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Tech and exec disasters put J.C. Penney in a bind

Kim S. Nash | Nov. 25, 2014
J.C. Penney's moves in the last few years stand as prime examples of how not to manage, how not to implement technology and how not to respond to looming business threats.

Johnson also saw RFID as valuable for a more accurate and ongoing view of inventory.

As RFID chips and sensors were rolled out in 2013, employees removed the traditional bulky plastic security devices from tens of thousands of items. That's in part because cashiers with Apple devices would no longer have access to the special removal tool usually built into checkout counters.

Unfortunately, the company discovered its security plan now had holes. One problem was that RFID signals could be thwarted by shoplifters. A well-known tactic among thieves is to line a bag with aluminum foil to disrupt the RFID signal and walk away with merchandise, undetected, Buzek says.

Plus, the company didn't set up RFID readers at all store doorways, which could have sensed active RFID tags passing through, says Steve Karrmann, a former manager in J.C. Penney's supply chain group. Karrmann, who led the RFID deployment, says the security implications of using RFID alone got short shrift.

"Shrink," which is retail jargon for theft and otherwise unexplained missing inventory, jumped so much it cost 1 percent of J.C. Penney's profit margin for the third quarter of 2013. When Ullman arrived, the plastic devices were quickly reinstated.

"There was a lot of investment in desire," Buzek says, "but it was somewhat misguided."

Disaster 3: Mismanagement for the Ages
Under Johnson, the IT department was effectively shut out from decisions about some technologies, such as the Oracle merchandise planning system, says the former CIO. "Ron had his mind set on what he wanted to do and a set of people he wanted to bring in. That was the way it was going to go. You could see it written on the wall."

That's different from life with Ullman, he adds. "IT had a seat at the table with Mike."

Multiple changes in IT leadership probably didn't help morale or clarity. After Johnson arrived as CEO in 2011, the CIO office had a revolving door. Late that year, group executive vice president Tom Nealon left; he had overseen IT, digital ventures, e-commerce and customer insights. Ed Robben, who was CIO under Nealon, left in early 2012, soon after Johnson hired a former Apple colleague, Kristen Blum, as CTO. Johnson resigned in April 2013 and Blum left two months later. J.C. Penney then gave a $50,000 bonus to Scott Laverty, the head of business solutions, to step in as interim CIO. In September 2013, he was promoted to full-time CIO, where he is today.

For any IT staff, such turnover "is very confusing," Buzek says. At J.C. Penney, the IT group also had to digest an abruptly changing agenda and big layoffs: Johnson had cut 19,000 employees, including some in IT.


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