We learn little or nothing from our successes.
They mainly confirm our
mistakes,
while our failures,
on the other hand, are priceless experiences
in that they not only open up the way to a deeper truth,
but force us to change our views and methods.
C.G. Jung
Big dreams, arrogance, infighting, and delusion all collided in the disastrous attempt to fix venerable retail giant J.C. Penney. The inside story of a revolution derailed.
Originally published in Fortune, March 2014.
When you find a savior, you don’t quibble over details. So it was that J.C. Penney, the long-stagnating mid-tier department store chain, announced in June 2011 that it was hiring Ron Johnson, the man in charge of Apple’s wildly profitable retail stores and a Steve Jobs acolyte whose golden halo also included past triumphs as an executive at Target. The news sparked euphoria, but conspicuously absent from the media coverage was any mention of how Johnson planned to save this faltering retailer in a fading industry. That’s because there were no plans. His mandate could be reduced to a single word: change. What that entailed could be figured out later.
Simon Stevens' switch to NHS 'is like Arsenal signing Mesut Özil'
The man who helped orchestrate New Labour's massive NHS investment is seen by many as the right choice for the job
The unveiling two days ago of Simon Stevens as the new chief executive of NHS England prompted widespread relief, a broad consensus that he is the right choice and, in some quarters, an almost desperate desire for him to succeed in what is one of the toughest jobs in public life.
Partly, of course, that is due to the man himself. He may have worked in the United States for the last nine years for the private health firm UnitedHealth, but the 47-year-old is respected and remembered both at Westminster and inside the NHS for helping to orchestrate New Labour's huge investment in the service in the early part of the last decade, which rescued it after years of neglect and decline.
But wait: The Independent
UHC’s phenomenal rise – it is now ranked no 17 in the Fortune 500 list - has not come without controversy. During the 10 years Mr Stevens was a senior executive, the firm was the subject of a class action lawsuit filed by the American Medical Association after it claimed UHC used faulty claims data to underpay doctors and overcharge patients.
New York Attorney General Andrew Cuomo said patients had been victims of “consumer fraud” for a decade in a settlement that saw UHC agree to pay $350m in compensation to the claimants. Investigators had found that insurers using the Ingenix database, a UHC subsidiary, underpaid up to 28 per cent for claims based on inaccurate or insufficient information in the system. As part of the 2009 settlement, UHC also contributed $50m to help fund a new database that would replace the old one ending a “clear conflict of interest” according to Mr Cuomo.
An updated version of Ingenix is again causing controversy today. OptumInsight, another UHC-owned data firm, which uses algorithms to find efficiencies from calculating the most expensive patients, or doctors with the fewest number of patients, has been blamed by analysts for UHC dropping thousands of doctors caring for elderly Medicare patients this month. The company claimed it wants to provide “a network of physicians who we can collaborate with to help enhance health plan quality, improve health care outcomes, and curb the growth in health care costs”.
......UHC was also under investigation by the SEC in 2006 when then chief executive William McGuire was ordered to pay back $468m as part of a partial settlement over stock options backdating. The scandal, which led to Mr McGuire’s resignation, cost the firm almost $1bn.
....Although NHS England said Mr Stevens will “divest himself of any UnitedHealth Group shares before taking up his new NHS post in April, and will comply with all public service rules related to these matters,” a review of this agreement by NHS England chairman Sir Malcolm Grant will be made after Mr Stevens’s first year. Critics argue that this could pave the way for greater collaboration between the NHS and United HealthCare, which already runs some GP services in the UK.
Johnson demonstrated that he’d learned a thing or two about stagecraft from his legendary former boss at Apple. He had commandeered a large basement studio at Penney’s Plano, Texas, headquarters and had workers construct two rooms. (Johnson wanted to go further and install floating stages in the company cafeteria, but the fire marshal nixed the plan.) After he had made his presentation, the new CEO brought the directors downstairs to deliver the coup de grâce in the form of a sound and light show. In the first room was the taped commotion of shouting voices and visual noise: a profusion of signage, coupons, offers, and clutter. This was the off-putting cacophony of J.C. Penney at that moment. Johnson then ushered the directors into the next room, which was white, tastefully austere, and had a celestial serenity: the new JCP.
Finally Johnson led the board members into the cafeteria, where 5,000 employees, who had been waiting on their feet for hours, greeted the group with a raucous ovation. Then it was party time. Officially the fete was intended to bid farewell to Johnson’s predecessor, Myron “Mike” Ullman III, but it felt more like an ecstatic celebration of the company’s rebirth. With nary a whisper of opposition, the 109-year-old retailer had decided to abandon not only its strategy of many decades but arguably its fundamental way of doing business.
So the NHS of 60 plus years has now a genius from UnitedHealth, sorry Labour that will dismantle it and turn it into something even better than UnitedHealth that he left in Minnesota.
Just 16 months later Johnson was out. Penney was hemorrhaging cash; it lost $1 billion during his one full year as CEO. Its shares were hurtling downward. The press had turned against him. One of the two investors who installed him had fled. As fast as they had once anointed Johnson a messiah, Penney’s directors turned their backs on him.
Since his departure the company has behaved as if Johnson’s entire tenure was a coup rather than a strategy blessed by the board. The retailer has renounced his philosophy, restored Johnson’s predecessor, Ullman, as CEO, and reverted to its old ways. If we’re heading for oblivion, the board seems to be saying, let’s at least try to get there slowly. Some observers think bankruptcy is a possibility, despite improved results of late (at least compared with the previous bloodletting).
This era has seen some truly epic corporate conflagrations. There was the precipitous collapse of Lehman Brothers, which came to symbolize the greed and corruption of Wall Street, and the multidecade decline and, finally, bankruptcy of General Motors, which seemed to embody the slow death of American manufacturing. But for its stomach-churning mix of earnest ambition, arrogance, hope, and delusion – along with a series of comic and tragic miscues – it’s hard to top J.C. Penney.
“I came in because they wanted to transform,” the former CEO told me before his fall. “It wasn’t just to compete or improve.” (Johnson was interviewed for this article but declined to be quoted beyond saying, “I do not want to interfere with Penney’s attempts to succeed.”) He and his team did indeed transform Penney – from a sleepy behemoth known for serving the needs of Middle America into something quite different: an ambitious wannabe startup that fancied itself cool, with a radical pricing and merchandising model that had never been pulled off before. The outcome was doubly disastrous: Penney alienated its traditional customers without attracting new ones.
Everyone understands that the Johnson revolution ended in catastrophe. But the full story has never been told. The reality, it turns out, is even worse than many people imagine – and in a few respects, very different. What follows is the story of what actually happened at J.C. Penney, based on months of interviews with 32 current and former executives and vendors and more than 20 investors, analysts, and competitors.
It’s a saga with a swirl of overlapping forces. It stars a charismatic leader bent on radical change and features a failed attempt to Apple-ize Penney, a mission that ended up being every bit as crazy as it sounds. There’s a board of directors who sometimes seemed more concerned with what they’d be served for dessert than with the fate of the company. Then there’s the mistake that cost the company $500 million – and the fact that Penney actually began retreating from its controversial pricing strategy even before Johnson left, raising the question of whether the company can even truly be said to have tried his approach. Throw in a hedge fund titan who always knew better – except when he didn’t. The result: Billions in revenue were vaporized, and more than 20,000 people – many of whom embraced the new Penney – lost their jobs, seeming to hasten the decline of American brick-and-mortar retailing. This is a tale with very few heroes.
So getting the best guy from Apple was a disaster for JCP, now back to being J.C. Penney.
Will NHSEngland revert back to just NHS? I doubt. But Simon can blame his American wife and young children if he wanted to go back to Minnesota. After all there is Mayo Clinic there and they have never changed.
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