3. A&P 1950’s Largest retailing organization in the world One of the largest corporations in the United States behind General Motors 1959-1973 A&P lagged behind the market

4. Kroger 1950’s Unspectacular grocery chain Less than half the size of A&P 1959-1973 Kroger lagged behind the market

5. Returns (1959-1973)

6. Returns (1973-1998)

7. Overview Facts are better than dreams 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 The Stockdale Paradox

9. Why? Why was there such a drastic change in Kroger’s fortune?

10. Brutal Facts A&P A major Economic Depression Two world wars Good for: Frugal Model (traditional grocery store) Kroger After 1970, the US society was becoming affluent Nicer, bigger, stores with more choices Fresh bread, flower, health foods, forty-five choices of cereal, ten types of milk, banking, flu shots…etc. Good for: Super Store (one-stop shopping)

11. Observing the trends

12. Liability of Charismatic Leaders Vision (dream) is important to motivate people Most important is… Do not de-motivate people Right people on the bus (first who…then what), so we do not need to motivate people Let the brutal facts faces people The moment a leader allows himself to become the primary reality people worry about, rather than reality being the primary reality, you have a recipe for mediocrity, or worse.

14. A Climate Where the Truth is Heard The question then becomes: -How do you manage in such a way as not to de- motivate people? There are 4 ways to confront the brutal facts…

15. 1. Lead with Questions, not Answers Informal meetings Used questions to gain understanding; not for manipulation or as a way to blame, or put-down others

16. 2. Engage in Dialogue and Debate, not Coercion 7 Habits: no participation, no commitment Allowing the employees to argue and debate

17. 3. Conduct Autopsies, without Blame Joe Cullman, Philip Morris executive Points the finger right at himself Had he listened, the disaster might have been averted Gave credit where credit was due Conducting autopsies without blame = truth is heard You should almost never need to assign blame, but need only to search for understanding and learning

18. 4. Build “red flag” Mechanisms Jim Collins’ red flag mechanism Questioning style stood in the way of people’s learning The key lies not in better information, but in turning information into information that cannot be ignored Creates a climate where the truth is heard

21. The 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.

22. Admiral Jim Stockdale Highest-ranking U.S. military officer in the “Hanoi Hilton” POW camp Tortured over 20 times Imprisoned for 8 years from 1965 to 1973 Lived out the war with no rights, no set release date, and no certainty of survival Fought attempts to be used as propaganda, instituted rules to survive torture, exchanged information with wife, instituted internal communications system

23. Admiral Jim Stockdale “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.” “This is a very important lesson. You must never confuse faith that you will prevail in the end- which you can never afford to lose- with the discipline to confront the most brutal facts of your current reality, whatever they might be.”

24. Amazon: An example to illustrate “brutal facts-frugal and demanding customers” Amazon is the champ of customer service (BusinessWeek) How? Fulfillment by Amazon: the control of sales flow 1. Suppliers send boxes to the Warehouse 2. 3 million units sold in 2008 3. Sending trucks to pick up things from suppliers 4. Every employee spends two days on the service desk 1-click Ordering Lower shipping fees Amazon Prime: $79 a year to get free two-day shipping

25. Amazon (cont.) Results Sales are up 40% Return rates are down 70%

26. Safeguarding Service Flex your workforce: cross-training your employees Spoil surviving staff: at least keep the front lines happy with flexibility and other rewards Invest in simple technology Baby your best customers

28. Remember… Confront the Brutal Facts and never loose your faith… http://www.youtube.com:80/watch?v=VJMbk9dtp dY http://www.youtube.com:80/watch?v=VJMbk9dtp dY