[Yet Never Lose Faith] Andrei Gololobov, Svetlana Grimes, Laura McMannis

What are “The Brutal Facts?” One word “Reality” Changing consumer preferences Changes in consumer spending Development of new markets

Companies Fail Because of Stubbornness Avoid becoming a bloated king in a crumbling castle Don’t measure the success of your business by its history Don’t shun new and potentially innovative ideas Don’t make last minute decisions (they will fail)

A&P 100 year old business model of bland frugal stores Looked to its past for success Changing consumers, wanted more from grocery stores

A&P Smaller competitor Kroger adapted with the superstore concept A&P tried to adapt with its own superstore, the Golden key Golden Key closed by conservative executives Began scorched earth policy (price slashing) reducing quality of stores & service

Breakthroughs come from great decisions Kroger’s superstore concept Great decisions cannot come before confronting the brutal facts Once a company knows the gravity of its situation, only then will it be inclined to make the rights decisions “Facts are better than dreams” - Winston Churchill

Charisma is Not Necessarily a Good Thing A highly charismatic leader is more likely to drive a company into the ground than a non charismatic leader A Charismatic leader’s visions may be inconsistent with reality So they already fail to confront the brutal facts

Charisma is Not Necessarily a Good Thing Charisma is a liability Some leaders filter good news and bad news Non-Charismatic leaders seem more “Down to Earth” on their company’s situation Pitney Bowes: Executives are never satisfied

Pitney Bowes VS Addressograph Addressograph Leader: Roy Ash Charismatic leader Obsessed with addressograph becoming industry leader Failed to confront mounting evidence his plan was doomed to fail

Johnsons & Johnson And The Brutal Facts Ethics makes J&J the leader in the pharmaceutical and medical supplies industry Pharmaceutical industry has always been controversial Patents, unintended side-effects from medications, potential dangers Numerous litigations

Johnson & Johnson Abbot Laboratories What should a company do if something goes wrong Johnson & Johnson: Tylenol case of 1982 Put people’s safety before sales & profit Abbot Laboratories and OxyContin Failure to warn of a potentially harmful side- effect

A climate where the truth is heard Do managers need to motivate their employees? What about compelling vision? Get the right people on the bus Don’t de-motivate

Creating the environment “Having your say” vs. giving an opportunity to be heard - Johnson & Johnson credo Management styles: Permissive and Directive Democrats Four steps to creating favorable environment

I. Lead with questions, not answers Have humility to grasp the fact that you don’t understand everything Seek information and ask questions instead of having prepared answers for all the problems Circuit City, Alan Wurtzel - Socratic style Edifice complex “Do not celebrate the statistics you like” (“Denial” by Richard Tedlow)

J&J’s challenges Decentralization Regulatory forces Safety Costs Toxic Tylenol case

II. Engage in dialogue and debate, not coercion Don’t fear the contradiction if it is a fact Discuss, debate, argue, deliberate Nucor, Ken Iverson

III. Conduct autopsies, without blame Don’t kill the messenger Understand and learn (Right people on the bus!!) Philip Morris, Joe Cullman 7Up mistake

IV. Build “red flag” mechanisms Do NOT ignore the information you possess Create “red flags” system Graniterock, Bruce Woolpert Level 5 Leaders may not need “red flags”

Two philosophical forces that drive leaders to confront brutal facts Discipline Entrepreneurial spirit

Unwavering Faith Amid the Brutal Facts Competition is an asset Stronger and more resilient “Winners never quit and quitters never win” Attitude

Study of Victimization People fall into three general categories Permanently dispirited by the event Life back to normal Experience made them stronger Good-to-great companies

The Stockdale Paradox Faced with significant adversity Accepted the brutal facts of reality Maintained an unwavering faith in the endgame Committed to prevail as a great company despite the brutal facts

Important Lessons (Stockdale Paradox) Don’t be overly optimistic Don’t loose faith that you will prevail in the end Do confront the brutal facts of your reality Every person faces difficulties

Applied to Good-to-Great Companies (Stockdale Paradox) Maintained unwavering faith that they would prevail as a great company Became relentlessly disciplined at confronting the most brutal facts of their current reality Focused on the things that would have the greatest impact Never let one side overshadow the other

Takeaways Stockdale Paradox Retain faith that you will prevail in the end, regardless of the difficulties. And at the same time confront the most brutal facts of your current reality, whatever they might be. Motivating People If you have the right people, they will already be self-motivated. The biggest mistake managers can make is de-motivating their people.