Ron Johnson – Questions about Innovation & Change

Did the Apple fall too far from the tree?

I live in Dallas.  My personal case study for the past two years has been Ron Johnson as the CEO of JC Penny.  The business section of the local paper tells me that my study is over.  Johnson has been fired.  His style, innovations, and vision of change managed to drive the stock from $35 to $15.  Oooops!

Most people know Ron Johnson as the genius behind the Apple Genius Bar.  He’s the guy that changed the face of retail.  He gave us wide-open spaces, a place for kids to play, and chest high tables to play with our tablets.  I’ve been to his flagship stores in New York City and London, not as a customer but as a tourist. 

Ron Johnson has gravitas.  So when he took over JC Penny in June 2011 I bought a front row seat.  I’m a change and innovation practitioner.  I wanted to learn at the foot of the master.  Closing out 2011 everything looked good.  Johnson announced: 

• his vision to make JC Penny “America’s favorite store;” 
• new people he wanted on the bus; 
• “fair and square” pricing supported by a new logo dominated by a “square” – no more confusing coupons and complex pricing, just everyday low prices and value; and 
• shift from a promotional department store to boutique stores within the store.

It didn't work.  What was left of JC Penny’s loyal customer base abandoned the store in droves.

I don’t know Ron Johnson.  I’m not his apologist.  But what did he do wrong?  Why did he fail?  Didn’t Johnson do all the things that change managers and innovators implore of their clients? 

• Set a vision, commit to it, and get in front of it 
• Change out the old executives with their defense of legacy
• Challenge orthodoxies like coupons, discount pricing, and spiff’s 
• Know the unarticulated needs of customers – like Apple has done so well

All of this advice resulted in failure, but I can only find two rationalizations for why it didn’t work: 

1. Change is a journey – even in an exponentially changing world.  The impatience of the Board for shareholder returns trumped this needed transformation
2. Test and learn – the innovators mantra.  Johnson seems to have pushed ahead with the arrogant leaders mantra of “got-a-hunch, bet-a-bunch”

But is this the full explanation?  Maybe there is a part of the real world that says that organizations, like natural species, have a shelf life.  Maybe the world just moves past the installed base of business.  Maybe death is natural, and should be accepted.

When we study success we ascribe it to the actions we want to observe.  When we study failure we do so to make the point that the leader didn’t follow the certified game plan.  That’s not the Ron Johnson case, from what I understand.   

Can we, as change agents and innovators, learn from JC Penny, or are we afraid to?

Change Management: Does Compromise = Failure?

Compromising Dreams

I hate it when I hear people say that 70% of change efforts fail.  First I think the number is urban legend espoused by people who don’t realize the damage this statement does to our profession.  How many financial advisors would you hire with a 70% failure rate.

Sure, I understand the marketing gravitas.  We’re trying to create pain within potential clients.  We’re trying to say: “you're entering dangerous seas.  Most change efforts fail so you need an experienced guide – like me.”  Well, since we’ve been saying this for about 20 years don’t you think clients will inevitably conclude that our “profession” is really a shell game?

Do we really fail 70% of the time?  I know that I’ve worked on dozens of change initiatives and I would say my success rate is close to 100%.  Similarly I have polled many consultants & corporate change practitioners about how often they fail – their experience is close to mine.

So what’s going on here?  Do I only have access to successful change agents?  I think not.  In fact, I have access to experienced practitioners who claim that: “given the circumstances we were as successful as we could be.”  Is this a rationalization or a confession?

Fundamentally I think that practitioners are saying: “… we advise our clients on what to do; then we compromise within their real world realities.”  Is it compromise that is causing failure that we choose not to see?  I think so and here are three common compromises.

Scope:  

Often the change aspiration is inspiring but when it’s broken down into near term tasks we’re asked not to disturb sacred organizational silos or protected customer classes – the very hot spots where the change should have the biggest impact.

Timing:  

Everyone knows that change is a journey within an exponentially changing world.  We want near term results, quick wins.  When the low hanging fruit is harvested the exasperated sigh is: “is that all there is?  We knew that!”

Resources:  

How often does the organization devote the best and brightest to the change effort?  Rarely; these people are needed in the business to get real results.  Similarly, how often does change get it’s own, needed funding?  Again, rarely; usually change is expected to be self-funding through re-purposing of resources.

I believe that every time we make a small compromise decision we foreshadow our failure.  Each of these decisions makes us less accountable for the result.  In the end we can claim that we colored within the lines.  That seems to be our definition of success.

Innovation & Organization Renewal

Change from Within

Innovation has been democratized.  It is now like air – we all know what it is, but we don’t know what it is.  I used to like the Economist’s definition of Innovation: “fresh thinking that customers value;” however, now I think that the empirical definition is that Innovation = Idea. We now beseech everyone in or organizations to offer ideas. We want ideas from everyone, everywhere so we can find:

• Game changers in White Space, Blue Oceans, and Black Swans
• Market changers for current products, new products, and extensions
• Work changers in management systems and operational processes

This explosion in Innovation is clearly aimed at growth, profits, and shareholder returns.  But is it doing anything for our organizations?  Does it make organization life better for employees and increase organization value for our customers?  I doubt it.

The malaise in our organizations today is plummeting employee engagement and stalling customer loyalty.  Yet, dozens of correlation studies say the same thing: when organizations are healthy they perform best.  Can we use Innovation to break the death spiral of organization malaise and get us onto the virtuous cycle of: employee engagement-> customer loyalty->organizational performance.  I think so.

If the Innovation revolution can be anything we want it to be, then let’s make it a lever for organization renewal.  Let’s take the natural human drive for creativity and use it to unleash the power of employee ideas for the benefit of our customers.  Let’s use Innovation to build healthy organizations to put us on the road to profits; rather than using Innovation to search for profits on the backs of our failing organizations.

How do we do this?  Simple.  We need two things:

1. Tolerant Leaders – those who know how to listen, ask questions, and accept that failure is integral to success, and
2. Trained Employees – those who understand their customers and know they have permission to challenge “the way we do things around here.”

Employees don’t work for their companies any more; they work for their customers.  The power of ideas is a way to strengthen this relationship.

Innovation – Is “Fail Fast” Realistic

The Success of Failure

It's natural for humans to have ideas.  At question is what we do with ideas when there is some assembly required.  Ideas do not come with an owner’s manual and, unfortunately, we are not omniscient.  

What we do know about complex ideas is that we won’t build them right the first time.  We will fail in our initial efforts to turn an idea into a useful innovation.  The question is how much time and resources we use learning how to get our ideas off the drawing board.  There are several ways to answer this question, like:

Got a hunch, bet a bunch

• This is where we rough up the idea; amass capital behind it; put it in the market and see what happens.  Basically we let customers clarify the idea and provide the quality control.  The hope is that customers will provide ever decreasing concentric learning cycles to produce the final innovation. 

Build it and they will come

• This where the builders painstakingly design, link, and integrate the innovation into a comprehensive whole before releasing it into the market.  Here the hope is that one big learning cycle from customers produces the definitive “v-2.”   

Fail fast, fail cheap

• This is where the designers construct a model; break it into components; then use experiments to test underlying assumptions.  Here the hope is to learn quickly on iterative, low-cost learning cycles so the final innovation can be released in near perfect form.

Current wisdom seems to be favoring the third option as the best way to learn about our ideas.  The literature is full of examples and uses icons as great as the Wright brothers and even Thomas Edison who proclaimed that he hadn’t failed, but rather just learned a 100 ways that didn’t work.

I love Dan Ariely’s example of learning at low cost when he advised a woman to spend a few hours sitting on her washing machine while reading a book.  The bump and thud of the washing machine would imitate an airplane ride to help her decide whether to fly to a meeting late the night before or early the morning of the meeting.

The “fail fast” motto is indisputable, except in reality.  I wonder if we’re doing a disservice to Innovation by highlighting it.  Let me explain.

Gall Trumps Small

Small runs against the rhythm of most business.  Managers like big; planning and budgeting systems like big; idea experts are rewarded to act big!  Companies are looking for the next big idea; not the next small increment.

Trust is a Must

We work in a success culture, not a failure culture.  Failure for the purpose of learning requires trust; yet a recent survey by Towers Watson shows that 6 of 10 employees don’t trust their boss.  Who has the courage to admit failure, even predicted failure, when that stigma might be remembered long after the success is forgotten?

I’m not saying that we shouldn’t evangelize and support “fail fast, fail cheap.”  What I am saying is that we should do it with caution lest we leave the careers of our closest allies dangling over a Bunsen burner.

Organizations are structured to place big bets.  Big failures maybe costly but they can be rationalized as bold strategic strikes.  I always suspected a smile on the lips of Sisyphus on the way back down the mountain.

Innovation – Is It Just Another “Shiny Thing?”

There'll be Another Soon

Innovation has a head of steam.  It’s in all the business publications and on every CEO’s lips.  It’s today’s silver bullet.  It’s the key to growth, sustainability, and employee engagement.  But is Innovation here to stay or is it just another “shinny thing?”

I can make the case on either side of the question; however, recently I’ve had my faith restored in Innovation becoming deeply embedded in the science and practice of management.  My encouragement comes from the Management Innovation Exchange web site where it lists finalists in this year’s Innovation contest.  Two of the entries come from clients and friends.

Whirlpool Corporation

The first comes from Moises Norena the Global Director of Innovation at Whirlpool Corporations.  He writes about: Whirlpool’s Innovation Journey: An On-Going Quest for a Rock-Solid and Inescapable Innovation Capability.  The full story is at: Whirlpool's Innovation Journey.

For me the significant part of Moises’ story is that it starts in 1999.  As he says, the Innovation journey can be long but it has big rewards.  I was involved in the early chapters when Gary Hamel started Whirlpool down the Innovation path.  He and his team at Strategos used their tools to begin building the Innovation capability within the corporation.

My role in the early 2000’s was to lead the team that focused on Customer Loyalty.  We used our global customer research as the primary input into understanding Customer Insights and Discontinuities in the appliance market.  We then used the Innovation tools to frame and implement innovations that would capture the articulated and unarticulated needs of Whirlpool’s customers.

From these green-shoots Moises weaves an interesting tale of the constant adjustment Whirlpool makes to the expectations and theories about embedding Innovation.  I’m not sure if Moises agrees, but my major take away from his work is that: Innovation can’t be embedded; it can only be a capability that evolves to meet the business needs of the day.

Korea Telecom

The second article is from Misook Lim the Director of the Innovation Management Center at Korea Telecom.  Her story is about Transforming Culture Through Pervasive Innovation.  It can be found at: Korea Telecom - Innovation Changes Culture.

I worked with Misook and her team for about 26 months.  Again the connection was through Gary Hamel and this allowed us to draw on the Whirlpool experience through the generous support of people like Moises and his boss Nancy Tennant who has been named by Business Week as one of the world’s 25 Innovation Champions.

Misook does a wonderful job of relating the multiple fronts that had to be pursued to have Innovation recognized as a needed tool to position Korea Telecom for the aggressive changes taking place in its market.  She walks us through a series of initiative such as: building capability in a core team; leading Innovation challenges within business units; setting the governance structure; and developing the companies executive team and vice presidents.

For me the Korea Telecom experience re-proved something we all know: culture is a major issue when implementing change.  I learned that you have to understand culture and respect it as a starting point for change.  The culture at Korea Telecom was hierarchical and deferential; sometimes our western beliefs about equality and participation had to wait.

Often in the Innovation consulting business we’re asked for proof, best practices, and where this has been done before.  Moises and Misook answer the question.

Employee Engagement->Innovation->Customer Loyalty: Case Study

Leverage Innovation

Organization transformation is a business full of: principles, tools, models, approaches, frameworks and perspectives.  It’s a mind-boggling and mind-numbing stew of overlapping and contradictory ideologies.  Just defining a word like “innovation” will call forth passionate debate.

When I get tossed in these storms of righteousness I struggle back to a few “truisms” that I’ve learned along the way, like:

… nothing happens in organization transformation unless the executive team is “open and trusting.”  If you can’t fix this problem then you can’t fix the organization!

I discovered another truism when I spent 26 months in Korea working the transformation of a 30,000-employee public company.  A decade ago I came to the understanding that organizational change had to be driven from the outside-in.  Successful change is customer driven change.

As I worked with this idea of “customer driven change” I found collateral benefits.  I found that when employees leverage customers, the employees become engaged in their organizations.  A short line of sight between employees and their customers not only generates effective change, but it does it by solving the biggest malaise in organization’s today – the disengagement of employees.

So it became clear to me that organizational transformation should be based in engaging employees to solve customer issues.  Trite, but true!

My practical problem was that HR programs aimed at solving employee engagement didn’t always solve customer issues; and marketing programs aimed at customer loyalty didn’t always engage employees.  A link was missing.

Then in mid-2010 we got a request from the CEO of Korea Telecom to help him engage his people to change the organization.  KT’s market was shifting, yet the employees tended to abide by traditional hierarchical and deferential rules.  How could we connect employees to their changing customer base?  The answer was “innovation.”

Innovation has some glorious characteristics that go beyond the customary Employee Engagement and Customer Loyalty programs.

1. Innovation needs to be framed within the context of a “customer value proposition,”
2. Innovation draws on the energy and passion derived from creativity which is innate in all humans, irrespective of culture, and
3. Innovation has a discipline that leads to commercialization.

Thus another truism: organization transformation is based on the virtuous value chain of:

Employee Engagement->Innovation->Customer Loyalty

This understanding was fundamental to our success in Korea – and that success has been documented in the public domain.  Here are two references.

The first reference is a case study at the London Business School.  The study was prepared about a year and a half into our 26-month engagement.  The connection to LBS was through Gary Hamel who led our project.  The case study has a strategic focus on the large issues of transformation.

 KT-Transforming to an Agile Organization

The second reference is written by my client and best friend in Korea, Misook Lim who now heads the Innovative Management Center at Korea Telecom.  Misook has just published this article.  It comes about a year after the first reference.  This article focuses on the practical working level and implementation of the strategic context provided in the first reference.

Pervasive Innovation at KT

I’m not a fan of the common wisdom that: “70% of change efforts fail.”  The virtuous value chain and the dedication of my Korean colleagues have proven it wrong.