Tuesday, April 9, 2013

Penney's disappointing results that led to the ouster of CEO Ron Johnson have been attributed to a lack of market testing. But, the real reason for Penney's lackluster performance goes far beyond the market testing issue, says Phyllis Ezop, President of Ezop and Associates. Ezop has spent over 25 years researching business success and failure patterns to identify the "Winning Moves" that companies make.

According to Ezop, Penney's situation fits a classic pattern. Penney's performed poorly primarily because it did what worked well at Apple, where Ron Johnson headed the phenomenally successful retail stores, but it did not properly evaluate how Apple and Penney's differ. Furthermore, Penney's essentially threw away its existing business to pursue an idealized future that borrowed elements from Apple, but without assessing the Apple versus Penney's differences.

Failure to pay attention to these differences is a common misstep made by companies that recruit top executives from the outside. And, lack of market testing is not what drives this misstep. Some key differences between Apple and Penney's can be ascertained without market testing. For example, Penney's customer base and image are somewhat less upscale than Apple's, and Penney's did not have Apple's cutting edge products.

Yet, in press reports of his ouster, Ron Johnson has been widely criticized for lack of market testing. Much more so than market testing, however, Johnson really needed to focus upon whether or not what he adopted from Apple was a good fit for Penney's. This can often be quite challenging for executives recruited from the outside, especially if they come from an environment of tremendous success. It may not be easy for executives to recognize what drove the prior success. But, Ron Johnson's ouster illustrates the perils of not doing so.

For more discussion of this topic, see the Winning Moves® News Tips and Insights Newsletter published by Ezop and Associates in late March 2013, where Phyllis Ezop wrote an article titled "Penney's Isn't Apple: Executives Can Easily Misunderstand Reasons for Success." The newsletter is available at ezopandassociates.com in the resources section. Ezop and Associates is a strategy consultancy based in La Grange Park, Illinois.