Good To Great Ch. 4 “Confront the Brutal Facts” (Yet Never Lose Faith) Ashley Campion Wes Kincaid Stephanie Lanter Michael Riggen John Hutchens Nathan Frost Claudia Martinez

Kroger vs. A&P- Early 1950’s A&P ◦ Stood as the largest retailing organization in the world and one of the largest corporations in the U.S. Kroger ◦ Stood as an unspectacular grocery chain, less than half the size of A&P, with performance that barely kept pace with the general market

Kroger vs. A&P For the next 13 years both companies were lagging in the market, with Kroger pulling just a bit ahead of A&P Over the next 25 years, Kroger generated cumulative returns ten times the market, and eighty times better than A&P Two questions we must ask.. ◦ How did such dramatic reversal of fortunes happen? ◦ How could a company as great as A&P become so awful?

Early 1960’s-70’s

Confronting the Facts In the affluent second half of the 20 th century, Americans changed. They wanted nicer stores, bigger stores, and more choices in their stores. Both Kroger and A&P were very old companies that had nearly all their assets invested in traditional grocery stores, but only one of these companies confronted the brutal facts of reality and changed its entire system in response

Confronting the Facts A&P wanted to preserve two things above all else: 1.Cash dividends for the family foundation 2.The past glory for the Hartford brothers The Golden Key ◦ A separate brand A&P opened that could experiment with new methods and models to learn what customers wanted

Confronting the Facts So what did A&P do with The Golden Key? ◦ They CLOSED IT! They began lurching from one strategy to another ◦ Rallies ◦ Hiring and firing CEOs ◦ Programs ◦ Price-cutting strategies

Kroger takes on Change Kroger also tested the Superstore concept in the 1960s ◦ They concluded that the old-model grocery stores were going to be extinct Believed that you had to be number one or number two in each market, or you had to exit ◦ Kroger decided to eliminate, change, or replace every single store and depart every region that did not fit the new realities

Facts Are Better Than Dreams Breakthrough results come from a series of good decisions Good-to-great companies made more good decisions than bad and made more good decisions then other companies Were these companies just lucky to make the right decisions or did they do something distinctive to make their decisions?

Distinctive Disciplined Thought Good-to-great companies use two forms of distinctive disciplined thought: ◦ They infused the entire process with the brutal facts of reality. ◦ They developed a simple, insightful frame of reference for all decisions. (next chapter)

Brutal Facts You can’t make a series of good decisions until you face the brutal facts. Pitney Bowes v. Addressograph ◦ Until 1973 both held near monopoly market positions but both faced losing their monopolies. ◦ By 2000 Pitney Bowes had managed to stay on top by outperforming Addressograph 3,581 to 1.

Addressograph In 1976 Roy Ash became CEO He wanted to dominate IBM, Xerox, and Kodak in the field of office automation He was faced with mounting evidence that his plan would not work. He kept looking the other way even after he was thrown out of office and the business went bankrupt. The company lost many key people because of managements inability to deal with facts Ash wanted to take the company to new heights but he didn’t have the good to great mentality because he couldn’t face the brutal facts

Pitney Bowes A typical meeting at Pitney Bowes: ◦ 15 minutes on last year ◦ 2 hours on what may impede future results All management is open to questions and challenges from salespeople who work with customers. They asked for people to stand in front of top management and tell them what the company is doing wrong.

Bad Charisma Companies with leaders that lead with force and would instill fear in their employees would make their employees more worried about their leader then what the company could do to improve itself. Less charismatic leader tend to produce better long term results. Charisma can be a liability that has to be over come ◦ Ex. Winston Churchill

Winston Churchill He was a very charismatic leader during WWII He was afraid that his charisma would stop bad news from reaching him. He created the Statistical Office which constantly feed him the brutal facts of reality. He only wanted the facts and nothing more so that he could make his decisions. Later he wrote, “I…had no need for cheering dreams. Facts are better than dreams.”

Expending energy trying to motivate people is a waste of time! The right people on the bus, will be self motivated Focus on not de-motivating people by giving false hopes A Climate Where The Truth Is Heard

Four Best practices: ◦ Lead With Questions, Not Answers ◦ Engage In Dialogue and Debate, Not Coercion ◦ Conduct Autopsies Without Blame ◦ Build “Red Flag” Mechanism

Lead With Questions, Not Answers Alan Wurtzel ◦ First got the right people on the bus ◦ Then began with questions, not answers ◦ Asked questions and wouldn’t let go until he understood completely ◦ Nicknamed the prosecutor

Good-to great leaders use the Socratic Method to spark debates in the boardroom or in informal meetings They don’t use questions as a form of manipulation Ask the questions that will lead to the best possible insights Lead With Questions, Not Answers

Engage In Dialogue and Debate, Not Coercion Nucor CEO, Ken Iverson ◦ Refused to begin with the answer ◦ Played the role of Socratic moderator in raging debates ◦ Meeting were described as chaos ◦ People would yell and pound on tables until their faces were red

Good-to-great companies encourage and intense dialogues Thrive on the heated discussions and loud debates in meetings Even though there were heated discussions, they were not personal attacks Everyone was in search for the best answer Engage In Dialogue and Debate, Not Coercion

Conduct autopsies without blame 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. Need to search for understanding and learning.

Conduct autopsies without blame example 1978 Philip Morris acquired Seven-Up Sold it eight years later at a loss No one pointed out fingers to single out blame Joe Cullman pointed the finger right to himself “I will take responsibility for this bad decision. But we will all take responsibility for extracting the maximum learning from the tuition we’ve paid.”

Build “red flag” mechanisms Information age Rarely find companies that stumble because of lack of information The key lies not in better information, but in turning information into information that cannot be ignored

Build “red flag” mechanisms examples Bethlehem Steel Upjohn Bank of America

Build “red flag” mechanisms If you are a fully developed Level 5 leader you might not need red flag mechanisms But if you are not one, or if you suffer the liability of charisma, red flag mechanisms gives you a practical and useful tool for turning information into information that cannot be ignored and for creating a climate where the truth is heard

Unwavering faith amid the brutal facts In confronting the facts, good-to-greats left themselves stronger and more resilient “We must never give up, we WILL find a way to prevail.

P&G vs Kimberly-Clark K-C viewed competition as an asset, not liability Looked forward to take on the Goliath In the end, they beat every competitor, except Proctor & Gamble

Hardiness Factor Committee for the Study of Victimization did a study ◦ Found that people who suffered from a serious adversity (prisoner of war, cancer, etc) often can be viewed as three different types of people  1)Those who were permanately dispirited  2) Those who got their life back to normal  3)Those who used the event as a defining moment in their lives

Hardiness Factor, Cont. Good-to-great companies are the third type, using moments of weakness as an event that made them stronger Must not merely survive, must prevail “Don’t give up. Don’t ever give up” –Jimmy V

What is the Stockdale Paradox? - Refers to Admiral Jim Stockdale (United States military officer in the “Hanoi Hilton” prisoner camp) - Companies that calmly accepted the brutal facts of reality. They maintained an unwavering faith in the endgame, and a commitment to prevail as a great company despite the brutal facts. In other words: maintain your confidence in spite of all odds while maintaining a grasp on reality. Confront the "brutal facts" of your existence while maintaining a fundamental belief that somehow, some way, everything will turn out fine. Examples – Gillette, Nucor, Wells Fargo, Pitney Bowes -Price wars with Energizer and Rayovac, as well as a failed marketing strategy, led to 21 consecutive months of market-share decline between 1999 and Gillette's key success was patience, the aptitude to see his business idea through, an innovator when it comes to merchandising and advertising. The Stockdale Paradox

Stockdale Paradox cont. Jim Stockdale was a prisoner-of-war camp survivor during the height of the Vietnam War. Tortured over twenty times during his eight-year imprisonment from 1965 to 1973, Stockdale lived out the war without any prisoner’s rights, no set release date, and no certainty as to whether he would even survive to see his family again. He instituted rules that would help people to deal with torture. He would beat himself up so that he could not be put on videotape as an example of a “well-treated prisoner.” Also created communications system for the captors to reduce the sense of isolation by using a five-by-five matrix of tap codes. “This is a very important lesson. You must never confuse faith 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 may be.” – Jim Stockdale

Stockdale Paradox cont. Retain faith that you will prevail in the end, regardless of the difficulties. Are the Optimists, if we ignore something it will go away. Confront the most brutal facts of your current reality, whatever they might be. AND at the same time While failure is occasionally inevitable or I simply can’t overcome the barrier of whatever reality I am faced with (and often have to chose a new path) - I’ve found that fear and uncertainty evaporates when you confront reality.

Stockdale Paradox cont. Examples - Kroger was like Stockdale, and A&P was like the optimists who always thought they’d be out by Christmas. The Stockdale Paradox is a signature of all those who create greatness, be it in leading their own lives or in leading others. All the good to great companies maintained unwavering faith that they would not just survive, but prevail as a great company. Also, they became relentlessly disciplined at confronting the most brutal facts of their current reality. The good-to-great leaders were able to strip away so much noise and clutter and just focus on the few things that would have the greatest impact. They operated on both sides of the Stockdale Paradox, never letting one side overshadow the other.

Key Points Facts of reality Right decisions become self evident Create an opportunity where people can be heard, ultimately, where truth can be heard As a leader, be humble to ask the questions that will lead to the best possible insights. Never assign blame, but search for understanding and learning.

Key Points The key, with information,lies in turning information into information that cannot be ignored Four basic practices (creating a climate where the truth is heard): 1. Lead with questions not answers. 2. Engage in dialogue and debate, not coercion. 3. Conduct autopsies, without blame. 4. Build red flag mechanism that turn information into a key role.

Key Points Respond to adversity differently Charisma, a liability & an asset. The real question is not, “How do we motivate our people?” Stockdale paradox: “Retain absolute faith that you can and 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.”