Transformation at J.C. Penney

Laura Heller has written an article about the transformation taking place at J.C. Penney.  Heller's article, which can be found at Forbes.com, describes the firm as "the most interesting retailer of 2012."  As you probably know, the company recently hired Ron Johnson, the former leader of Apple's retail stores.  As CEO, Johnson has set out to remake J.C. Penney, and he's hired some talented folks to help him (including a senior executive from Target, where Johnson worked prior to Apple).   

So far, Johnson's team has redesigned the logo, hired a new spokesperson, invested in Martha Stewart's company and launched a design partnership with Nanette Lepore.  Perhaps most significantly, the company is overhauling its pricing strategy in a dramatic way, and it's redesigning the in-store experience.  The company will be reducing prices significantly on many basics, relying less on weekly sales, and keeping prices at the same level for a month at a time on many items.  It's not quite everyday low pricing (EDLP), but it's a shift away from the usual high-low pricing strategy that many retailers employ.   In terms of the in-store experience, the firm will be introducing many "stores within a store" - with each mini-store associated with a key brand.  Heller rightfully points out that it will be fun to watch these changes unfold, and to see if they succeed.

What's clear to me is that the department store format is crying out for re-invention.  Whether or not these changes all succeed, Johnson is right to try rethinking the department store concept.   In a world of massive discounting, outlet store malls in every state, and rapid e-commerce growth, department stores have to change their approach.  It will take more than a new store experience though.  The firm will have to offer exclusive products as well, so as to avoid pure head-to-head competition with rivals.  Moreover, it will have to define itself clearly vis a vis its rivals.  For years, the company's positioning and target market has been a bit  murky.   That will have to change too. 

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Are You Communicating Effectively? - Testing For Understanding

Former General Electric CEO Jack Welch used to say the following about communication:

“You don’t get anywhere if you keep changing your ideas. The only way to change people’s minds is with consistency. Once you get the ideas, you keep refining and improving them; the more simply your idea is defined, the better it is. You communicate, you communicate, and then you communicate some more. Consistency, simplicity, and repetition is what it’s all about."

I think Welch is correct in emphasizing the need for consistency, simplicity, and repetition in their communications.   However, leaders need to take one additional step if they wish to communicate effectively.  Put simply, leaders need to test for understanding and alignment.  Did the troops understand my message?  How did they interpret the meaning of my statements?  Did they understand my intent?  Is everybody on the same page, or did people "hear" different messages?

In other words, leaders need to construct a strong feedback loop.  They have to circle back and make sure that people "heard" the same message that they intended to convey?   Many leaders fail to take that additional step.  As a result, confusion and misalignment persist despite the fact that leaders believe that they have communicated clearly, simply, and repeatedly.

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Research on New Book

I am working on the research for my next book, and I am seeking my readers' assistance.  I'm studying successful or unsuccessful duos, with a particular emphasis on innovators in a variety of fields.   For instance, Dwight Eisenhower and George Marshall would be an example of a very successful duo, as would Andy Grove and Gordon Moore at Intel.  I'm looking for examples from the military, business, sports, etc.  How can you help?  Please send me ideas for successful or unsuccessful duos that I can analyze.  In addition, if you know of individuals that I could interview for this research, please reach out to me.  I appreciate your assistance and recommendations. 

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The Problem with Competency Models

Fortune magazine recently published its list of the top firms for developing leaders.   The magazine works each year in conjunction with The RBL Group and Aon Hewitt to develop this list.  IBM topped this year's list. The report identifies a number of characteristics of these top companies.  For instance, it notes that the best firms have clearly defined competency models that identify what the organization expects of its leaders.  Specifically, the report indicates that, "Top Companies have a defined competency model that describes a unified theory of what leaders at their organization should know, be, and do. And they use their competency models in all phases of talent and leadership development."

I agree wholeheartedly that firms should construct well-defined competency models, and then use those models to guide talent management and leadership development processes, including performance evaluation, coaching, and succession planning.  However, in my experience with many large organizations, I have witnessed many highly flawed competency models.  What's the major weakness of these models?  Complexity!  Too many firms have developed a giant laundry list of competencies.  Leaders throughout the organization cannot even remember the list, never mind alter their behavior appropriately.   People need to understand clearly the organization's expectations.  Senior executives have to boil down their expectations to a simple list of behaviors and capabilities that they value and wish to cultivate in aspiring leaders.  Simplicity and brevity will breed behavioral change much more quickly and effectively than complexity and comprehensiveness.

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Larry Page Reforms Decision-Making at Google

Google Vice President of Operations Kristen Gil has written a terrific memo explaining how Larry Page changed decision-making at Google when he took over again last year.  Page worried that decision-making had gotten bogged down at Google, that the firm wasn't acting with the same agility as in the past.  What did Page do?  First, he outlined some new rules for how and when meetings should take place.  Here's an expert from Gil's memo: 

For starters, we noted that every decision-oriented meeting should have a clear decision-maker, and if it didn’t, the meeting shouldn’t happen. Those meetings should ideally consist of no more than 10 people, and everyone who attends should provide input. If someone has no input to give, then perhaps they shouldn’t be there. That’s okay – attending meetings isn’t a badge of honor – but the people who are attending need to get there on time. Most importantly, decisions should never wait for a meeting. If it’s critical that a meeting take place before a decision is made, then that meeting needs to happen right away.

As I wrote in a recent blog post, Alan Mullaly also changed decision-making at Ford by setting out some new ground rules for his key Thursday morning business review meetings with his senior team.  Clearly establishing new ground rules and shared norms can be very important for altering patterns of behavior that have become dysfunctional.    Page made a second change that I find even more interesting and potentially quite effective.  He recognized that, as a firm grows in size and complexity, senior executives often find themselves disconnected.  Senior teams become fragmented.   Travel schedules, meetings, and the needs of their particular units take them away from their peers.  As a result, members of the senior team do not communicate often enough.  They don't share and integrate information effectively.   Page set out to change that dynamic.   Here's another excerpt from Gil's memo:  

Besides fast decisions, another key hallmark of start-ups is their fast-paced, densely populated offices. We’ve always promoted this approach at Google, organizing around small teams and working in close proximity to one another. Even Eric Schmidt shared his office with an engineer when he first joined the company.  But as Google grew, the executives spread out to the far reaches of our campuses so they could work side-by-side with their teams. To make sure our key decision-makers could work and make decisions in an environment more reminiscent of a start-up, we created a ‘bullpen’ in one of the buildings on our main campus, which was specially designed as a place for members of our executive team to work and talk in an informal setting. These execs now set aside a number of hours per week to be there. It’s amazing how fast things can get done – even in a large company – when you put so many key people together and don’t give them an agenda.

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General Petraeus: Welcoming Dissent

I've enjoyed reading Tim Harford's excellent book, Adapt: Why Success Always Starts with Failure.  I find the overall argument of the book quite compelling, and the I love the stories and examples that Harford uses.  Some assertions are maddening, but you have to just push through on the occasional bizarre pronouncement. For instance, he writes that it's wrong to assume the Soviet planned economy failed because it lacked the profit motive or the creativity of private-sector entrepreneurs.  Huh?  He argues that the failure was due to an inability to experiment.  Somehow, in Harford's mind, the inability to experiment didn't have anything to do with a lack of profit motives and private sector entrepreneurship.  I don't get it.

The book is excellent overall though. He makes a great case for the importance of experimentation and the willingness to tolerate failure.  Harford also makes a strong case for why leaders must embrace conflict and dissent.  Take the story of General Petraeus that Harford tells us in the book.  Petraeus organized a conference on counterinsurgency in Fort Leavenworth during the Iraq War.  He invited many people, inside and outside the Army, who had been quite critical of the Army's strategy to that point.   It was a highly unusual meeting for the U.S. Army.   Petraeus also often invited lower level officers to email him directly about their observations and insights regarding how things were going in Iraq.   He wanted to circumvent the usual gatekeepers and hear directly from those on the front lines. 

Apparently, Petraeus learned the importance of inviting dissenting views from Major General Jack Galvin, a man to whom Petraeus reported back in the early 1980s.    According to Harford, "Jack Galvin also taught Petraeus that it is not enough to tolerate dissent: sometimes you have to demand it."  Music to my ears!  I have argued that same point for years.  Just telling people you want to hear from them doesn't always surface the full range of divergent views and perspectives that you need to hear.  When he's telling these stories, Harford is at his best.  I strongly recommend the book.

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Sponsored Search: Do You Want to Be Listed First?

You might think it's obvious that a firm should seek to have its advertisement ranked first in a list of sponsored search engine results.   Being at the top of the list of sponsored search listings ought to be desirable, right? Well, not so fast!  Wharton Professor Kartik Hosanagar and his co-authors Ashish Agarwal and Michael D. Smith examined online ad auctions in some recent research.  They found that the ads in the top position do generate the most clicks, but that doesn't necessarily turn into the most revenue or profit.  The scholars found that ads in the 2nd, 3rd, and 4th positions seemed to have higher conversion rates (% of clicks turning into purchases).  That's interesting, of course, since it is more expensive to be placed in the first position. 

Why might that be the case?  The researchers offered two potential explanations.  First, many consumers clicking on the top ad might not be serious buyers.  They may just be looking for information on a particular product or service, and so they click on the first ad as part of a broad information gathering strategy.  Second, consumers may be exhibiting what psychologists call the recency bias.  In other words, they click on the top ad, and then click on the next few sponsored search ads to compare pricing or product features.  However, they don't return to the top ad in many cases before making a choice.  According to the researchers, consumers tend to "purchase from the most recently evaluated advertiser if all evaluated options appear reasonable." 

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