The turnaround trap

Note: Ron Johnson has been replaced at J.C. Penney but we still felt this was worth sharing.

When I recently read James Surowiecki's "The Turnaround Trap" (The New Yorker) about the work of J.C. Penney's C.E.O., Ron Johnson, in trying to turnaround the then fading company, I was not planning on writing this entry. However, as I scanned through the article, I began to recognize that Surowiecki's commentary about what makes or breaks a new strategy for a business holds true for nonprofit organizations as well.

The article recounts the hiring of Ron Johnson at a time when J.C. Penney was "directionless and barely profitable." His reputation was impeccable with regards to enhancing or re-inventing marketing strategies for retail businesses, including helping to "make Target hip," and "orchestrat[ing] the creation of the Apple store."

It was assumed that he could make the same revolutionary changes for J.C. Penney and help to turnaround the then failing company with his strategies of ending the age-old practice of discount pricing and coupons while re-inventing the look of the store through mini boutique-type areas that each focused on only one designer.

However, Johnson's strategies have not been successful at J.C. Penney, to the extent that over the period of his leadership, revenues have fallen by 25 percent. Surowiecki's analysis of the challenges of Johnson's leadership and strategy are summarized by:

  1. J.C. Penney's customers like the discount pricing and coupons model--Johnson "misread what Penney's customers wanted."
  2. The implementation of the plan was faulty--by rolling out new pricing structures before the remodeling of the stores into the mini-boutique feel, old customers were lost before new ones were brought on board.
  3. J.C. Penney's position was different to that of Apple and Target when Johnson came on board in the prior positions--as opposed to stepping into successful models with a strategy to make them more successful, he stepped into a failing model with a vision to "remake a company's DNA" without fully understanding the true context of J.C. Penney's.

Upon further reflection of the lessons learned by Surowiecki from the Penney's case, it occurs to me that his message is also direly needed by many nonprofit strategists and leaders. Reinterpreted to fit the case of nonprofits more fluently, these lessons can be boiled down to the following:

  1. The organization must understand its audience. Who are you trying to reach with your mission and message?
  2. The quality of the service or product provided is critical. No matter how brilliant the strategy, if the service or product provided is not deemed worthy, the strategy will fail.
  3. The quality of the service or product provided--indeed of the organization--is what will enable a good idea to become a brilliant idea.
  4. Having wind at your back rather in your face has a lot to do with success. Remaking the entire DNA of an organization, in the context of current failures, is much harder to do than helping a decently successful organization take a leap forward toward greater success.
  5. One creative idea will not transform a business model unless the fundamentals of good management are already present.

In the nonprofit sector: How many times do we embark on our work without truly listening to those we want to reach? How many times during a year do we do what we did last year without asking ourselves and our team of volunteers and colleagues whether we could do it differently--better--than the last time? In the rush of getting through the funding proposal or grant application, how often do we cut corners and leave out the most true, most compelling reasons the program or project is important? How often do we push an idea through for immediate implementation in the name of being more productive and moving forward with greater proactivity, instead of trying to build up the intrinsic worth of the idea before it is fully implemented?

Each of these aspects of making our work and the strategies that support it more successful and appealing takes more time, but they also ensure success. And by the way--nonprofits should be able to take this time and vet their ideas fully, even more so than the J.C. Penney's of the world, because our philanthropic partners are not driven by stock prices as they are in the world of for-profits. (More on this in the weeks ahead.)

Finally, the ending of Surowiecki's article bears repeating for nonprofit managers, and maybe more so for the nonprofit board member. To end the article, Surowiecki quotes Warren Buffett: "When a manager with a reputation for brilliance tackles a business with a reputation for poor fundamental economics, it is the reputation of the business that remains intact."

How are you positioning your nonprofit to ensure a high quality of fundamental strategy, vision, and operations, so that your thought-leaders can be more successful? We'd love to hear from you.

Read more: