Why you’re not as smart as you think

The Midas touch

Imagine you’ve been wildly successful in a highly visible role, celebrated for your genius in introducing innovations to a market not traditionally known for them. On the strength of that track record you vault into another space with untapped potential, and once again everything you touch becomes gold. You have already exceeded expectations twice when a new opportunity beckons.

It would be natural to extrapolate from experience and assume your vision will translate smoothly to this new situation. After all, those instincts are what made you so effective. Apply more of the same magic, and what could go wrong?

In the case of one prominent retail executive, the answer was almost everything. Along the way a company with a storied heritage was nearly driven off a cliff. But rewind to the beginning of the story, when there was far more promise.

Ron Johnson got his start at Mervyn’s, a solidly middle-of-the-road department store owned by a retail conglomerate with a portfolio of brands. Among these was Target, at the time an unremarkable concept that happened to be headquartered in Johnson’s hometown. He moved over to that chain, arriving in time to help shape Target’s ascent from undifferentiated retailer to mass-market tastemaker.

Under his merchandising leadership, Target and its iconic red brand identity became ubiquitous, bringing flair to the unglamorous world of low-priced retail. Its stores enjoyed the halo of numerous prestigious collaborators and soon eclipsed Walmart and others in cachet, if not profits.1

It was from this perch in 2000 that Johnson was recruited to make the counterintuitive jump to Apple, at the time a struggling computer manufacturer with miniscule market share. Leader Steve Jobs had a fledgling vision of moving strongly into physical outlets, even though at the time momentum was firmly in the opposite direction, with the internet expected to overwhelm old-fashioned brick-and-mortar.2

Johnson plunged ahead with his task, conceiving the sleekly modern Apple Stores and launching even when they had few products to sell. They were overwhelmingly popular, soon dotting high-end shopping districts with their slick blond wood displays and minimalist decor, becoming destinations for their architecture alone.3

Sales figures were astonishing, exceeding those of the most luxurious brands. The results proved a high-touch, carefully curated, and premium-priced retail strategy could reverse the slide into commoditization that had tainted technology in the era of cheap computers.4

Apple had revolutionized retail, and Johnson was at the helm when it happened. So when a struggling mid-market retailer with a long history and tired brand went looking for its savior, it was clear who could fly in to the rescue.5

Everyday low prices

J. C. Penney was a century-old American department store, plodding along with decent but uninspiring results for decades. Some observers believed its trajectory could be radically improved with the right leadership. Things came to a head when hedge funds began circling, making a change in direction inevitable.

Board members looked for someone capable of catalyzing a transformation. Still riding high from his groundbreaking successes at Apple, Ron Johnson was a leading contender. Installed as CEO in 2011, he ushered in a revolutionary new approach intended to refashion the stodgy old chain into a new paradigm of middle-American retail.

Gone were the cluttered racks stacked with own-brand products. Byzantine pricing and discounting schemes targeted at the value-conscious shopper were swept away in favor of more straightforward, conceptually elegant pricing that reflected a fair and transparent approach. Long-term employees at Texas headquarters were bumped aside in favor of creative types from the coasts, who had brand-name pedigrees and finicky tastes honed from years at the top of their industries.

Johnson invested heavily in splashy, choreographed rollouts of his new strategy, bringing in celebrities to lend their prestige to the project and boosting the stock in the process. So sure was he of this path that he bet $50 million of his own money on the share price rising in the long run. J. C. Penney would be reshaped in the mold of Apple and Target before them, and the retail revolution would roll on unabated.

The unraveling, when it arrived, was swift and spectacular. The change in approach meant the chain hemorrhaged sales faster than expected, alarming supporters of the plan. Shoppers used to couponing and bargain hunting avoided the stores. In the office, grafting an entirely new ethos into an existing corporate culture proved far harder than anticipated.

After a precipitous collapse in revenues and share price, the latter being more relevant for the hedgies behind the whole thing, Johnson was booted from the CEO role after only 16 months and replaced by his predecessor.6

Something different this way comes

What went wrong? Our usual heuristics tell us that experience is a great teacher, and in many cases it is, but sometimes it’s possible to learn too much from the past.

It turned out that the average J. C. Penney shopper was rather distinct from an Apple Store patron, so attempting to impose the high aesthetic sense of coastal elites on a shopper looking for bargains on house brand towels was distracting at best and patronizing at worst.

Further Apple and Target both started from relatively marginal positions when Johnson began his tenures. Employees had time to coalesce around their corporate visions as they evolved. By contrast Penney’s staff had a long history of doing things one way and were asked to instantly change course. The resulting war of attrition between foreigners and insiders sapped the company of the energy necessary for radical change.

A leader who has successfully achieved a goal in one role or organization might be tempted to replicate these tactics in the next environment. They might stick with their approach for an unreasonably long time, failing to grasp when it’s just not working. Even now some Johnson fans contend that the failure at J. C. Penney was one of timing, not strategy.7

The lesson applies to life beyond just career advancement. Consider parenthood, an area far more universal than corporate leadership. All parents have the advantage of once having been children, and those who are thoughtful about their role at least implicitly refract it through their own upbringing. They recall what the positive and try to recreate it, and resolve to avoid what was unhelpful.

And yet we have not reached a paradise of mothers and fathers and children in thriving unity advancing the human condition, because what was past is at best an imperfect guide for what comes next.8 Every era brings unique challenges, and applying only the tools that worked in an earlier one is part of the reason why the generation gap remains intractable.9

When bringing your experience to a new situation, the easy default is to rely on areas of similarity, drawing on threads from the past to determine how to be successful in the present. As Johnson learned the hard way, a parallel question is critical: how is this situation different from what I’ve experienced before?

• The environment is unique, and while your task may be superficially the same the external conditions that determine success or failure can be critically different. Don’t ascribe to your own competence what can better be classified as favorable circumstances.10 If external factors are changed, how should your methods adapt accordingly?
• The skills you need to draw on to be effective evolve as your responsibility for the overall solution grows. This is indirectly codified in the Peter Principle, which sarcastically hits on the truth that people are promoted to their level of incompetence and no further. New roles force you to learn the boundaries of your capabilities, and failure to grow can be a permanent limitation. What new things are you expected to do, and how are you equipped to do them well?
• The line separating tenacious from foolhardy may run through a new place. While your prior efforts may have been an admirable example of pushing through barriers, you might now be in a situation where discretion and a willingness to reset are the wiser path. Failing to discern the difference can derail a golden trajectory, as Johnson discovered too late. This is one of the hardest decisions to make, as successful leaders believe strongly in themselves and their ability to win even when the evidence suggests otherwise. Nevertheless a limit exists. Considering J. C. Penney’s recent slide to what looks increasingly like bankruptcy, perhaps the challenge was bigger than any individual.

Be proud of your accomplishments but hold them with the appropriate distance, recognizing that your influence on outcomes is not as determinative as you might like. Your strengths can build on themselves while at the same time increasing the risk of catastrophic failure. While experience is instructive, be wary of over-learning its lessons.

What are you assuming about your successes that might not be true?

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References

A transcript of Ron Johnson’s in-depth exploration of his career with Kara Swisher at Recode is available on the Vox website.

Fortune has a detailed post-mortem of Johnson’s tenure at JC Penney, with several insider details.