Organizational Behavior the Transformation of JC Penny

Organizational Behavior

The Transformation of JC Penny for the New Century

Organizational behavior is the study of how the actions of individuals, groups, and structures influence the behavior of an organization. Organizational culture refers to the characteristics that define the organization and make them unique. Organizational culture refers to communication styles, management styles, interaction styles, policies and procedures, as well as the manner of dress within the organization. Organizational culture influences organizational behavior in many ways. Organizational behavior produces outcomes that lead to the success or failure of the business. This research will explore that organizational behavior of the JC Penny Company.

Many studies on organizational behavior focus on the failures of the business in relation to organizational behavior. However, this research takes a different approach and will focus on a company that is been around for 100 years. It will explore organizational behavior within the JC Penny Company and how it has used organizational behavior to leverage its position into achieve longevity. Companies that have been around for 100 years are rare and we can learn much from studying their organizational behavior and how it has helped them to remain in business for so long.

Company Background

The JC Penny Company was founded in 1902 by James Cash Penny and William Henry McManus (History of Business). It began as a dry goods store in the booming mining town of Kemmerer. The first name of the store was The Golden Rule. By 1912 there were 34 Golden Rule stores. The following year JC Penny took a majority ownership of the chain and changed the name to JC Penny. By 1917 there were over 175 stores (History of Business). The chain continued to expand rapidly as store managers were allowed to open new stores and keep a quarter of the profits as soon as their store became profitable. This was a simple expansion concept that worked to make it one of the biggest retailers in the country by 1970. The original store in Kemmerer was still operational as of 2007 (History of Business). The greatest expansion for JC Penny was during the 1950s and 1960s in the post-war boom. America moved to the suburbs and JC Penny established itself as an anchor store in malls across the country (History of Business).

Problem Statement

This research will address the problem of how JC Penny has adjusted its organizational behavior to respond to changes in society, making it one of the longest lived retail chains in the United States. It will focus on how Myron Ullman's changes from an authoritarian style of leadership transformed the company to one that engaged the employees and had an impact on the profitability of the company.

Introduction to the Topic

JC Penny began as one store located strategically where there was a need for certain goods. Today, JC Penny stores are located in suburban shopping malls, but that was not always the case. At one time, most JC Penny stores were located in downtown areas of large urban centers (History of Business). The most recent trend in retail stores is opening stand alone stores. JC Penny is currently jumping into this trend slowly. JC Penny is now an Internet retailer as well (History of Business). These adjustments to changing retail trends have meant significant institutional changes within the corporation. Over the past hundred years they have had to adjust and readjust their corporate strategy and corporate behavior to survive ever changing times.

JC Penny's has always had one of the largest catalog businesses in the retail industry. Sears was its only real competition in the catalog business for many years. JC Penny.com is now one of the largest apparel and home furnishings websites on the Internet with nearly one billion dollars in annual sales (History of Business). JC Penny currently faces stiff competition from big box retailers like Wal-Mart andTtarget. This has forced JC Penny into private brands such as St. John's Bay, Worthington, and Arizona Jean Company (History of Business).

This has meant changing markets once again from the general retail audience to a niche market focusing on product differentiation through the select brands that it offers. With so many other major rtrailers having to take the same or similar actions, the future of the retailer may come into question. This latest move in response to the actions of big box retailers represents a change in organizational behavior and strategy. This research will explore the effects of this change on JC Penny's ability to remain competitive in this new and changing market.

Context of the Problem

This latest development is perhaps one of the most drastic changes that JC Penny has had to adjust to its entire history. In the past, changes focused on the physical stores themselves. Previous changes were from downtown areas to suburban malls and more recently to standalone stores. However, the product offerings and range of products remained constant. This most recent change in the market is forcing JC Penny to not only change where and how it does business, it is forcing it to rebrand its entire product line up. In addition to sweeping changes in the brands that it offers and product offerings, JC Penny has also changed its company logo as well (Damas and Schendel, 2012). However, it takes more than marketing to achieve success in a world of increasing competiton. This research will explore how these changes in organizational behavior will affect the company and its ability to remain competitive in a marketplace that is characterized by increasing competition.

Objectives/Purpose

The purpose of this study is to examine the organizational behavior of JC Penny in response to societal changes in past. It will help researchers to gain an understanding of how organizational behavior at the JC Penny Company is related to its ability to respond to changes in the retail industry successfully. By understanding how organizational changes have affected JC Penny's ability to remain sustainable throughout sweeping societal changes including two world wars, researchers will gain a better perspective on how other retailers can utilize this information to adjust their own organizational behavior to achieve greater sustainability.

The objective of the study will be to examine the current changes and re-branding strategy of JC Penny and to make predictions as to how these changes will affect JC Penny's success in the future. JC Penny is not the only retailer in the industry to be undergoing dramatic changes. One of the key objectives of this study will be to examine the similarities and differences of JC Penny strategy and to gain a perspective on the overall changes within the retail industry.

Methodology

This research will involve historical information about overall organizational behavior and strategy. Only limited information is available to the public, particularly documents as to the reasons for the strategy. Much of the information will be corporate sensitive information and will not be available outside of the company. Therefore, the research method used for this study will entail collection of information from a variety of sources. These will include internal documents where available, financial statements, media sources, journal articles, and other academic sources. Any internal documents that are available and that relate to the purpose and objectives of the study will be included as well.

The availability of information for the study and the type of information available place a several limitations on the ability of the study to draw conclusions regarding organizational behavior. Much of the information will be speculative, as organizational behavior was not the topic of concern in the past. Companies did not keep or track information organizational behavior until recently. However, it is expected that from the information available, organizational behavior can be deduced from it.

This research will attempt to examine current theory theories and organizational behavior and apply them to the company in question. Theories will provide a framework with which to examine organizational behavior. Organizational behavior differs from strategy in that organizational behavior is associated with individual behavior, rather than the aggregate that becomes organizational strategy. Therefore, the actions of individuals will be considered in light of the study, when this level of information can be found.

This research is a qualitative study and is bound by the limitations of qualitative studies as such. For instance, the potential for researcher bias in the gathering and interpretation of the information is always a possibility. The researcher will keep this in mind as they gather the information and interpret it. It is expected that if the researcher keep this in mind, then the results of the study will be unbiased and will reflect the marriage of organizational behavior theory and the behaviors within the JC Penny Company that allowed it to remain a viable company for 100 years.

Literature Review

Organizational behavioral theory has only recently begun to be recognized as a discipline unto itself. Organizational behavior has been historically tied to organizational culture. If however, culture refers to the collective actions of the company, whereas organizational behavior refers to the behaviors of the individual that results in organizational culture and organizational strategy. Theories in organizational behavior are closely linked to psychology and sociology. Understanding group and individual behavior helps to improve organizational performance by managing individual behaviors (Mullins, 2005). A close relationship exists between organizational behavior and management theory.

Organizational behavior is affected by culture to a certain degree. The culture of the organization sets the "climate" of the organization and this has a significant effect on the behavior of individuals within the organization (Chaneta). This can be seen in the early history of the JC Penny Company. Although JC Penny did not realize it, its growth was dependent upon the organizational culture that he instilled in his managers. In the early days of the store, growth depended on individual managers starting their own store. When the store became profitable they could retain 1/4 of the profits. This incentive plan was instilled in JC Penny's overall strategy and corporate culture. This established a corporate culture where certain individuals were rewarded heavily for their success, but only certain individuals. This created behaviors that resulted in success among the management team, but not necessarily among the sales force and other employees. Growth in the early history of the store depended on a corporate culture that stemmed from individual behaviors on part of the managers that resulted in growth and success of the chain. It is also important to remember that the managers could not do this on their own. Just as the desire to succeed was instilled in them by JC Penny and his reward program, so did the managers have to instill the same type of success driven behavior in their employees.

Buchanan (2004) refers to several key components of organizational behavior. These are personality, communication, perception, and motivation. All of these factors determine how the person sees themselves in the work setting and how they behave on the job. According to Buchanan, work design also plays a key role in organizational behavior. JC Penny is a retail store that until this point has offered a similar selection of merchandise to other retailers. Until recent improvements in technology, most retail organizations operated similarly, other than their method of supply and distribution. JC Penny has maintained a customer focused culture from the very beginning of the organization. This has allowed it to gain and keep a clientele that has sometimes spanned generations. Shopping at JC Penny became a time honored family tradition.

When one talks about organizational behavior it encompasses many different theories drawn from psychology and sociology. For instance, organizational behavior encompases personality traits including self-esteem and self-efficacy, perception and attribution theories, learning in reinforcement theories, reward schedules, behavior modification, goal setting theories, and motivation theories. All of these theories contribute to the behavior within the organization. One research approach might be to take one of these theories within the field of organizational behavior and apply it to a certain organization. However, JC Penny is a large company and not enough is known about individual employees to conduct such a study. Therefore, we will have to examine other factors to gain perspective on organizational behavior within the JC Penny Company.

One of the key difficulties in organizational behavior theory is similar to that which is found in psychology and sociology research. It is difficult to achieve predictive research validity. One can look it trends in retrospect, but the human mind is complex and difficult to categorize in such a way that will allow us to predict exact behaviors in the future. Therefore much research and organizational behavior exist in theory at the current time (Miner, 2002). Changing the mindset of the employee is necessary in order to create a culture that will allow the company to grow and adjust to changing economic conditions. Changes in culture come from daily activities that are repeated over time. This behavior begins with management and flows from the top down through the organization.

In 2004 when Myron Ullman took over the company he found the company culture to be rigid and formal. Employees addressed their superiors by the last name, were expected to dress formally, and were not allowed to decorate their cubicles in any way (Anderson, 2006). This was the normal culture it JC Penny that was repeated on a daily basis, as dictated by upper management. This town caused people within the organization to behave in a certain manner. Formal and proper were the established social norms within the organization. Ullman did not feel that the mood and rigid culture were conducive to the aggressive growth plan that had been set. The rigid culture cost a high turnover rate in the company had difficulty attracting new talent. It seemed that no one wanted to work in that environment (Anderson, 2006). If the company wanted to grow and achieve its goals, it would have to change the way it did business on a daily basis. This meant changing routines and behaviors from the top down.

The first behavior that the company changed was to allow the employees to address the managers by their first name. They also relaxed dress codes, allowed them to decorate their cubicles and employees no longer had to feel like they were being watched by the "office police" (Anderson, 2006). Ullman began a series of team building strategies and established a "Retail Academy" where employees could learn to improve their skills. The results of these behavioral changes resulted in a change in organizational culture. Turnover was reduced and they were able to attract students from some of the best design and retail schools. The fiscal results of these behavioral changes were 15 consecutive quarter of sales gains, something that it never been accomplished in the company in the past (Anderson 2006). At the forefront of these changes were behavioral changes by management and the employees. This example demonstrates how the actions of individuals have an impact on corporate culture and produce real results on the bottom line.

The most difficult challenge Ullman faced was changing 100-year-old culture. The culture it JC Penny was deep rooted and was much the same as it was when JC Penny founded the company in 1913. The company culture had been reinforced for 10 decades. In order to change company culture, Ullman knew that he had to change individual behaviors. The first step Ullman took was to take the first several months and listen to the employees. He embarked on a search for other companies that had undergone turnarounds. Ullman then began to groom leaders for their new roles within the company.

If took nearly two years for the changes that Ullman instituted to begin to show results. Employee engagement did not happen overnight. Changing human behaviors is not an easy task as this case demonstrates that it takes time before the changes will have an affect. JC Penny conducted surveys to gauge the degree of employee "engagement" in the company. Employee engagement rose from 67% in 2004 to 73% in 2006 (Icmrindia).

Ullman brought sweeping changes to the JC Penny Company that had real affects on the bottom line. Ullman changed organizational culture from one with rigid and strict rules to one that was more pleasant for the employees. Ullman loosened up the grip that management held on its employees. The employees responded positively by being more productive and loyal to the company. Ullman brought about changes by changing the behaviors of individuals, starting with those in leadership positions that would be most likely to have a direct influence on the employees directly below them.

Analysis

Ullman changed company culture to reflect modern management styles that engage, rather than suppress employee innovation. Under the old outdated management style, emphasis was placed on appearances. This gave employees the impression that appearances were more important than achievement. This led to a certain set of behaviors that squelched the company's ability to grow. The old authoritarian managerial style reflected antiquated leadership techniques that harkened to the beginning of the 20th century. This authoritarian style of leadership creates distance between employee and managers. The purpose of the changes that Ullman sought was to make employees have a greater sense of ownership and engagement in the company.

In order to change organizational culture, Ullman had to change the attitudes and behaviors of the employees and managers. Ullman took a sensible approach, considering the traditional hierarchical structure of the company. He took advantage of the ability of managers to set the tone and to influence those below them. This approach allowed Ullman to leverage the old structure to replace it with a new company image and employee attitude. The results of Ullman's approach demonstrates its affectiveness. Ullman was clever to utilize the existing authoritarian structure to implement behavioral changes and a new company culture.

Organizational behavior is a relatively new branch of the social sciences. It encompasses many areas of psychology and sociology, drawing from many theories from these and other topic areas. Therefore, some of the theories are drawn which organizational behavior is based are drawn from other areas. Employee motivation is one of the key areas of concern for many managers, including Ullman. He recognized that in order to continue to sustain JC Penny's long-term success he would have to change employee behaviors and motivation. Without realizing it, he drew from research in the area of managerial science and from social learning theory to institute the changes needed within the organization.

The old style of management at JC Penny was paternalistic. Managers took on a parental role towards the employees. The employees had very little autonomy and could make few choices for themselves. Control was the central mechanism used for motivation. Paternalistic leadership styles were the norm when JC Penny was founded. However, since then, research has found the paternalistic leadership styles are detrimental to several areas of the organization. The first and foremost is that paternalistic leadership style causes damage to employee engagement in employee retention. Control mechanisms make work an unpleasant place to be. When employees feel that they have no choices and that all decisions come from the top down, it will harm engagement and a feeling of teamwork within the organization (Pelligrini and Scandura, 2008).