Case: An Innovation Failure at JCPenney: Its Causes and Consequences
Former CEO Ron Johnson designed and tried to implement a new strategy for JCPenney (JCP). However, the firm’s tar- get “middle market” customers did not respond well to the new strategy and the innovations associated with it. In fact, some say that Johnson’s innovations and strategy alienated what had historically been the firm’s target customers.
Johnson came to JCP after successful stints at Target and Apple. At Apple, he was admired for the major role he played in developing that firm’s wildly successful Apple Stores, which a number of analysts say brought about “a new world order in retailing.” It was Johnson’s ability to establish what some viewed as path-breaking visions and to develop innovations to reach them that appealed to JCP’s board when he was hired.
Comparing JCP to the Titanic, Johnson came to the CEO position believing that innovation was the key to shaking up the firm. Moreover, he reminded analysts, employees, and others that he came to JCP to “transform” the firm, not to marginally improve its performance. Describing what he intended to do at JCP, Johnson said that “in the U.S., the department store has a chance to regain its status as the leader in style, the leader in excitement. It will be a period of true innovation for this company.”
The essence of Johnson’s vision for JCP was twofold. First, he eliminated the firm’s practice of marking up prices on goods and then offering discounts, heavy promotions, and coupons to entice its bargain-hunting target customers. Instead, Johnson introduced a three-tiered pricing structure that focused on what were labelled “everyday low prices.” To customers though, the pricing structure was confusing and failed to convince them that the “everyday low prices” were actually “low enough” compared to competitors’ prices.
Innovation was at the core of the second part of the new CEO’s vision, with one objective being to give JCP a more youthful image. The innovations Johnson implemented to create this image included establishing branded boutiques within JCP stores. To do this, JCP set up branded boutiques “along a wide aisle, or ‘street’ dotted with places to sit, grab a cup of coffee, or play with Lego blocks.” With an initial intention of having 100 branded shops within JCP stores by 2015, Johnson asked people “to envision an entire store of shops with a street and square in the middle representing a new way to interface with the customer.” Disney was one of the brands to be included as a shopping destination, as were Caribou Coffee, Dallas- based Paciugo Gelato & Café, and Giggle, a store dedicated to making “it a whole lot easier to become a parent” by offering innovative and stylish “must-have baby items.” In addition, and as noted in Chapter 4’s Opening Case, Levi’s, IZOD, Liz Claiborne, and Martha Stewart branded items were to be included as part of the boutiques.
But, these innovations and the strategy used to exploit them did not work. So what went wrong? Considering the components of the model shown in Figure 13.2 yields a framework to answer this question. While it is true that Johnson had an entrepreneurial mind-set, cross-functional teams were not used to facilitate implementation of the desired innovations such as the boutique stores. In essence, it seems that Johnson himself, with- out the involvement of others throughout the firm, was instrumental in deciding that the boutiques were to be used as well as how they were to be established and operated within selected JCP stores. In addition, the values associated with efforts to change JCP from its historic roots of being a general merchant in the space between department stores and discounters to becoming a firm with a young, hip image were not shared among the firm’s stakeholders. Finally, Johnson’s work as an entrepreneurial leader was, seemingly, not as effective as should have been the case. Because of mistakes such as these, the level of success desired at JCP through internally developed innovations was not attained.
Question: Do the innovations implemented by JCP sound interesting to you? Would you shop at a store with these features? Why or why not?
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