Confront The Brutal Facts [Yet Never Lose Faith] Chapter 4 Team 6 Jessica Aragon Raynee Bradley John Cayo Lawrence Griffith Cole Naylor Jessica Wilson Brandy Wolfe

Confront the Brutal Facts Facts are better than dreams. A climate where the truth is heard. Unwavering faith amid the brutal facts. The Stockdale paradox.

A&P vs. Kroger In the 1950’s, A&P was the largest retailing organization in the world and one of the largest corporations in the U.S. Kroger in contrast, stood as an unspectacular grocery chain, less than half the size of A&P, with performance that barely kept up with the general market. Then In the 1960’s, A&P began to falter while Kroger began to transition into a great company. From 1959 to 1973 both companies lagged behind the market, with Kroger just barely ahead of A&P. After that, the two companies completely diverged, and Kroger generated cumulative returns ten time the market and eighty times better than A&P.

Kroger, A&P, and the market Cumulative value of $1 invested Notes: 1.Kroger transition point occurred in Chart shows value of $1 invested on January 1, Cumulative returns, dividends reinvested, to January 1, 1973

Notes: 1.Kroger transition point occurred in Chart shows value of $1 invested on January 1, Cumulative returns, dividends reinvested, to January 1, 1998 Kroger, A&P, and the market Cumulative value of $1 invested

A&P vs. Kroger continued In the first half of the twentieth century, when the two world wars and a depression were going on, Americans were frugal and wanted cheap, plentiful groceries. In the second half of the twentieth century, Americans changed. They wanted nicer stores, bigger stores, and more choices. Both companies had knowledge of how the world around them was changing. However only one company confronted the brutal facts of reality head-on and completely changed its entire system in response; the other company stuck its head in the sand. A&P did some research and opened up the Golden Key. This store had new departments and was very similar to a modern superstore, it was a well liked by customers. Because the executives did not like the answers that Golden Key gave they closed the store. This led to other ideas such as price cutting, which ultimately led to cost cutting and this continued to drive away customers.

A&P vs. Kroger conclusion Meanwhile Kroger had tested the superstore concept and their executives came to the conclusion the old model grocery store was going to become extinct. Unlike A&P Kroger confronted this brutal truth and acted on it. Kroger decided to eliminate, change, or replace every single store and depart every region that did not fit the new realities. By the early 1990s, Kroger had rebuilt its entire system on the new model and was well on the way to becoming the number one grocery chain in America. Whereas A&P still had over half its stores in the old 1950s size and had become a distant memory of a once-great American institution.

Best Buy vs. Circuit City The problems began a decade ago, when Circuit City failed to secure prime real estate. Where as best buy was buying up hundreds of prime locations and building newer, nicer, bigger stores. Several other mistakes that Circuit City made was the decision to stop selling appliances. It didn't move as aggressively into gaming as it should have. And it missed out on big in-store promotions with thriving companies like Apple Computer. That created an opening for Best Buy, now the top electronics chain in the U.S. Finally, the cherry on top: Circuit City neglected to improve its Web presence, and they lacked good customer service. It is very easy to tell which company acted on the brutal facts of the electronic industry.

Facts are Better Than Dreams The good-to-great companies (such as Kroger) displayed two distinct forms of disciplined thought. This section begins talking about the first of these, which is the importance of listening to the brutal facts of reality rather than just dreaming.

Pitney Bowes Vs. Addressography Both companies held near-monopoly market positions with virtually the same customer base. Pitney Bowes in postage meters and Addressography in address-duplicating machines. Until 1973, they had similar revenues, profits, # of employees, and stock charts. Both faced imminent reality of losing their monopolies.

Pitney Bowes Pitney Bowes succeeded growing to over 30,000 employees and revenues excess of $4 billion. They outperformed Addressography by 3,581 to 1. (3,581 times better)

What happened to Addressography?? They had a CEO named Roy Ash who was a charismatic visionary leader and a self-described “conglomerateur.” He set forth a vision to dominate big companies like IBM, Xerox, and Kodak. He refused to acknowledge the evidence that his plan was doomed to fail and might take down the rest of the company with it.

Cont’d Key people bailed out of the company, dispirited by their inability to get top management to “deal with the facts.” Due to all of this, Ash was thrown out of the office and the company had filed for bankruptcy. Basically, the problem was that Ash turned a blind eye to any reality inconsistent with his own vision.

“There is nothing wrong with pursuing a vision for greatness. After all, the good-to-great companies also set out to create greatness. But, unlike the comparison companies, the good-to-great companies continually refined the path to greatness with the brutal facts of reality.”

A Climate Where the Truth is Heard Leadership is about vision. But leadership is equally about creating a climate where the truth is heard and the brutal facts confronted. The energy exerted trying to motivate people is largely a waste of time. If you have the right people, they will be self-motivated. There’s a huge difference between the opportunity to “have your say” and the opportunity to be heard. How do you create a climate where the truth is heard?

A Climate Where the Truth is Heard 1.Lead with questions, not answers. – Use questions to gain understanding, not as a form of manipulation – Examples: What’s on your mind? Can you tell me about that? What should we be worried about? *Leading from good to great does not mean coming up with the answers and then motivating everyone to follow your vision. It means having the humility to grasp the fact that you do not yet understand enough to have the answers and then to ask the questions that will lead to the best possible insights.

A Climate Where the Truth is Heard 2.Engage in dialogue and debate, not coercion. – Healthy conflict often leads to a new circulation of ideas and motivation – Don’t be afraid to express your opinion! 3.Conduct autopsies, without blame. – When you conduct autopsies without blame, you go a long way toward creating a climate where the truth is heard – If you have the right people, you should never need to assign blame but need only to search for understanding and learning

A Climate Where the Truth is Heard 4.Build “red flag” mechanisms. – Companies rarely stumble because the lack information. The key is turning information into information that cannot be ignored and creating a climate where the truth is heard – Red flag mechanisms allow for real-time feedback from customers, employees, and any other relevant information channel – Successful red flag mechanisms make the user pay more attention to the details of the information being received

Unwavering Faith Amid The Brutal Facts Scott Paper vs. Kimberly-Clark Confront the brutal facts or face the consequences Robert Aders of Kroger Strong Willed Persistent Cirque du Soleil Rapid growth in a declining industry By confronting the facts, Cirque acquired a Blue Ocean

The “Hardiness Factor” Three factors – Permanently emotionally scarred – Normal life resumes – Defining moment which makes them stronger Sheikh Yamani – Named one of the world’s most influential people by BBC News – Survived being taken hostage by notorious terrorist Carlos the Jackal – Displayed “hardiness” after the incident and achieved many great things

Fannie Mae David Maxwell and a newly assembled team – Put the right people in the right spots on the bus and did away with the rest Never lost faith or thought about failure as an option Rebuilt the entire business model and reshaped the corporate culture Overcame obstacles and prevailed in the end

Stockdale Paradox Introduction: – Not all good-to-great companies faced a dire crisis. (Fannie Mae) – However, every good-to-great company faced significant adversity along the way to greatness. – Examples: Gillette and the takeover battles Nucor and imports Wells Fargo and deregulation Pitney Bowes losing its monopoly Abbott Labs and a huge product recall Kroger and the need to replace nearly 100 percent of its stores – Management response: powerful psychological duality 1.Accepted the brutal facts of reality 2.Maintained an unwavering faith in the endgame, and a commitment to prevail. *** Stockdale Paradox

Admiral Jim Stockdale Highest ranking United States military officer in the “Hanoi Hilton” prisoner-of-war camp – Vietnam War Tortured over 28 times during his 8 year imprisonment ( ). No prisoner’s rights, no set release date, and no certainty he would even survive to see his family again. – Internal War (avoid being an example of a “well-treated prisoner.”) Exchanged secret intelligence (wife)

Admiral Jim Stockdale cont’d Instituted rules to help people to deal with torture: – After x minutes, you can say certain things – Internal communication system (tap codes) Reduce sense of isolation After being released: – 1 st three-star officer in the history of the Navy to wear both Aviator wings and the Congressional Medal of Honor – Book: “In Love and War” – President of Naval War College – VP candidate for Ross Perot’s Independent Party (1992) Level 5 Leader – Who am I? What am I doing here?

An Afternoon with Stockdale While reading his book, Collins became depressed…even though he knew the ending! – Uncertainty of his faith/Brutality of his captors. How on did Stockdale deal with this? “I never lost faith in the end of the story. I never doubted not only that I would get out, but also that I would prevail in the end and turn the experience into the defining event of my life, which, in retrospect, I would not trade.”

Who didn’t make it out??? The optimists “We’re going to be out by Christmas. And Christmas would come, and Christmas would go.’ Then they’d say, ‘We’re going to be out by Easter.” (etc.) … died of a broken heart Lesson: You must never confuse faith that you will prevail in the end with the discipline to confront the most brutal facts of your current reality.

What Did Collins Learn? Life can be unfair. (can be an advantage or disadvantage) We will all experience disappointments somewhere along the way; setbacks for which there is no “reason,” no one to blame. What separates people is not the presence or absence of difficulty, but how they deal with the inevitable difficulties of life. Stockdale Paradox – has proved to be powerful for coming back stronger from difficulties.

Stockdale Paradox Retain faith that you will prevail in the end, regardless of the difficulties. Confront the most brutal facts of your current reality, whatever they are. AND Key: Have a Plan! When starting a company: 1) Believe that your vision will come true, 2) do everything to make it happen, and 3) NEVER let your belief or faith “cloud” reality. Example: “The Little Engine that could” *Always push forward (Steven Bunnell, Thermofisher Scientific)

Stockdale Paradox cont’d Kroger vs. A&P [Stockdale Paradox vs. The Optimist] Ronald Reagan vs. Communism – Maintain confidence during the Cold war, by confronting the Brutal facts. Current Economy: – Companies are quick to blame the economy and give up, but this is NOT a time to concede! – (Blue Ocean Opportunity) Creativity, Innovation, and Resolve. – Seize the opportunity to grow! ***Value Innovate

Stockdale Paradox cont’d The great companies do just that; they adjust their tactics to ride the waves of the market…recognizing the challenges that face us, while never losing faith in our resilience over time. (Ginger Sorvari, Best Buy co.) “It is foolish to ignore this reality but also just as foolish to throw in the towel and do nothing about it.” (Robert Zarracina, Flight Ventures) “The Stockdale Paradox is paramount to companies in our industry right now…opportunity for us to grow instead of a threat to our survival.” (Steve Palmer, North Central Door)

Stockdale Paradox cont’d Ultimately, the Stockdale Paradox is a signature of all those who create greatness. Deceptively, simple and straightforward The good-to-great leaders were able to strip away noise and clutter and just focus on the few things that would have the greatest impact. (BOS – Analytical Tools and Framework) – Never let one side of the paradox overshadow the other.

Summary Kroger vs. A&P Facts are Better Than Dreams – Distinctive process, not just luck A Climate Where the Truth is Heard – Lead with questions, not answers – Engage in dialogue and debate, not coercion – Conduct autopsies, without blame – Build “red flag” mechanisms

Unwavering Faith Amid the Brutal Facts – Procter & Gamble, Scott Paper and Kimberly-Clark – The Hardiness Factor and Fannie Mae The Stockdale Paradox – Admiral Jim Stockdale – Don’t be an optimist Sources