Risk and Return: A Look at JcPenny

(Photo Credit: Wiki Commons)

Ah the joys of Finance 3014! I am currently finishing up my junior year of college and must say that finance was... hmm, an interesting class. For all of those who have taken the class, there is one major financial relationship that you learn about: The "dedicated marriage" of  Mr. and Mrs. Risk and Return. In this lovely relationship there is no divorce, separation, cheating, or even the casual "lets take a break," it is pure equality resting on a base composed of unpredictability. Equality, in the sense that the more risk you take, the more your expected return; and unpredictability, meaning that we do not know for a fact the return that our risk will yield. Without the base of unpredictability, risk would cease to exist and with that, the possibility of great returns.

Normally, when people think about risk takers in big business, they think of the major innovators such as Steve Jobs, or Donald Trump even. But it is not always that these risk takers get the return that they are expecting. One recent story in in the media that has really caught my attention is the triumphs and trails of JcPenny, and its late cheif executive of 17 months Ronald B. Johnson. When looking at the JCP stock prices from the last year, which have fallen from approxiamtely $35.67 to nearly $16.00 here recently (Check them out here), it is evident Johnson's reliability on Mr. and Mrs. Risk and Return may not have paid off as he expected.  According to The NY Times Johnson's planned to turn JCP into a "shopping wonderland with designer boutiques and stable prices instead of coupons." This of course is a giant aspiration filled with all kinds of risks, in which I think Mr. Johnson did ( or began to do) a number of things right. For instance he took sales personnel off of commission, and created a plan that focused on the long term success and stability of the company (read more here). Unfortunately, it seems his plan did not yield the return quickly enough, or even at all, which we may never know due to his speedy release.


Being the avid shopper that I am, I must admit that I am thoroughly pleased with the change JcPenny has exhibited on the storefront side. I enjoy the few "boutique" sections of the store that were incorporated such as Sephora and Mango. I also find my shopping experience there to be more relaxing and enjoyable. Even their television ad campaigns have sparked my appeal. I am very eager to see where JcPenny plans to go from here and what the future holds for their stock and its return.

What do you think about JcPenny? Was Ronald Johnson's risk to high, and his plan too longsighted for the company to yield great returns? Why do you think JcPenny has struggled to improve its value as a company? Please share your thoughts, inputs, and comments below.

 Update: I Ironically just saw this ad on tv and found it to be an interesting plea to shoppers. Never seen a marketing campaign appeal to customers by admitting to "mistakes" and pleading for a second chance. Check it out! What do you think about it?

Managers v. Leaders

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What is, or more specifically, who is the driving force in your company that keeps the employees motivated and focused on the end goal(s)? Is it your managers? Are there any other people, or leaders, in your company that are the true driving force? Now here is the most important question you must ask yourself: “Are your managers the true leaders of your company?”

Leadership is an important thing to have in a company because it is linked directly to employee productivity and a company’s success.  A survey was recently taken by 6seconds.org, where they asked leaders and team members questions pertaining to company issues in terms of the employee side of things. One of the questions addressed the issue of leadership and its importance. In short the survey stated that, “58% of respondents identified leadership as the top concern” of the company.  Notice that not only is leadership a top concern for a majority of the company, but more importantly notice the wording of this question. It did not ask about bosses, owners, or even managers; it asked about leaders. So what is the difference between the two, managers and leaders?

When it comes to management and leadership it is important to realize that these two positions/roles possess distinctive differences. Managers, according to tnj.com, “are task oriented. They supervise and direct work flow for maximum efficiency, therefore they tend to be more concerned about the process and the results, rather than about the employees and their individual needs.” Whereas Leaders, are focused not only on an end goal, but also with the people involved in the process of reaching that goal. Leaders tend to be more people and relationship oriented rather than just task oriented like managers are. They have to be like that in order for them to fulfill their role, which involves doing three main things:  inspiring, motivating, and guiding/ leading. This simple realization in the differences of these two roles shows that a person can be a manager with out being a leader.  However when a person can merge leadership and management into one role, he will find himself not only being more effective, but also his employees becoming more productive.

Erika Anderson stated, on Forbes.com, “great work places arise from great leaders.” I believe she is right. When a company has true leaders in management positions, they will inspire the employees to be greater and perform better. Leaders will display passion in their work and guidance of others, while managers just… well they just manage. The relationships that develop within a company between the leaders and workers will create a sense of belonging and pride in the employees.

Just as Jack Welch once said, “ Before you are a leader, success is all about growing yourself (In this case the company). When you become a leader, success is all about growing others (employees).”  This in turn creates a better work environment, which leads to better productivity, and demonstrates why it is important for managers to become more effective by embracing the role of a leader.  

What do you think? Do you think there is a difference between management and leadership? Is it important or even necessary for managers to merge leadership qualities into their company role in order to be effective? Please leave comments below and share your thought on the subject.

The War with Corporate Social Responsibility

Money, that is what business is about isn’t it? Or in a more specific term business is about profit; it is focused on enlarging revenue and shrinking expenses in order to maximize gain. So when it comes to companies and the topic of corporate social responsibility (CSR), it is easy to see why there is controversy behind the motives and benefits that stem from CSR.

Corporate Social Responsibility is the idea that companies go beyond their basic operational level and get actively involved in benefiting the community around them. Companies do this in many ways, from converting their products to “green” products to benefit the environment, to voluntarily giving their community monetary and physical contributions such as sponsoring or building new parks and playgrounds.

For executives and managers the question of participating in CSR is a challenging one. They must ask themselves, “Is it truly beneficial/profitable for the company?” or “What gains or loses will the company experience, and if those gains will out weigh the loses?” This is where the first issue of CSR arises: the motive.  While some companies claim they participate in CSR because they honestly want to help society, others do it because of the self-serving benefits that arise from it.

So what are some of the benefits that arise from companies participating in CSR? Well, first off public CSR, such as community clean up events, are a way for a company to get its name out and more familiar with the people in the surrounding areas. Secondly, these sorts of events also contribute to the company’s positive image. When it comes to internal benefits, it creates a family like atmosphere for the employees. These events give employees a sense of belonging to the company by having do more than just the average work day. It follows then that social gatherings and fellowship outside of the work realm will lead to better teamwork and cohesiveness in the work realm. These are only a few of the benefits that arise from a companies focus on CSR (source).

Yet you ask, “With all of these wonderful affects of CSR, why wouldn’t a company not participate in it?” This is an important question that all managers need to ask themselves before making the changes and major company commitment that CSR requires. The First major pitfall that can occur when a company gets involved in the community is the lack of interest that the public will have towards it. Many people may not know about a companies CSR or they may know and just don’t care about it.  This leads to the second downfall: the profits that arise from CSR may not out weigh the cost. This is one of the greatest pitfalls of participating CSR seeing as most companies’ number one priority is to maximize profit. Starbucks, one of the worlds leaders in corporate social responsibility, is the perfect example for this (source).  As Forbes.com says, although Starbucks has a large focus on CSR (by using eco-friendly products, and supporting coffee industries in developing countries) “its shares have recently declined by nearly 50% since 2008.”  Lastly, CSR can create a challenge for companies causing them to make a choice between taking actions that benefit the shareholders or taking actions that benefit the public.  As you can see it, it creates a conflict of interest because serving the public can risk losing profit and this could cause a loss of support from shareholders if public support is not what they want.

In the end, CSR is an important issue for executives and managers to think about before they make a commitment to it. For some it can be beneficial, while for others it can be more costly. What do you think about corporate social responsibility? Do you think companies should better the community around them? Is it truly a profitable measure for the company to take? And lastly, does the company’s motive behind being socially active matter at all?

Victoria's Secret: Corporate Culture

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            Retail. For some it is a dreaded work environment; for others it brings back memories of a first job. Initially, the idea of retail and its corporate culture brings up thoughts of negative customer service experiences, continual vigorous hours on your feet, and power hungry managers always criticizing your every move. But is it possible or even beneficial for a retail company to create a positive and enjoyable corporate culture for its employees? 

            Victoria’s Secret, a company ran by Limited Brands, INC., has discovered the key to satisfying customers: it is an enjoyable work environment. According to Indeed.com, employees rate Victoria’s Secret “fun work environment” with five out of five stars. Also, CareerBliss.com has rated Victoria’s Secret as one of its top ten “Happiest Holiday Retailers.”  This shows that the company has proved one thing: a happy employee and a beneficial corporate culture leads to a satisfied customer and better sales.

             So what are some of the benefits that come from working at a store overflowing with erotic smells and filled with posters of half naked supermodels?  Well, on a basic level you have your typical employee benefits such as stock options, 401k plans, and health insurance policies available; but of course, there is more to it than that (Source). In order to create that unique corporate culture Victoria’s Secret gives their employees a thirty percent discount and goes above and beyond by also giving employees a cornucopia a free merchandise ranging from sample lotions and body washes, to free bras and everyday goods like blankets and umbrellas (Source: Employee Interview). Now, while some of these material benefits are given out on a rewards bases for reaching sales goals, others are given out with the company’s bi-motivated reasoning: first, to test their products and second, to make their employees feel special.

            Surprisingly, the company’s corporate culture isn’t all about perfumes and pink frilly undergarments.  There is another element that complies with the company’s character: community involvement.  Rio Rancho’s Victoria’s Secret Direct, a call center for the company, gets involved with their surrounding community by donating contributions, participating in United Way Activities, and engaging in Community Care Week. Bev McMillan the company’s Director of Sales said that, "The great things we do (are part of) our DNA. It's in our value system."(Source) This exemplifies that community involvement and social responsibility is an important portion of this company’s corporate culture.

            So has Victoria's Secret created a successful corporate Environment? I would have to argue that it has, and it did so in a unique and charming way. The corporate environment is important for managers to pay attention to because, as Victoria's Secret has shown, when your employees are happy your customers are happy, which in turn is directly related to the businesses success. In conclusion, I would like to pose a few questions:

1.     How much energy should a corporation or an organization put into its corporate culture?

2.     Is the expense of everything put into creating a positive corporate culture truly worth the gain?

The External Environment: Ford's Reaction to Rising Gas Prices

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            When it comes to the automotive industry, there are many external factors that car companies and dealerships have to keep in mind. Recently, one of the most prevalent external factors in the auto industry has been the substantial rise in oil and gas prices.This is an important topic for people to pay attention to because it is an industry that nearly all Americans are tied to through their own personal vehicles. Even outside of the personal realm, auto dealers and corporations that distribute company cars to their employees need to pay attention to this matter in order to maximize their profitability.

             So what is the issue at hand? In short, gas prices have reached an all time high due to crude oil nearly doubling in price. In December 2005 crude was at $61.04, as of February 2011, crude oil prices have risen to $109.77 (Source). In turn, consumers are now wanting to purchase more gas mileage friendly cars, causing car companies, such as Ford, to experience a noticeable decline in sales of certain larger models like their F-series and SUV’s.

            How then should the managers of Ford react to the rising gas prices and the change in consumer demand? In order to maintain profit, Ford began to create more hybrid models of smaller vehicles such as the ford fusion. They also released a non-hybrid car called the focus, which boast about its 40-mpg gas mileage. This helped them in overall sales, but Ford still struggled in pick up truck sales, which is what the company is notorious for.

            According to The Wall Street Journal, Ford plans to adjust their F-Series and make it 25% more fuel-efficient by using more aluminum and less heavier metals in the body of the truck.  It is impressive to see managers realize and react so creatively to the issue and important for Ford to adapt to the effects of the external environment and consumer demand, but this might not be the best way for the company to do so. The new design that Ford is planning to implement not only brings up issues of safety, but also compromises all that the company stands for which is clearly displayed in their infamous motto: Ford, built tough.

            However, their actions do bring up important question for managers and companies all over to ask themselves: Is it worth it? How can a company properly adapt to external factors without risking everything it stands for? Are they truly the same company that they originally set out to be by making major changes?