If UPS’ Accountants Can Deliver Holiday Packages, Human Capital May Be More Flexible Than We Expected

Now that the dust is clearing on the blow-out holiday sales season that retailers enjoyed last month, tales are emerging about the extraordinary steps that their supply chain managers took to meet customer demand.

What tales? Consider, for instance, the global delivery firm UPS. It received so many packages in the days leading up to Christmas that it was forced to ask hundreds of its accountants, marketers, and other office workers to join their colleagues in sorting and delivering packages.

Some were actually met at the doors of their office buildings and told to go home, change clothes, and report to operations facilities. Others were instructed to deliver packages with their own automobiles.

Pretty unusual, huh? Even more noteworthy is that the office workers completed these tasks responsibly. Apparently, their lack of training and personal unfamiliarity with delivery tasks failed to impede their performance.

That raises a few interesting questions. If accountants and marketers were able to succeed at these operating tasks, is human capital more flexible than we expected? If so, is the principle of work specialization overblown? And if true, are we spending too much time, effort, and resources on specialty training, and not enough on cross-training?

After all, cross-training was the fundamental Human Resource Management philosophy for centuries before Henry Ford and others developed modern Operations Management theory during the early 1900s. Business managers previously believed that it made more sense for craftsmen to learn all of the functions of producing a product or service, instead of specializing in a single function or two.

We now live in an era when many long-accepted assumptions about workers are falling by the wayside. For instance, riders now trust part-time Uber drivers as much as they ever trusted part-time taxi drivers. And travelers now trust part-time Airbnb hosts as much as full-time hoteliers.

Indeed, the UPS experience may simply represent another case of Human Capital being more flexible than we ever expected. And that very flexibility may be the harbinger of a human labor revolution.

JC Penney: A Leadership Mistake?

At the end of the 1956 baseball season in the United States, Brooklyn Dodger icon Jackie Robinson received some disconcerting news. In the twilight of his career, he had been traded to the cross town rival New York Giants, who sought his veteran leadership for a roster that included the very young future Hall of Famer Willie Mays.

Veteran leadership? For a rival team? Fuhgettaboutit! Robinson refused to report to the Giants and Major League Baseball voided the deal. Robinson himself retired from the game shortly thereafter.

Was Robinson excessively worried about his professional legacy, or did he understand that veteran leaders who switch teams rarely find success in their new positions? Unfortunately for American retailer JC Penney, Robinson is no longer available to provide them with advice regarding their leadership strategy.

A Small Slice of Americana

JC Penney, of course, is a venerable American department store chain. Although it has never earned the pedigree of Macy’s or achieved the size of Sears Roebuck, it can lay claim to its own slice of American retail history.

James Cash Penney was originally an employee in a small retail organization called Golden Rule. After purchasing a minority share in 1902, he bought out his partners five years later and took command of the chain that would be renamed JC Penney in 1913.

Although Penney lost his fortune during the Great Depression of the 1930s, he managed to keep his retail empire alive. In fact, Penney’s Des Moines store hired a young employee named Sam Walton in 1940, the entrepreneur who would later establish the Walmart chain.

JC Penney peaked in size in the early 1970s, when it briefly expanded to more than 2,000 retail sites. It now operates more than 1,000 stores across the United States.

An Apple Transplant

So who is the current leader of this venerable retail establishment icon? None other than Ron Johnson, a former corporate executive at Apple who was hired by Penney to bring a little pizzazz to its facilities.

And that’s precisely what Johnson brought to the Texas based retailer. He placed new emphasis on full, “hands on” customer service and in-store boutiques. He even abbreviated the brand itself to a crisp, concise jcp.

But then Johnson decided to eliminate Penney’s traditional reliance on frequent sales events, replacing them with a standard pricing policy for all merchandise. His Fair and Square pricing strategy emphasized non-discounted prices and infrequent sales.

Standard pricing, of course, is a classic Apple strategy; it supports the philosophy that sales events tend to cheapen the image of the brand over time. But by taking away the tradition of the frequent sales event from Penney’s core customer, Johnson drove many of them away. Indeed, sales volume has plummeted under Johnson’s command, and the prospects of the retailer are eroding quickly.

An Austerity Plan

Faced with intense criticism about Penney’s sales decline, Johnson is now retreating from his “limited sales event” policy. Instead, he is cautiously reinstating special sales events on a partial basis.

But should Penney adhere to Johnson’s limited-sales plan? After all, organizations in many different industries have moved away from sales driven marketing strategies. Many automobile companies, for instance, are no longer relying on large rebate campaigns. And most airlines are forsaking fare sale strategies, opting to increase ticket prices and ancillary service fees instead.

One can characterize Johnson’s sudden abandonment of sales events as an austerity themed plan, with austerity being imposed on the firm’s customer base. Is it possible, however, that Johnson selected an appropriate austerity strategy but served as an inappropriate leader for implementing it? Would a more familiar and recognizable leader, instead of an outsider, have been more palatable to Penney’s regular customers?

Home Grown Leadership

Anecdotal evidence seems to suggest that people tend to accept austerity solutions more readily when they are proposed by home grown leaders, and not by transplanted leaders with personal histories and loyalties to other organizations. The evidence extends beyond the business sector and throughout other sectors of human endeavor.

Consider the realm of politics, for instance. On the one hand, the Italian people recently rejected the European prescription of austerity that was imposed by interim leader Mario Monti. His political rivals attacked Monti’s credibility by suggesting that his brief leadership position was too “centric” (i.e. too focused) on German political needs.

On the other hand, the popular, home grown Icelandic government has presided over an economic rebound since the 2008 / 09 financial collapse. And in the business world, Apple itself presents a quintessential example of a firm that once tottered towards bankruptcy until its home grown founder returned to replace an outsider CEO.

So is it possible that Ron Johnson developed the right plan for Penney, but is the wrong leader to implement it? And if he isn’t the right leader, then who should replace him? Until Penney’s Board clarifies the nature of its leadership mistake, it may find itself unable to correct it.

Sears, Kodak, and the Product Life Cycle

Father Time and Baby New Year.

They’re the very personification of the holiday season. The father character first emerged in Greek mythology as Chronus, the godlike manifestation of time itself. The baby character, though, is a relatively modern creation, surfacing in consumer magazines a century ago and then becoming a fixture of American culture.

Pictured together, they personify the adage “out with the old, in with the new.” Although the news media seems to embrace this adage every time it fawns over the introduction of a new technology product, it diverted its attention during the final week of 2011 to note the stark decline of a pair of American corporate icons.

The Softer Side of Sears

An advertising jingle regarding the “softer side” of Sears once referred to the department store’s apparel offerings, but it can easily be applied to its 2011 revenue figures as well. Last week, CEO Lou D’Ambrosio announced that same-store sales during the crucial holiday season plunged 5.2% at a time when industry sales grew 4%, and that over 100 Sears and Kmart stores would thus be shuttered soon.

It’s easy to forget that Sears once reigned for decades as America’s largest retailer, with a mail order catalog business that was launched in 1888 and that later became an indispensable resource for America’s emerging consumer economy. But in 1993, Sears walked away from the mail order industry and simply shut down its catalog business.

Just two years later, Jeff Bezos founded Amazon.com and reinvigorated the industry; and what of Sears? Although the firm is still the fourth largest broad line retailer in the United States, the store closings will undoubtedly accelerate its decline.

The Kodak Moment

The final week of 2011 was also a brutal one for the Eastman Kodak Company. Although the firm’s classic advertising campaign associated the phrase “the Kodak Moment” with happy times, the phrase now connotes an image of a failing firm, desperately trying to transition away from an obsolete core product.

As with Sears and the mail order retail industry, Kodak virtually invented the film industry in the United States. Since its founding by legendary industrialist George Eastman in 1880, Kodak became an icon of American society; by 1976, its ubiquitous Brownie, Instamatic and Kodachrome brands helped it achieve respective market shares of 85% and 90% in the camera and film markets.

The emergence of digital cameras, however, doomed the entire industry to obsolescence, and Kodak to decline as well. Last week, after the firm announced that Laura Tyson was joining two other high profile professionals by resigning from its Board of Directors, the media reported that the Academy of Motion Picture Arts and Sciences might shift its Academy Awards ceremony from Los Angeles’ Kodak Theater to a larger venue.

Understanding The Product Life Cycle

Many investment analysts characterize Sears and Kodak as similar organizations that are facing similar circumstances. However, most marketing professionals would disagree with this characterization.

That’s because marketers define the product life cycle as an arc that progresses through four distinct stages. Film, for instance, was only a niche product for professional portrait artists during its introduction stage during the late 1800s, until it entered its growth stage and rode the wave of American economic prosperity.

Once products like Brownie, Instamatic and Kodachrome achieved market dominance, film entered the product maturity stage. And finally, as low-cost competitors like Fuji entered the market and consumers began to adopt newer products, film fell into its current stage of decline.

Indeed, the aging of the film business is reminiscent of the life of the proverbial Baby New Year, as he ages into Father Time. But can we characterize the arc of Sears in the same manner?

Simply Poor Decision Making

Although Sears, as a firm, progressed through the stages of introduction, growth, maturity, and decline during the same era as Kodak, the American retail industry hasn’t done so as well. After all, the advent of online shopping holidays like Cyber Monday has reinvigorated the mail order industry, and the emergence of innovative retailers from American Girl to Cabela’s has redefined the live shopping experience.

So how can we explain the decline of Sears? It may simply be attributable to a case of poor decision making. After all, Sears failed to follow the “big box” warehouse trend that was pioneered by firms like Costco and Walmart, preferring to remain in more traditional shopping mall locations. And yet Sears also failed to spruce up its traditional decor, while department store rivals like Macy’s and J.C. Penney opted to do.

In other words, investment analysts may be overlooking an important distinction when they characterize Sears and Kodak in a similar fashion. After all, as long as Sears continues to operate hundreds of stores in viable locations, a corporate turnaround does indeed remain possible. It is difficult to envision any turnaround, though, of a firm that sells film.

The Indian Retail Economy: Foreigners, Keep Out!

More than three years have passed since the Lehman Brothers collapse shoved the United States economy to the brink of a second Great Depression. And today, with unemployment and home foreclosure rates still high, it’s easy to understand why Americans remain glum about their economic futures.

Indeed, the conventional wisdom stipulates that the BRIC nations of Brazil, Russia, India, and China collectively represent the rising economic powers of the 21st century. India, in particular, has been praised by many economists for its combination of political democracy, economic capitalism, and English-fluent western culture.

Before Americans permit themselves to feel too threatened by the Indian economy, though, they may wish to consider a watershed decision that was announced by government officials in New Delhi last week. Apparently, India is not as prepared to embrace the principles of free-market global capitalism as its government previously led us to believe. And as a result, India’s economic competitiveness may well suffer the consequences of domestic protectionism.

A Nation Of Shop Owners

Throughout history, the structure of India’s retail economy has remained rooted in community tradition. As was the case in the pre-industrial era of the United States, the vast majority of Indian citizens purchase merchandise from the owners of tiny, privately owned kirana shops.

Some Americans still bemoan the loss of traditional self-employed shop keepers; nevertheless, they have continually flocked to successively larger and more efficient retailers. Indeed, American shoppers themselves have accelerated the modernization of the consumer economy by gravitating from urban department stores (like Wanamaker’s and Macy’s) to suburban mall-based chains (like Sears and J.C. Penney), and then on to warehouse style superstores (like Walmart and Costco).

Late last month, Indian government representatives finally announced that they would permit foreign retailers to operate majority-owned supermarkets within their national borders. In fact, they explicitly acknowledged that they hoped this decision would trigger the modernization of their retail industry. However, after just a few weeks of protest by protectionist domestic forces, the Indian government suddenly decided to reverse course last week.

Economic Impact

Why does it matter whether consumers purchase merchandise from tiny shops or gigantic super-stores? How does it affect the economy of a nation?

To be sure, many pundits bewail the loss of traditional American downtowns, with their tiny privately owned shops, to large-scale suburban developments. To such traditionalists, American society would be far more prosperous if citizens shun the automobile culture and embrace “livable” communities, residing in homes that are located within walking distance of human scale business districts.

Although towns in states such as Oregon and Vermont have indeed prospered within such urban planning environments, the modern American economy has nevertheless reaped the benefits of expanding economies of scale. Walmart, for instance, has grown to become the largest employer in the United States, selling merchandise to American consumers at prices far cheaper than any one could possibly find at smaller stores.

Why Competition Matters

It is important to note that the Indian government hasn’t simply limited the size of newly proposed domestic retail projects. It also continues to protect Indian-owned businesses by prohibiting any retail projects, of any size, that are majority owned by foreign firms.

Such a decision clearly limits the amount of competition that can occur in the retail industry, a limitation that profoundly affects the market itself. That’s because competition, by its very nature, drives innovation in product characteristics, customer service, and other functions.

Consider, for instance, whether Microsoft would have been driven to improve its Windows software if not for the competitive challenges of firms like Apple and Google. And consider whether American, Delta, and United Airlines would have been similarly driven without competition from rivals like Southwest and JetBlue.

Does any one doubt that product and service innovation would slow if such competitive forces were to suddenly disappear? In the Indian retail industry, though, such forces have never been present at all.

Protectionism, American Style

The United States, of course, is hardly a pure bastion of free market capitalism. Insurance companies, for instance, are still restricted from selling certain types of policies across state lines. And many American farmers are still paid subsidies to help protect them from market price fluctuations.

The American retail industry, though, is continually challenged by foreign store chains at both ends of the economic spectrum. The Swedish mass market “fast fashion” retailer Hennes & Mauritz (H&M), for instance, has expanded from a single American location to almost two hundred in slightly over a decade. And in the automobile sector, numerous European and Asian manufacturers compete with America’s “Big Three” in the United States.

So despite its continuing economic doldrums, the American economy still maintains competitive advantages that do not exist in other nations. Such advantages may yet succeed in generating levels of economic activity that can return the nation to prosperity.

Goodbye, Black Friday!

Do you remember the Blue Laws? They were based on Christian religious doctrine, and were designed to prevent any retail business from operating on Sundays. Instead, Sundays were dedicated to attendance at church services and associated religious gatherings.

Prior to Henry Ford’s adoption of the five day work week in 1926, factory workers in sweatshops would work six days a week and then rush to their neighborhood stores (and saloons) to purchase merchandise (and libations) on Saturday evenings. They needed to do so because the establishments would be closed, by law, every Sunday.

Most stores now remain open seven days a week, and many operate 24 hours a day. But despite the abolition of Prohibition (i.e. the criminalization of liquor sales) in the United States during the early 1930s, certain states still outlaw the sale of liquor on Sundays, as well as any sales in supermarkets on any day of the week.

Interestingly, other relics of the Blue Law era have survived as American traditions, if not as legal restrictions. One such policy, though, is quickly coming to an end, and is taking the tradition of Black Friday down with it.

The Thanksgiving Tradition

Thanksgiving Day, for instance, has been viewed as a sacrosanct time for family gatherings since it was established as a national holiday by President Abraham Lincoln during the Civil War. Thanksgiving actually replaced an older holiday called Evacuation Day, celebrated in the northeastern United States on November 25, as the day when the British Army formally withdrew from New York City after their loss of the Colonies in the American Revolution.

It is not illegal to ask employees to work on Thanksgiving, or on other national holidays, in the United States. In fact, retail stores have always remained open on many national holidays throughout the year, such as Veterans Day on November 11. Nevertheless, to respect the tradition of Thanksgiving Day, most retailers have shut down in order to grant their employees time to spend with their families.

The unusual closure, quite conveniently, gave those very stores the opportunity to stage “grand re-openings” on each Friday after Thanksgiving  to kick off the Christmas shopping season. The weeks between Thanksgiving and Christmas were (and continue to be) so lucrative that the stores would willingly lose money during all of the weeks before Thanksgiving in order to gear up for the holiday sales season.

The Friday after Thanksgiving would thus represent the day when most stores “broke into the black” and began reaping profits for the year. And so the term “Black Friday” evolved as a connotation of profits and prosperity in the retail industry.

Now It’s Black Thursday!

During much of the twentieth century, retailers opened for business at their customary times on Black Fridays. But then, in order to beat the competition, many store chains opened earlier and earlier on those mornings. And the “grand opening” specials become more and more extravagant, with many stores offering customers prices on popular products that fell well below their wholesale costs.

Last year, several chains opened during the wee hours of Black Friday morning, well before sunrise. But only this year did two different retail chains actually cross the midnight hour and open for business before midnight on Thursday evening. Toys R Us decided to open at 9:00 pm and Walmart followed at 10:00 pm; Target and others followed by opening precisely at midnight.

Many citizens were aghast at this intrusion on the tradition of Thanksgiving dinner; 200,000 Target employees and other concerned citizens actually signed a public petition to protest their employer’s decision. But most simply considered the shift of Black Friday’s opening times to Thanksgiving evening to be an inevitable reflection of evolving social values.

It’s Always Money

The reason for these shifting values? It’s always a matter of money. And it’s not just a consideration for retail stores and supermarkets; many other industries are witnessing the decline of cultural traditions as well.

The Commonwealth of Massachusetts, for instance, has just passed legislation to legalize large-scale casino gambling projects; New York State is continuing to pursue similar projects too. And the tradition of prohibiting obscenity from broadcast television programming is continually eroding through court decisions and other causes.

Furthermore, although many online retailers promote Cyber Monday (i.e. the Monday after Thanksgiving, a regular business day) as a day of special offers, they all — including such titans as Amazon — routinely remain open in a virtual sense 365 days a year. In other words, they’ve never been constrained by any blue law limitations whatsoever.

With the tradition of special Friday offers now migrating to Thanksgiving Thursday in “real world” stores, and to Cyber Monday in online stores, it is difficult to expect that Black Friday will continue to exist in its historical form. For citizens who actually appreciate the support that such laws give to people of faith and to their family values, the tradition will be sorely missed indeed.