Tackling a Crisis Head-on
This week, we will be starting our work on Assignment 2. Go to The Wall Street Journal menu item and find an article about a crisis that occurred at a specific organization in the last year.
Considering the course materials for this week, answer the following:
Describe the crisis faced by the organization.
What communication tactics did the organization use to address its crisis? Refer to Jack and Warren’s guidance for dealing with crises.
To what extent, if any, was the organization’s crisis communication plan effective?
If you were a senior leader in the organization, would you have responded differently? Why or why not?
This week and next, continue to research this specific crisis so that you can better prepare for Assignment 2.
Post your initial response by Wednesday, midnight of your time zone, and reply to at least 2 of your classmates’ initial posts by Sunday, midnight of your time zone.
1st response
The Bank of America Earnings Crisis
In 2020, many businesses experienced notable challenges due to the outbreak of the coronavirus. The Bank of America was no exception based on its reports of firm earnings in 2020. According to Eisen (2021), many large financial organizations in the United States withstood the recession due to COVID-19. However, the author explains that the banks have not been fully protected against the minimal rates brought about by the pandemic. For Bank of America, the outcomes of the COVID-19 outbreak have been felt in many ways, particularly the reduction of earnings by 22%. Additionally, lenders have also experienced significant challenges based on low-interest rates, and Bank of America is among them. Since the financial institution gains earnings on the difference between their lending payments and what they pay to depositors, the bank’s interest rates downfall. The earnings crisis also affected the firm’s operations in the last quarter of 2020 even though it made considerable profits.
Communication Tactics and Addressing the Crisis
Handling a crisis in organizations presents notable problems for managers and leaders that do not understand the proper ways of solving a crisis. Warren Buffet explains that there are four significant steps a leader can take to address a crisis. First, getting the crisis right and understanding why it happens and what can stop it will help address the crisis. The Bank of America leaders understood that the company needs to introduce measures that will increase the earnings. Secondly, according to Buffet, responding to the crisis fast is also a core step in managing a crisis. The Bank of America did not wait until the last quarter of 2020 to react to the earnings crisis. Rather, they resorted to ensuring the loan demands are stabilized by business consumers and focused more on investment activities (Eisen, 2021). The third and fourth steps based on Warren’s advice involve getting the crisis out by dealing with it and getting over with. The Bank of America handled the crisis well by focusing on solutions rather than wondering what it means for the financial institution. In this sense, addressing a crisis requires understanding every detail that comes with the crisis.
Effectiveness of the Communication Plan
Several ways can be associated with the Bank of America’s communication plan for addressing the earnings crisis. First, the plan focused on what caused the crisis for the organization. Managers and leaders that comprehend the causes of a problem find easier ways to approach the issue, which becomes easier to solve. Secondly, the plan also presented possible solutions to the crisis, including loan demand stabilization and investments (Eisen, 2021). An effective communication plan comes with essential solutions to a crisis. Additionally, the communication plan advocated a fast response to the crisis, rather than waiting for some time. Solving a crisis with immediate effect increases the chances of handling it well. Thus, the plan presented by the Bank of America was effective in handling the earnings crisis.
How I would have Responded
If I were a senior leader at Bank of America, I would not have responded differently from how the leaders did. However, there are a few things I would have done besides the actions they took to handle the crisis. First, I would have established significant plans that consider any crisis in the future. The business world is filled with uncertainty, and ensuring there is a response plan to unexpected events puts the organization in a safe business place. Secondly, I would have ensured that every working member in the organization understands what the crisis means to the company and how to turn the events around.
References
Eisen, B. (2021, January 19). Bank of America Earnings Weighed Down by Low Rates. Retrieved 19 January 2021 from https://www.wsj.com/articles/bank-of-america-quarterly-profit-falls-22-11611058056?mod=searchresults_pos9&page=1
2nd Response
George Holobetz 2 1 21 Week 5 Discussion Case: Tackling a Crisis Head-on
Describe the crisis faced by the organization.
JC Penney filed for bankruptcy in May 2020. It was recently sold in November 2020 for $300 Million to the landlords of most of its stores, Simon Property Group and Brookfield Property Group.
The crisis was to survive through Bankruptcy and emerge to be sold if possible. The company had about $8.0 Billion in assets and about $8.0 Billion in debt in 2020 when it filed for bankruptcy protection, not good. The crisis was in the making for at least a decade and was never fully addressed until it was too late (Kapner, Scurria, 1).
There is no question that turmoil at the top helped the company slide into mediocrity. I once had JC Penney as a corporate client. They were over 100 years old, as was the company I worked for. We were their first paper supplier for catalogs, newspapers, and ad flyers. I sold them about $30 million a year worth of product, and at one time, it was as high as $100 million/yr.
The company was late to adopt an internet presence and never really invested enough to help its sales. As mall shoppers continued to decline, they never addressed how to deal with it. However, online retailers and even Kohl’s had a strategy. JC Penney had none that was effective and obviously never determined how to address it.
It went from a $500 million profit in 2011 to filing for bankruptcy last year. There is no question the Covid Virus Pandemic put the nail in the coffin. They had to shut down for over a month when the pandemic hit.
What communication tactics did the organization use to address its crisis? Refer to Jack and Warren’s guidance for dealing with crises.
Both Welch and Buffet talk about the crises being bigger than they are. JC Penney was on a slope downward for a decade, so the crises were growing and accelerating. In my mind, they attempted with little forethought to the nitty-gritty of how to stay relevant and kept bringing in outsiders with little clothing retail experience relative to their offerings. This was a disaster (Buffet, Welch, 2).
The company floundered aimlessly for a decade before Covid all but killed it. Had they not been purchased, they would have been liquidated, and about 60,000 employees would be gone, and the remaining 650 stores closed. They once had over 1600 stores.
There was no hiding the decline of JC Penney, Sam Walton, the founder of Walmart, “once said that JC Penny was the Cadillac of the Retail Industry,” and he started his retail career there. The decline of the company started in about 2010 mainly due to Kohl’s and discount retailers in clothing like TJ Maxx, Old Navy, The Gap, and the proliferation of the upcoming offerings through retail online sales.
They wasted much time by keeping floundering stores open and sticking to the Mall presence scenario as their model. Kohl’s built mostly independent buildings, owned them, put them in strategic locations, and built them mostly with their own cash. Very smart! They built them mainly in growing suburbs throughout the US. While JC Penney was stuck in malls, many of which were located in older, less shopped locations. Those locations became increasingly less relevant. They were stuck in long-term leases in increasingly undesirable locations and did not feel the strategy to go to freestanding stores made sense.
So they did not follow Jack’s or Warren’s advice about getting on with what to do. The Pandemic forced their hand after they failed to make a profit. They had no offense and their defense of staying who they were and to become had no plan. They were great at logistics at one time, but those facilities became less utilized and needed modernization to stay productive with declining sales. Their lack of profits over the 2010-2020 period hurt their highly-touted distribution hub system because they could no longer afford to keep them in good enough shape to stay productive.
To what extent, if any, was the organization’s crisis communication plan effective?
None.
There is no doubt there was never a clear plan to alleviate their downward spiral. They had to close stores that were losing money, and they did not. They had to put more oomph into their internet sales organization platform they did not. They had to offer more cash coupons and rewards like Kohl’s. JC Penney had them. However, when they brought in Ron Johnson from Apple to upgrade the image and products to a more elite clientele. He got rid of them. He fired 100’s of long-term retail veterans upon his arrival, and he was fired 17 months after hired. He failed miserably because upscale shoppers were not shopping at JC Penney. He created a brain drain on what made them profitable. Kohl’s stepped in with a bigger and better Coupon, Rewards program after Ron Johnson stopped them. When they got rid of Johnson, they brought them back, but Kohl’s had become the place to shop for the best deals in the same lines JC Penney was selling. That move alone cost the company over $5.0 billion in sales in one year. Thus the spiral began. I wonder how these X-CEOs of JC Penney ever got jobs after driving JC Penney into the ground. I would have ever hired them afterward. They ruined a good company,
Then they brought in another CEO, Marvin Ellison, from Home Depot. Another senseless move since what the heck did he know about the retail clothing industry. JC Penney was not selling lumber and nuts and bolts. That was another disaster, particularly when sales again took a slide when he started to bring appliances back into stores to be sold. This was again a hit against their strength in retail clothing sales, particularly to middle-class women. He was focused on trying to make JC Penney something they were not. Instead of strategizing to optimize who they were. He left and went back to nuts and bolts by becoming the leader of Lowe’s. Interestingly and predictably enough, the losses went down after he left. So it was good he left, and I think had he not, he was on his way out as well.
If you were a senior leader in the organization, would you have responded differently? Why or why not?
I would have responded very differently than the senior leadership did over the last 10 years in which JC Penney was in crisis but not responded to. This crisis, along with Sears and K-Mart, are filled with absolutely wrong decisions in so many ways. It is tough for me to understand how poorly the boards of these companies managed them.
I would have done the number one thing would have been to go back to their core strength of women’s clothes. Moreover, offer innovative new clothing lines to attract more than middle-aged to older women. Marketing was awful. Adds did not bring people into the stores. People shop at a place that offers them what they want, not what the company brand managers think they want. They have to start offering lines that would attract all age groups, particularly the millennials. What teenager wants to go shopping for clothes at JC Penney?
They should have noticed what was attracting shoppers to Kohl’s, TJ Maxx, Old Navy, The Gap, and Amazon and implemented more of their strategies versus their own.
I would have fired the board. They elected irrelevant CEOs and did not hold them accountable and thus floundered for 10 years before finally, out of desperation, they filed for protection under bankruptcy. I knew 3 CEOs of JC Penney, and the company was successful under them. Nevertheless, even they failed to have a long-term sustainable strategic plan. Within the first year of running my division, I created a strategic plan for each year that folded into a five-year plan, and each year the yearly plan was updated, and so was the five-year plan.
Their new owners need to force the current leaders of JC Penney to wake up to the competitive realities of the retail clothing industry. If they do not, they may not survive the decline to nothingness but may just have slowed the inevitable.
I would immediately form a Cross-functional business team across all business functional areas to ask what I did when I turned around an $800 million division of a company losing money into a $3.5 billion division making about $75 million in net profit.
I asked the divisional leaders of every business function; why do we do what we do? If you wanted to do it better, what would you do? How much do you think we need to get from the board to make it happen?
Once that is all assessed, come up with a new Mission and Strategic Vision to get it done. They will not survive if all they do is continue aimlessly. Their new CEO, Ms. Soltau, refocused the company on apparel. It sold its headquarters in Plano, TX. Which I had been to dozens of times. It was a palace, and at one time itself could have been sold for over $100 million. It was sold for far less. Furthermore, they just closed it since they were paying $2.45 million a month just in rent! It should have been sold the first year they lost money in the 2011-2012 time frame. Their stock is worth about $.25/share. When I worked with them, it was in the mid $30’s/share range.
I grew up when Penney’s, Sears, K-Mart, US Steel, and countless other major companies were successful. Their number one failure in my mind was that they did not strategically plan for sustainability in various market conditions. These have to be part of the annual and five-year or longer strategic plans with deviations to cover multiple market realities. I addressed at least 3 of them in each plan I had to build. Moreover, that was sufficient (JWI505, WK5 LN, 3).
Reference:
1. Kapner, Suzanne and Scurria, Andrew. 2020. WSJ Article. J.C. Penney, Pinched by Coronavirus, Files for Bankruptcy. https://www.wsj.com/articles/j-c-penney-pinched-by-coronavirus-files-for-bankruptcy-11589582224
2. Buffet, Warren and Welch, Jack. 2021. Tips on Handling a Crisis Video. https://blackboard.strayer.edu/webapps/blackboard/content/listContent.jsp?course_id=_312212_1&content_id=_34421029_1&mode=reset
3. JWI505.2021. Week 5 Lecture Notes. https://blackboard.strayer.edu/bbcswebdav/institution/
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