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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.

Even Johnson shifted his own strategy. In product pricing, for example, he at first nuked J.C. Penney's routine coupons and predictable markdowns in favor of three tiers of pricing and no promotions. Customers didn't buy in, so he ran some promotions. Every time pricing changed, however, so did the IT systems to support it.

"The big hit to IT for J.C. Penney was the start and stop," Buzek says.

Ullman's and Johnson's personal styles couldn't be more different, says Sydney Finkelstein, a professor of strategy and leadership at Dartmouth's Tuck School of Business. "One CEO is incremental. One is blow it all up," he says.

Style matters because CEOs leave a big wake. Business plans, technology choices, energy and morale stem from a CEO's actions and behavior, says Finkelstein, who wrote Why Smart Executives Fail and What You Can Learn from their Mistakes.

It wasn't necessarily that all of Johnson's IT ideas were wrong, but the way he and his fellow executives handled them caused resentment and sometimes confusion in a technology group whose leadership was unstable.

For example, Johnson flat-out said that the company had "overspent" on IT, at 2.4 percent of sales. It should be about 1.5 percent, he told Wall Street analysts in 2012. He and hand-picked COO Mike Kramer were publicly incredulous that they found 492 applications running at J.C. Penney. "I can think of no other thing to say about our systems and our IT infrastructure--and I have seen a lot of them. It is a mess," Kramer told Wall Street analysts in 2012.

The customization of those applications was also a problem, in part because it required more IT staffers and a bigger budget to maintain them, Kramer said, adding "that costs money; that is what drives head count." He and Johnson said maintenance took 95 percent of the IT budget and they intended to cut the number of applications to 100.

Simplification is good, but so is a more delicate touch, Finkelstein says. He named Johnson one of the worst CEOs of 2013, for losing billions in sales and profits, watching the stock price drop by half and trying to change radically the relationship between the company and customers without ever testing his theories. Johnson ostentatiously commuted between California and Texas on a company jet, Finkelstein says. "It was obvious he wasn't listening to anything." And the six executive vice presidents Johnson hired seemed to go along, sold on his radical vision for "revolutionizing" the department store, he says.

What's Next?
A year ago, to raise money, J.C. Penney sold 20 of the 240 acres of land around its Dallas-area headquarters campus and entered into a deal to develop the rest. Early this year, the company announced plans to cut 2,000 more jobs. As of August, the company had spent $991 million on restructuring and management transitions since 2011.


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