Posted: August 6th, 2022
After reading “Stories of Change
Download Stories of Change
” and “The Tools of Cooperation and Change” from your course pack, respond to the
following prompt by filling out the table provided:
Download Table W1A3
1. Based on the contingency approach proposed by Christensen, Marx, and
Stevenson’s (2006) article, what is the degree of consensus in both “what
people want” (the end) and”how to get there” (the means) among people in
each of the three stories of change prior to the change?
2. Based on this analysis, which changes tools would be most ideal for each of
the three stories of change?
3. What are the intervention tools that were actually implemented in each of the
three stories of change? In which change story did you find the largest gaps
between the ideal intervention tools and the actual tools?
Issues to Consider as You Read This Story
1. Identify five factors that explain the success of this corporate turnaround.
2. How would you describe Paul Levy’s role and contributions to this turnaround?
3. What insights does this story have to offer concerning the role of the change leader?
4. What lessons about managing organizational change can we take from this experience and apply
to other organizations, in healthcare and in other sectors? Or, are the lessons unique to Beth
Israel Deaconess Medical Center?
This is the story of a corporate turnaround, rescuing the organization from financial disaster and
restoring its reputation, competitiveness, and profitability. Based in Boston, Massachusetts, the Beth
Israel Deaconess Medical Center (BID) was created in 1996 by the merger of two hospitals. The business
case for the merger was that the larger organization (over 600 beds) would be better able to compete with,
for example, the Massachusetts General Hospital and the Brigham Women’s Hospital. The two merged
hospitals had different cultures. Beth Israel had a casual management style that encouraged professional
autonomy and creativity. Deaconess Hospital was known for its rules-based, top-down management.
Staff were loyal to their own organization. After the merger, the Beth Israel culture dominated, and
many Deaconess staff, especially nurses, left to join the competition.
By 2002, BID was losing $100 million a year and faced “financial meltdown.” There were problems with the
quality and safety of care, with low staff morale, and with poor relationships between clinical staff and
management. The media attention was damaging BID’s reputation.
External management consultants recommended drastic measures to turn around the hospital’s finances,
and Paul Levy was appointed chief executive officer of BID in 2002. Levy had no healthcare background
and little knowledge of hospitals. He felt that gave him an advantage, as he was a “straight talker” and
could act as an “honest broker.” But staff were skeptical at first.
Levy’s turnaround strategy was based on two themes: transparency and commitment to quality. His first
action was to share with all staff the full scale of the financial difficulties, to create “a burning platform,”
from which escape would only be possible by making radical changes. His second approach was to signal
absolute commitment to the continuous improvement of quality, in order to build trust and to establish
a sense of common purpose. Levy described his management style:
Perhaps I had an overly developed sense of confidence, but my management approach is that people want to do well and
want to do good and I create an appropriate environment. I trust people. When people make mistakes it isn’t
incompetence, it’s insufficient training or the wrong environment. What I’ve learned is that my management style can
Phase 1: With the hospital “bleeding money,” urgent action was necessary. Levy accepted some of the
management consultants’ recommendations, and several hundred jobs were lost, in an attempt to restore
financial balance. He refused to reduce nursing levels, but the financial crisis was resolved.
Phase 2: Medical staff were tired of poor relationships with management. In 2003, Levy hired Michael
Epstein, a doctor, as chief operating officer. Epstein met with each clinical department to win their
support for the hospital’s nonclinical objectives and to break down silo working. Kathleen Murray, who
had joined BID in 2002, was director of performance assessment and regulatory compliance. The hospital
had no annual operating plans, and she set out to correct this, starting with two departments that had
volunteered to take part in phase 1, orthopaedics and pancreatic surgery. Other departments soon
joined in. Operating plans had four goals, addressing quality and safety, patient satisfaction, finance,
and staff and referrer satisfaction. One aim was to make staff proud of the outcomes and create a sense
of achievement. Although the performance of doctors would now be closely monitored, the
introduction of operating plans was seen as a major turning point.
Phase 3: To help address the view that medical errors were inevitable, Levy appointed Mark Zeidel as
chief of medicine. Zeidel introduced an initiative that cut “central line infection” rates, reducing costs
as well as harm to patients and providing the motivation for more improvements. The board of directors
were not at first convinced that performance data should be published, but Levy was persuasive, and
he put the information on his public blog, which he started in 2006, and which became popular with
staff, the public, and the media, with over 10,000 visitors a day. Levy explained:
The transparency website is the engine of our work. People like to see how they compare with others, they like to
see improvements. Transparency is also important for clinical leaders and our external audience of patients and
insurers. We receive encouraging feedback from patients. We’ve also managed to avoid a major controversy with the
media despite our openness. Transparency’s major societal and strategic imperative is to provide creative tension within
hospitals so that they hold themselves accountable. This accountability is what will drive doctors, nurses and
administrators to seek constant improvements in the quality and safety of patient care.
Other performance data were published, for the hospital and for individual departments. This included
measures to assess whether care was evidence-based, effective, safe, patient-centered, timely, efficient,
and equitable. Progress in meeting priorities for quality and safety could be tracked on the hospital’s
website, and the data were used by staff to drive quality improvements. The board also set tough goals
to eliminate preventable harm and increase patient satisfaction. Every year, staff were invited to
summarize their improvement work in poster sessions, featuring the work of 95 process improvement
teams from across the hospital.
Levy hired staff with expertise in lean methods. Previously an option, training in quality and safety became
mandatory for trainee doctors, who had to take part in improvement projects. The culture was
collaborative, and nurses had the respect of doctors. Patients often chose BID for the quality of nursing
care. The departmental quality improvement directors met twice a month to share experiences.
Department meetings routinely discussed adverse events. A patient care committee fulfilled a statutory
requirement for board oversight of quality and safety. The office of decision support collected data on
complication rates, infection rates, department-specific quality measures, and financial goals. A senior
nurse said: “We felt a sense of ownership with issues of quality. We have dashboards up in the units to
see how we are doing. Staff know what the annual operating goals are, as they are actively involved in
setting them and integrating them into their work.”
By 2010, BID was one of the leading academic health centers in the United States, with 6,000 employees
and state-of-the-art clinical care, research, and teaching. Competing effectively with other major
healthcare organizations, BID was generating annual revenues of over $1.2 billion.
Paul Levy resigned in January 2011. He explained his decision in a letter to the board of directors, making
this available to staff and the public on his blog. The letter included the following remarks:
I have been coming to a conclusion over the last several months, perhaps prompted by reaching my 60th birthday, which
is often a time for checking in and deciding on the next stage of life. I realized that my own place here at BID had run
its course. While I remain strongly committed to the fight for patient quality and safety, worker-led process improvement,
and transparency, our organization needs a fresh perspective to reach new heights in these arenas. Likewise, for me
personally, while it has been nine great years working with outstanding people, that is longer than I have spent in any
one job, and I need some new challenges.
Abbasi, K. (2010) Improvement in Practice: Beth Israel Deaconess Case Study. London: The Health Foundation.
Issues to Consider as You Read This Story
1. How would you describe Eddie Lampert’s leadership style?
2. How would you assess his approach to implementing major organizational change—in this case,
restructuring the whole company with a new organizational model?
3. On balance, would you assess his organizational model as having been a success, or not?
4. What lessons about managing organizational change can we take from this experience and apply
to other organizations, in this or other sectors?
Sears Holdings Corporation was a specialty retailer, formed in 2005 by the merger of Kmart and Sears
Roebuck. The merger was the idea of Eddie Lampert, a billionaire hedge fund manager who owned 55
percent of the new company and who became chairman. Based in Illinois, the company operated in the
United States and Canada, with 274,000 employees, 4,000 retail stores, and annual revenues (2013) of
$40 billion. Sears and Kmart stores sold home merchandise, clothing, and automotive products and services.
The merged company was successful at first, due to aggressive cost cutting.
By 2007, two years after the merger, profits were down by 45 percent.
The Chairman’s Solution
Lampert decided to restructure the company. Sears was organized like a classic retailer. Department
heads ran their own product lines, but they all worked for the same merchandising and marketing leaders,
with the same financial goals. The new model ran Sears like a hedge fund portfolio with autonomous
businesses competing for resources. This “internal market” would promote efficiency and improve
corporate performance. At first, the new structure had around 30 business units, including product
divisions, support functions, and brands, along with units focusing on e-commerce and real estate. By
2009, there were over 40 divisions. Each division had its own president, chief marketing officer, board
of directors, profit and loss statement, and strategy that had to be approved by Lampert’s executive
committee. With all those positions to fill at the head of each unit, executives jostled for the roles, each
eager to run his or her own multibillion-dollar business. The new model was called SOAR: Sears
Holdings Organization, Actions, and Responsibilities.
When the reorganization was announced in January 2008, the company’s share price rose 12 percent.
Most retail companies prefer integrated structures, in which different divisions can be compelled to make
sacrifices, such as discounting goods, to attract more shoppers. Lampert’s colleagues argued that his new
approach would create rival factions. Lampert disagreed. He believed that decentralized structures,
although they might appear “messy,” were more effective, and that they produced better information.
This would give him access to better data, enabling him to assess more effectively the individual
components of the company and its assets. Lampert also argued that SOAR made it easier to divest
businesses and open new ones, such as the online “Shop Your Way” division.
Sears was an “early adopter” of online shopping. Lampert (who allegedly did all his own shopping online)
wanted to grow this side of the business, and investment in the stores was cut back. He had innovative
ideas: smartphone apps, netbooks in stores, a multiplayer game for employees. He set up a company
social network, “Pebble,” which he joined under the pseudonym “Eli Wexler,” so that he could engage
with employees. However, he criticized other people’s posts and argued with store associates. When staff
worked out that Wexler was Lampert, unit managers began tracking how often their employees were
“Pebbling.” One group organized Pebble conversations about random topics so that they would appear
to be active users.
At the time of the merger, investors were confident that Lampert could turn the two companies around.
One analyst described him as “lightning fast, razor-sharp smart, very direct.” Many of those who worked
for him described him as brilliant (although he could overestimate his abilities). The son of a lawyer, it
was rumored that he read corporate reports and finance textbooks in high school, before going to Yale
University. He hated focus groups and was sensitive to jargon such as “vendor.” His brands chief once
used the word “consumer” in a presentation. Lampert interrupted, with a lecture on why he should have
used the word “customer” instead. He often argued with experienced retailers, but he had good
relationships with managers who had finance and technology backgrounds.
From 2008, Sears’ business unit heads had an annual personal videoconference with the chairman. They
went to a conference room at the headquarters in Illinois, with some of Lampert’s senior aides, and
waited while an assistant turned on the screen on the wall opposite the U-shaped table and Lampert
appeared. Lampert ran these meetings from his homes in Greenwich, Connecticut; Aspen, Colorado;
and subsequently Florida, earning him the nickname “The Wizard of Oz.” He visited the headquarters in
person only twice a year, because he hated flying. While the unit head worked through the PowerPoint
presentation, Lampert didn’t look up, but dealt with his emails, or studied a spreadsheet, until he heard
something that he didn’t like—which would then lead to lengthy questioning.
In 2012, he bought a family home in Miami Beach for $38 million and moved his hedge fund to Florida.
Some industry analysts felt that Sears’ problems were exacerbated by Lampert’s “penny pinching” cost
savings, which stifled investment in its stores. Instead of store improvements, Sears bought back stock
and increased its online presence. In 2013, Lampert became chairman and chief executive, the company
having gone through four other chief executives since the merger.
Instead of improving performance, the new model encouraged the divisions to turn against each other.
Lampert evaluated the divisions, and calculated executives’ bonuses, using a measure called “business
operating profit” (BOP). The result was that individual business units focused exclusively on their own
profitability, rather than on the welfare of the company. For example, the clothing division cut labor to
save money, knowing that floor salesmen in other units would have to pick up the slack. Nobody wanted
to sacrifice business operating profits to increase shopping traffic. The business was ravaged by infighting
as the divisions—behaving in the words of one executive like “warring tribes”—battled for resources.
Executives brought laptops with screen protectors to meetings so that their colleagues couldn’t see what
they were doing. There was no collaboration, no cooperation. The Sears and Kmart brands suffered.
Employees gave the new organization model a new name: SORE.
The reorganization also meant that Sears had to hire and promote dozens of expensive chief financial
officers and chief marketing officers. Many unit heads underpaid middle managers to compensate. As
each division had its own board of directors, some presidents sat on five or six boards, which each met
monthly. Top executives were constantly in meetings.
The company posted a net loss of $170 million for the first quarter in 2011. In November, Sears
discovered that rivals planned to open on Thanksgiving at midnight, and Sears executives knew that they
should also open early. However, it wasn’t possible to get all the business unit heads to agree, and the
stores opened as usual, the following morning. One vice president drove to the mall that evening and
watched families flocking into rival stores. When Sears opened the next day, cars were already leaving
the parking lot. That December, Sears announced the closure of over 100 stores. In February 2012, Sears
announced the closure of its nine “The Great Indoors” stores.
From 2005 to 2013, Sears’ sales fell from $49.1 billion to $39.9 billion, the stock value fell by 64 percent,
and cash holdings hit a 10-year low. In May 2013, at the annual shareholders’ meeting, Lampert pointed
to the growth in online sales and described a new app, “Member Assist,” that customers could use to send
messages to store associates. The aim was “to bring online capabilities into the stores.” Three weeks later,
Sears reported a first quarter loss of $279 million, and the share price fell sharply. The online business
contributed 3 percent of total sales. Online sales were growing, however, through the “Shop Your Way”
website. Lampert argued that this was the future of Sears, and he wanted to develop “Shop Your Way” into
a hybrid of Amazon and Facebook.
Kimes, M. 2013. At Sears, Eddie Lampert’s warring divisions model adds to the troubles. Bloomberg
Businessweek, July 11.
Issues to Consider as You Read This Story
1. What aspects of Ron Johnson’s turnaround strategy were appropriate, praiseworthy?
2. What mistakes did Ron Johnson make?
3. What would you suggest he could have done differently?
J. C. Penney Company, Inc. (known as JCPenney, or JCP for short) was one of America’s largest clothing
and home furnishing retailers. An iconic brand, founded by James Cash Penney and William Henry
McManus in 1913, the headquarters were in Plano, Texas. By 2014, with annual revenues of around $13
billion, and 159,000 employees, JCP operated 1,100 retail stores and a shopping website at jcp.com. JCP
once had over 2,000 stores, back in 1973, but the 1974 recession led to closures. The company’s main
customers were middle-income families, and female. JCP had a “promotional department store” pricing
strategy with a confusing system of product discounts. There were around 600 promotions and coupon
offers a year. Mike Ullman, chief executive since 2004, had grown sales with a strong private label
program, with brands such as Sephora, St. John’s Bay clothing, MNG by Mango, and Liz Claiborne.
Another 14 stores were opened in 2004, and the e-commerce business exceeded the $1 billion revenue
mark in 2005.
When the stock reached an all-time high of $86 in 2007, JCP was performing well. However, the recession
in 2008 affected sales badly; core customers had mortgage and job security problems. Between 2006 and
2011, sales fell from $19.9 billion to $17 billion. JCP had one of the lowest annual sales per square foot for
department stores (around
$150). Macy’s and Kohl’s, the main competition, had sales per square foot of around $230. In 2011, the
catalogue business, with nineteen outlet stores, was closed, along with seven other stores and two call centers.
The New York Times accused JCP of “gaming” Google search results to increase the company’s ranking in
searches, a practice called “spamdexing.” Google’s retaliation dramatically reduced JCP’s search visibility.
In 2008, JCP struck a deal with Ralph Lauren to launch a new brand, American Living, sold only in their
stores. But JCP was not allowed to use Ralph Lauren’s name or the Polo logo. The idea failed. Sales continued
to fall. In 2011, 50 to 70 percent of all sales were discounted, based on a “high-low” pricing strategy. An item
would be priced initially at, say, $100. Customers would see the product and like it, but not like the price.
After six weeks, the price was marked down, say, to $50, and the goods started to sell. But those items had
been sitting on a shelf doing nothing for over a month.
In 2010, two billionaire investors, Bill Ackman and Steven Roth, approached Ullman with an offer to buy
large amounts of JCP stock. They felt that the company had potential. Ackman and Roth were invited to
join the board, attending their first meeting in February 2011. Leaving that meeting, Ullman was involved in
a serious car accident, suffered multiple injuries, and spent three months in a neck brace, making his existing
health problems worse. The board wanted a replacement, and there were no internal candidates. Ullman
suggested Ron Johnson, who was working for Steve Jobs at Apple. Johnson then met with Ackman and
Roth to explore possibilities. Johnson said that he was concerned about the lack of innovation in department
stores, and he brought a positive, “can do” approach more typical of Silicon Valley than retailing.
In November 2011, Ron Johnson was appointed chief executive officer. JCP stock rose 17 percent on the
announcement. Johnson had been responsible for setting up Apple’s highly profitable retail stores, and he
had also been successful at another retailer, Target. In December, after one month in post, he presented to
the board his plans to revive the company with a fundamentally new way of doing business. The board
agreed. Johnson told a journalist, “I came in because they wanted to transform; it wasn’t just to compete or
improve.” In a board update before leaving, Ullman noted that Johnson had not asked him any questions
about how the business was currently running.
Johnson moved quickly. First, he wanted to transform the culture. In February 2012, he installed a large
transparent acrylic cube in the company headquarters. The cube was a version of the new company logo.
Johnson told staff that he did not want to see the old logo anywhere in the building. For a week, staff threw
“old Penney” items into the cube: T-shirts, mugs, stationery, pens, tote bags.
Second, no more promotions. Why wait six weeks to mark an item down to the price at which it would sell?
Why not sell at that price from the start? Johnson simplified the pricing structure with “everyday” prices,
which were what used to be sale values; “monthly value,” for selected items; and “best price,” linked to
paydays—the first and third Fridays of each month. The stores were tidier, with no messy clearance racks,
and the customer relationship became “fair and square” (another slogan).
Third, Johnson developed a “store within a store” strategy, with each store becoming a collection of dozens
of separate “boutiques.” He wanted a higher percentage of younger and higher-priced brands such as Joe
Fresh clothes, Martha Stewart home furnishings, Michael Graves Designs, Happy Chic, and furniture from
the British designer Sir Terence Conran. These new boutiques, of course, were not interested in having their
brands diluted by discount pricing. Traditionally, JCP got 50 percent of sales from its own brands, which
were displayed by product (bath mats) rather than brand (Martha Stewart). When a director asked him when
he was going to test his new approach, Johnson replied that he had made his decision relying, like Steve Jobs,
on instinct. Hundreds of stores were to be redesigned by the end of 2012. JCP already sold Levi’s jeans, but
Johnson wanted 700 Levi’s boutiques in the stores; building these boutiques cost JCP $120 million.
Southpole, a clothing brand that appealed to black and Hispanic customers, was dropped. St. John’s Bay, a
less fashionable women’s clothing brand generating $1 billion annual revenues, was dropped.
The speed of these changes would be motivating and unifying, Johnson thought. He wanted to rebrand an
old, stale company with a modern name and logo. Johnson was a charismatic and passionate presenter. He
said that the changes would be painful and would take four years to complete. The board were awed by the
scale of the transformation, but they did not challenge him. Johnson talked about the “six Ps”: product,
place, presentation, price, promotion, personality. One analyst noted, “One ‘P’ that seems to be missing is
people.” Employees were also excited about the developments, especially when Johnson threw them a lavish
party, costing $3 million.
Johnson wanted to make checkout simpler, with roving clerks taking payment on iPads. Millions were spent
on equipping stores with Wi-Fi. He also wanted all items to have an RFID tag, but that proved to be too
expensive. He also decided to separate the store buying group from the JCP.com buying group, an approach
used by Apple. However, this meant that there was no coordination between what was available online and
what customers could find in the stores. Johnson was more concerned with “the look and feel” of the
physical stores, and less support went to the website.
Johnson hired his own new team of top executives, who distanced themselves from the existing staff; most
of them refused to move to Dallas, flying there weekly instead. If you were not part of this new team, you
were out of the loop. One director called the “old” staff DOPES: dumb old Penney’s employees. Veterans
called the new team the Bad Apples. The new human resources director cancelled performance reviews as
being too bureaucratic. This made it easier to fire people; managers did not have to consult performance
data before making that decision. The new team recruited Ellen DeGeneres—a television celebrity and
lesbian—to appear in JCP advertising. A conservative group, One Million Moms, threatened a boycott,
claiming that, “DeGeneres is not a true representation of the type of families that shop at their store. The
majority of J.C. Penney customers will be offended and chose to no longer shop there.” The relationship
with DeGeneres was discontinued. Johnson introduced a new exchange policy; customers could return an
item, without a receipt, and receive cash. This policy was immediately abused, and one popular item was
returned so often that its sales turned negative. The plan to put Martha Stewart stores into JCP stalled when
Macy’s sued, claiming breach of its own agreement with the home furnishings brand.
The results published in February 2012 were poor. Revenues had fallen by $4.3 billion, making a $1 billion
loss. The stock fell to $18, and Standard & Poor’s cut JCP’s debt rating to CCC+ (a long way from “triple
A”). In April 2012, JCP laid off 13 percent of its office staff in Texas, closed one of its call centers, and also
“retired” many managers, supervisors, and long-serving employees on the grounds that new working
practices required less oversight. In May 2012, store sales were down 20 percent compared with the previous
year. Johnson had projected a short-term drop in sales, but not by that much. He commented that, “I’m
completely convinced that our transformation is on track,” leading to a 5.9 percent rise in the stock. In July
2012, a further 350 headquarters staff were laid off. By October 2012, online sales were almost 40 percent
down over the year. It was estimated that the decision to separate the two buying groups had cost JCP around
During Johnson’s two-year tenure, the price of the JCP stock fell by almost 70 percent, and sales fell in 2012
by 25 percent, resulting in a net loss of $985 million. JCP had alienated its traditional customers, who were
used to shopping for discounts, but had not attracted new ones, and 20,000 employees had lost their jobs.
In March 2013, Steven Roth, who had backed Johnson’s appointment but who had now lost faith, sold over
40 percent of his JCP shares at a loss of $100 million. Bill Ackman resigned from the board in August, selling
his shares at a loss of $470 million.
In April 2013, the company chairman told Johnson that the board would be accepting his resignation; within
a few weeks, all but one of the other senior staff hired by Johnson had also left. Mike Ullman was reinstated.
He immediately restored the old promotional pricing model. In May, JCP ran an “apology ad,” with an
earnest female voice admitting, “We learned a very simple thing, to listen to you.” A coincidence of timing,
in June, Johnson’s renovated home departments opened in stores, selling Jonathan Adler lamps, Conran
tables, and Pantone sheets. Too expensive for core customers, these departments failed and were withdrawn.
However, traditional sales in stores started to grow slowly, and by November, Internet sales had increased
by 25 percent on the previous year (Ullman had reintegrated the stores and online buyers). Sales of the private
brand merchandise lines that had been restored also began to return to previous levels.
The JCP brand had been damaged. Sales per square foot of shopping space had fallen steadily since 2010 as
shoppers turned to Macy’s and Kohl’s. Macy’s sales per square foot had risen. With sales and profitability
falling, in January 2014, JCP closed 33 underperforming stores (3 percent of the total), with 2,000 layoffs.
This would reduce annual operating costs by $65 million, but the company had made a loss of $1.4 billion
in 2013. After 100 years in business, with Mike Ullman back in charge, JCP stock continued to fall in the
first half of 2014. Commenting on Johnson’s legacy at JCP, one analyst said, “Nobody will be attempting
something similar for a very long time.”
Reingold, J., Jones, M., and Kramer, S. 2014. How to fail in business while really, really trying. Fortune,
July 4, 169(5):80–92.
Week 1 Assignment #3: Case Analysis – Stories of Change #3
Your name: _______________________
Beth Israel Deaconess
Degree of consensus in “what they want?”
Degree of consensus in “how to get there?”
Ideal intervention tools for change
Actual intervention tools for change
Degree of gaps between the ideal and actual intervention tools
Place an order in 3 easy steps. Takes less than 5 mins.