnings and expand the scale slowly and carefully, building on success and avoiding catastrophe.

Innovation is all about failing, for sure, but that absolutely doesn’t mean failing so spectacularly as to drag the whole company down.  De-risk innovation by failing small and safe, prototyping rapidly, and doing so with deep knowledge of the customer’s needs and motivations.

Successful innovators are successful learners, and generally they learn best when they avoid pulling the entire edifice of the company down upon themselves in a heap.

I’ll read the future stories about Johnson’s tenure at JCP with great interest, as there’s surely a great case study buried in that heap that we can all learn a great deal from.  And I will continue to admire Johnson’s vision, courage, and willingness to risk, and perhaps he wlll write a great book about it all.

I also wish that he was a bit more current in his knowledge of innovation methodology, as it might have helped him avoid what must have been a horribly unpleasant experience.

The graphic at the top of this post was a JCP “Door Busters” ad.  Sadly, it was prophetic, but the doors that got busted were Penney’s own, rather too literally, so not in a good way ….


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Langdon May 2, 2013 at 6:00 pm

Many of the points made in this post were confirmed in a story posted by Bloomberg on May 1, 2013.

Included in the story was this excerpt from a forthcoming JCPenney TV ad, pleading with customers to come back to the store:
“We learned a very simple thing — to listen to you, to hear what you need, to make your life more beautiful. Come back to J.C. Penney. We heard you.”

The story went on to note, “After Johnson implemented his makeover, sales fell 25 percent and the chain posted a net loss of $985 million in Johnson’s one full year at the Plano, Texas-based company.”

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GoMad ideas July 25, 2013 at 4:54 am

This article is a good example that shows that we cannot have same strategy for all business ventures and need to have a thorough innovation plan to run a successful business.
Thank you

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