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What to Do If a 'HiPPO' Is Running Your Company

04/22/2013 01:36 pm ET | Updated Jun 22, 2013

Ron Johnson exited JC Penney humbled, with a list of accomplishments that he certainly didn't intend to leave as his legacy:

• The company burned through nearly $1 billion in 17 months, taking its cash balance from $1.8 billion to $930 million

• Revenue fell by 25 percent in 2012 for a loss of nearly $1 billion

• The company's market capitalization fell by nearly 50 percent on Johnson's watch

How does a leader initially hailed as the second-coming of Steve Jobs, ready to reinvent a 111-year-old staid retailer, crash and burn in such dramatic fashion? If JC Penney's board members had studied Amazon more closely, they might have discovered the answer. Leaders like Johnson have a special name at Amazon: they're called HiPPOs, which stands for "highest paid person's opinion." HiPPOs are leaders who are so self-assured that they need neither other's ideas nor data to affirm the correctness of their instinctual beliefs. Relying on their experience and smarts, they are quick to shoot down contradictory positions and dismissive of underling's input.

Arriving with a $52 million package, Johnson was certainly the highest paid person at JC Penney. Fueled by the board's affirmation of his credentials, the stock shot up nearly $1 billion shortly after his appointment was announced. But in the midst of the positive hype, Johnson didn't show much restraint in his disdain for the competence of JCP's personnel or the company's culture. According to one report, he required the then-marketing Vice President to go through each customer mailing publicly in an exercise designed to show the foolishness of the company's prior communication and promotion strategy.

When making changes, Johnson trusted his gut rather than the data in front of him. Although he was reportedly shown focus group results clearly indicating consumer's strong preference for discounts, Johnson pressed ahead with his changes, mandating a fixed pricing matrix for all merchants to follow. The ensuing confusion and consumer defections were at the heart of the company's 25 percent sales drop.

But Johnson didn't stop there - he not only ignored existing data, but he was also convinced he didn't need new information to validate the righteousness of his strategy. Although encouraged by the company's retail veterans to do so, Johnson decided not to test any of his changes because Apple had never tested when growing its store network. Experimentation in a small number of stores is common practice in retail before nationwide roll-outs. Had Johnson been interested, surely experiments would have provided an early warning that his strategy wasn't sitting well with customers.

Once execution of the company's new direction was underway, Johnson did reportedly ask frequently "is it working?" It's not surprising that few had the courage to speak up and give Johnson an unvarnished dose of reality. The former CEO liked to tell employees that there were two kinds of people - skeptics and believers. At Apple, Johnson said, there were only believers and he expected the same at JCP. It's not hard to imagine employees hearing that message loud and clear - speak up and you'll be labeled as a resister. At a time when the company was slashing the headquarters payroll and downsized in total by nearly 17,000 people, Johnson's dogmatic approach didn't exactly encourage open discourse.

To be fair, transforming a large company is hard work that requires vision, conviction in one's beliefs and perseverance. Typical of HiPPOs, Johnson over-indexed in all these traits, seeming to believe that he could will a transformation across hundreds of stores and thousands of employees to happen based on his brainpower and grit. His ultimate downfall was his disinterest and inability to listen to others, whether in the form of customer data or employee feedback.

Amazon, by contrast, has fostered a culture of experimentation in which leaders at all levels are encouraged to test ideas in the marketplace and then let data - not senior leadership opinions - guide implementation.

What happens when a HiPPO runs a company? JCP shareholders know the pain all too well.

This article, co-authored by Noel Tichy, first appeared on Forbes.com.