1. AND THE STOCKDALE PARADOX
Lecture 22
FACING BRUTAL FACTS
AND THE STOCKDALE PARADOX

2. Good To Great Jim Collins

3. The Bus Trip To Greatness
1 Who?
2 What?
3 How?
4 Why?
5 Where?
5 When?
5 Cost?
What Are The Challenges?

4. THE GOOD-TO-GREAT FRAMEWORK
Level 5
Leadership
First Who….
Then What…
1. Disciplined People
2. Disciplined Thought

5. Confront The Brutal Facts
The Good-to-Great Organizations displayed two distinctive forms of DISCIPLINED THOUGHT:
They infused the entire process with the BRUTAL FACTS OF REALITY;
They established A SIMPLE, YET DEEPLY INSIGHTFUL, FRAME OF REFERENCE for all decisions;

6. THE GOOD-TO-GREAT FRAMEWORK
Level 5
Leadership
First Who….
Then What…
Confronting
Brutal Facts
1. Disciplined People
2. Disciplined Thought

7. CONFRONT THE BRUTAL FACTS
Leadership is about vision as well as creating a climate where the truth is heard and the brutal facts confronted
It is impossible to make a series of good decisions without first confronting the brutal facts.
The good-to-great companies operated in accordance with this principle, and the comparison companies generally did not.
When one starts with an honest and diligent effort to determine the truth of the situation, the great decisions often become self-evident.
All good-to-great companies pursued a vision for greatness. But, unlike the comparison companies, the good-to-great companies continually refined the path to greatness with the brutal facts of reality.

8. CONFRONT THE BRUTAL FACTS
There is a huge difference between the opportunity to “have your say” and the opportunity to be heard.
The good-to-great leaders understand this distinction, hence creating a culture wherein people have a tremendous opportunity to be heard and, ultimately, for the truth to be heard and implemented.
The moment a leader allows himself to become the primary reality people worry about, rather than letting the real issues being addressed to become the primary reality, you have a recipe for mediocrity, or worse.
This is one of the key reasons why less charismatic leaders often produce better long-term results than their more charismatic counterparts.
Indeed, for those with a strong, charismatic personality, it is worthwhile to consider the idea that charisma can be as much a liability as an asset.
Their strength of personality can sow the seeds of problems when people filter the brutal facts from you to avoid falling out of favour and the consequent reprisals.
If you are a charismatic leader, you can overcome the liabilities of having charisma, but it does require conscious attention and this means that you must you your weaknesses and give others the permission to TELL YOU WHAT YOUR BACK LOOKS LIKE. This is one of the advantages of the 360 evaluation. Let your juniors tell you what they REALLY think about you AND DO NOT REACT OR BE DEFENSIVE.

9. Confront The Brutal Facts
Case Study IV: Kroger vs A&P
Both old companies (Kroger 82 yrs, A&P 111 yrs);
Heading into 1970s: both had nearly all their assets invested in traditional grocery stores;
Both had had knowledge of how the world around them was changing;
Yet one confronted the brutal facts of reality head-on and completely changed its entire system in response and succeeded; the other stuck its head in the sand and failed.
A & P vs Kroger
Chapter 4, page 65, paragraph 1
In the early 1950s, the Great Atlantic and Pacific Tea Company, commonly known as A&P, stood as the largest retailing organization in the world and one of the largest corporations in the United States 111 years, at one point ranking behind only General Motors in annual sales. Kroger 82 years, in contrast, stood as an unspectacular grocery chain, less than half the size of A&P, with performance that barely kept pace with the general market.
The old-model grocery store, which accounted for nearly 100% of Kroger’s business, was going to become extinct.
Unlike A&P, however, Kroger confronted this brutal truth and acted on it by switching to the “Superstore Concept”;
Then in the 1960s, A&P began to falter while Kroger began to lay the foundations for a transition into a great company. From 1959 to 1973, both companies lagged behind the market, with Kroger pulling just a bit ahead of A&P. After that, the two companies completely diverged, and over the next 25 years, Kroger generated cumulative returns ten times the market and eighty times better than A&P.
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 USA, which it attained in 1999;
How did such a dramatic reversal of fortunes happen? And how could a company as great as A&P become so awful? (See Chapter 3,page 67,1st paragraph).
Here’s what’s interesting: Both Kroger and A&P were old companies (Kroger at 82 years, A&P at 111 years) heading into the 1970s;
Both companies had nearly all their assets invested in traditional grocery stores; Both companies had strongholds outside the major growth areas of the United States; and both companies had knowledge of how the world around them was changing.
Yet one of these two companies confronted the brutal facts of reality head-on and completely changed its entire system in response; the other stuck its head in the sand
Meanwhile, A&P still had over half its stores in the old 1950s size and had dwindled to a sad remnant of a once-great American institution.

10. CREATING A CLIMATE WHERE TRUTH IS HEARD
Lead With Questions not Answers
Engage in Dialogue and Debate not Coercion
Conduct Autopsies Without Blame
Build a “Red Flag” Mechanism
Lead With Questions not Answers.
Leaders in each of the good-to-great transitions operated with a somewhat Socratic style of moderation. They used questions for one purpose only: to gain understanding and not for manipulation or as a way to blame or put others down.
When asked the questions about their management team meetings during the transition era, they said they spent much of the time “Just trying to understand.”
The good-to-great leaders made particular good use of informal meetings where they’d meet with groups of managers and employees with no script, agenda, or set of action items to discuss.
Instead, they would start with questions like:
“So, what’s on your mind?”
“Can you tell me about that?”
“Can you help me to understand?”
“What should we be worried about?”
These non-agenda meetings became a forum where current realities tended to bubble to the surface.
Leading from good-to-great does not mean coming up with the answers and then motivating everyone to follow your messianic vision.
It means having the humility to grasp the facts about issues you do not yet understand enough to have the answers and then to ask the pertinent questions that will lead to the best possible insights and answers.
Engage in Dialogue and Debate not Coercion.
All the good-to-great companies had a penchant for intense dialogue. Phrases like “loud debate”, “heated discussions,” and “healthy conflict” flavoured the articles and interview transcripts from all the companies.
They didn’t use discussion as a sham process to let people “have their say” so that they could “buy in” to a predetermined decision. The process was more like a heated scientific debate, with people engaged in a search for the best answers.
Case Study: How did Nucor Corporation of America became the best steel company in America?
Ken Iverson, the CEO who played the role as a Socratic moderator, shared what happened in series of debate in the Boardroom, “We established an ongoing series of general manager meetings, and my role was more as a moderator. They were chaos. We would stay there four hours, ironing out the issues, until we came to something….
At times, the meetings would get so violent that people almost almost went across the table at each other….People yelled. They waved their arms around and pounded on the tables. Faces got red and veins bulged out.” A scene that repeated over the years was a case wherein colleagues would march into Iverson’s office and yell and scream at each other, but then emerge with a conclusion.
Argued and debated- then sold the nuclear business;
Argued and debated- then focused on steel joists;
Argued and debated- then invested in their own mini-mill;
Argued and debated- then built a 2nd mini-mill, etc!
Conduct Autopsies Without Blame
Case Study: Philip Morris Acquisition of 7UP
In 1978, Philip Morris acquired the Seven-Up Company, only to sell it eight years later at a loss. The financial loss was relatively small compared to Philip Morris’s total assets, but it was a highly visible black eye that consumed thousands of hours of precious management time. It was amazing how the Philip Morris executives would all brought up the debacle and discuss it openly without attempting to hide their big, ugly mistake. In his book, I’ a Lucky Guy, the former CEO Joe Cullman dedicated five pages to dissecting the 7UP disaster. Standing in the mirror, he pointed finger at himself. He wrote, “[It] ….became apparent that this was another Joe Cullman plan that didn’t work.” He went further to imply that if he had listened better to the people who challenged his idea at the time, the disaster might have been averted. He gave credit to those whose perspective was right in retrospect.
In an era when leaders go to great lengths to preserve the image of their own track record- stepping forth to claim credit about how they were visionary when their colleagues were not, but finding others to blame when their decisions go awry- it’s quite refreshing to come across leaders who take responsibility for bad decisions and give credit to others for being correct on the issue.
When a leader can conduct autopsies without blame, it goes a long way to create a climate where the truth is heard. When the right people are on the bus, there would be no need to assign blame but need only to search for understanding and learning from mistakes.
Build a “Red Flag” Mechanism
The red flag mechanism gives colleagues an opportunity to point out information that cannot be ignored.
For example, it could give a customer full discretionary power to decide whether and how much to pay on an invoice based upon his own evaluation of how satisfied he feels with a product or service.
Red flagging is very important especially for Level 4 charismatic leaders in creating an environment where truth could be heard.

11. SOUTH AFRICA’S HDI: TRENDS 1980 – PRESENT
Human Development Index (HDI) pioneered by the UN Development Programme because instead of ranking countries by GDP per capita the UNDP was interested in a broader measure of welfare which would include the quality of life in that country, life expectancy, child and maternal mortality rates, social equality, achievements in education and health, gender equality and so on.
SA's human development index rising
2 February 2011
South Africa's Human Development Index (HDI) – a standard measure of determining whether a country is developed, developing or underdeveloped – is continuing on an upward trend that started in 2007 following a decade-long decline, according to the SA Institute of Race Relations.
The index combines measurements of life expectancy, literacy, educational attainment and gross domestic product (GDP) per capita for countries worldwide.
"This upward trend looks set to continue, which means that South Africa should expect further rises in its HDI, barring any negative changes in educational attainment or GDP per capita," SA Institute of Race Relations researcher Thuthukani Ndebele said last week
: Aids pandemic takes its toll
Ndebele said it showed a decline in South Africa between 1990 and because of a dramatic drop in life expectancy due to the HIV/Aids pandemic. The index has been on an upward trend in the country since 2007.
South Africa's HDI was in 1980 – the height of apartheid – rising steadily to in By 2005, however, it had decreased to 0.678, which was worse than its 1985 level, the institute said.
United Nations Development Programme (UNDP) data shows South Africa's HDI rose again to in 2007, according to the annual 2009/10 South Africa Survey published by the institute.
"Updated figures from the UNDP show that the upward trend continued into 2010," the institute said.
Life expectancy on the increase
Life expectancy for South African men increased between 2005 and 2007, from 50.3 years to 51.4 years, Statistics South Africa data showed. Women's life expectancy increased from 52.6 years in to 53.4 years in 2007.
"This increase in life expectancy between 2005 and 2007 accounts for the increase in South Africa's HDI," Ndebele said. "By 2010, life expectancy for men was 53.3 years, and for women it was years.
"This shows the increasingly positive effect of the government's roll- out of antiretroviral treatment for people living with HIV/Aids."
Sapa

12. NORWAY’S HDI: TRENDS 1980 -PRESENT

13. Rwanda’s HDI

14. Ranked 49th globally, the country also maintained its top posi­tion as the least corrupt in the in the five-member East African Community. Burundi posted the worst ranking in east African, at number 172, Kenya at 154, Uganda at 143 and Tanzania at 100th place out of the 183 surveyed countries for the 2011 corruption per­ception index.
The index, an aggregate indicator measuring perceived levels of public sector corruption, is drawn on assessments and opinion surveys with questions related to bribery of public officials, kick­backs in public procurement, embezzlement of public funds, and the effectiveness of public sector anti-corruption efforts.
This 2011 Corruption Perceptions Index (CPI) released in Ger­many, saw Rwanda join Botswana, Cape Verde and Mauritius as the four least corrupt countries on the continent.
The 2011 CPI also gave Rwan­da a score of 5.1 points, ahead of countries like South Africa and beating its East African neigh­bors by a large margin
The CPI ranks countries and territories from zero (highly corrupt) to ten (very clean) based on perceived levels of public sector corruption. It uses data from 17 surveys that look at factors such as enforcement of anti-corruption laws, access to information and conflicts of in­terests.
South Africa is on the verge of joining the ranks of dysfunctional states as the effects of corruption debilitate all spheres of life, says Sipho Pityana, the Chairperson of the Council for the Advancement of the South African Constitution (CASAC). Speaking exactly six months after CASACﾕs launch at Liliesleaf Farm, Johannesburg on 16 September 2010, Pityana says: ﾒIn the changing circumstances of our times, a conservative assault on the Constitution from some of the most powerful in our society threatens to fatally undermine our capacity to overcome poverty and inequality. It is now beyond doubt that corruption and patronage are so pervasive, rampant and crippling in our society that we are on the verge of being deemed a dysfunctional state...ﾓ

15. MOST RELIGIOUS NATIONS OF THE WORLD
It’s based on a Gallup survey and counts the number of people in each country who said religion is an important part of their daily lives.
The most religious countries are found in Africa and Southeast Asia.

16. GLOBAL PEACE INDEX(GPI) 2009
Among the world’s top ten peaceful nations are a high percentage of the world’s least religious countries, measured in terms of personal religiosity metrics (like reports that “religion is very important in daily life” and church attendance statistics.

17. GLOBAL PEACE INDEX (GPI) 2009

18. WORLD POPULATION GROWTH RATE 2005-2010

19. REGIONAL STATISTICS FOR HIV & AIDS, 2009

20. PEOPLE LIVING WITH HIV/AIDS WORLD MAP

21. MALARIA ENDEMIC COUNTRIES 2003

22. WORLD HOMICIDE RATES

23. URBAN POPULATION LIVING IN SLUMS

24. KENYA’S KIBERA, NAIROBI SLUM
The third (3rd) largest slum area in the world

25. WORLD ALCOHOL CONSUMPTION PER CAPITA

26. Confronting The Brutal Facts
It did not matter how bleak the situation or how dampening their mediocrity, the good-to-great companies maintained unwavering faith that they would not just survive, but prevail as a great company.
And yet, at the same time, they became relentlessly disciplined at confronting the most brutal facts of their current reality.

27. Good To Great Jim Collins

28. Admiral James 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.”
The Stockdale Paradox is named after Admiral James Stockdale who was the highest ranking US military officer imprisoned in the “Hanoi Hilton” prisoner-of–war camp during the height of the Vietnam war.
In the book In Love and War, Stockdale and wife chronicled their experiences during the eight-year dilemma- the uncertainty of his fate, the brutality of his captors, the bleakness of the situation.
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 shouldered the burden of command, doing everything he could to create conditions that would increase the number of prisoners who would survive unbroken, while fighting an internal war against his captors and their attempts to use the prisoners for propaganda.
At one point he beat himself with a stool and cut himself with a razor, deliberately disfiguring himself, so that he could not be put on videotape as an example of a “well-treated prisoner.” Eventually he was set free.
Jim Collins writes about a conversation he had with Stockdale regarding his coping strategy during his period in the Vietnamese POW camp.
CLICK SLIDE FOR QUOTE
Stockdale admonished the unenduring optimist: “We’re not getting out by Christmas; deal with it!”
When Collins asked who didn't make it out, Stockdale replied:
"Oh, that’s easy, the optimists. Oh, they were the ones who said, '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.' And Easter would come, and Easter would go. And then Thanksgiving, and then it would be Christmas again. And they died of a broken heart.”
Stockdale then added:
"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.”
Witnessing this philosophy of duality, Collins went on to describe it as the Stockdale Paradox.

29. 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.
The Corollary
Life works sometimes to our advantages and other times to our disadvantages. We will all experience disappointments and crushing events somewhere along the way, setbacks for which there is no “reason,” no one to blame.
It might be disease; it might be injury; it might be an accident; it might be losing a loved one; it might be getting swept away by in a political shake-up; it might be getting shot down over Vietnam and thrown into a POW camp for eight-years.
What separates people, through Stockdale’s lens, is not the presence or absence of difficulty, but how they deal with the inevitable difficulties of life.
In wrestling with life’s challenges, always exercise the Stockdale Paradox: Retain faith in victory at the end, but confront the brutal facts of the present reality.
It is a powerful mental toughness for coming back from difficulties not weakened, but strengthened for those who have learned their lesson and apply it.
WHAT ARE THE BRUTAL FACTS OF YOUR SITUATION?
WHAT HAS GOD HAS TOLD YOU?

30. Pitney Bowes(PB) Vs Addressograph(AD)
CASE STUDIES
Pitney Bowes(PB) Vs Addressograph(AD)
Chapter 4, page 70,paragraph 2
Sir Winston Churchill
CASE STUDIES
Pitney Bowes(PB) Vs Addressograph(AD)
Chapter 4, page 70,paragraph 2
Until 1973, they had similar revenues, profits, numbers of employees and stock charts. Both companies held near-monopoly market positions with virtually the same customer base – Pitney Bowes in postage meters and Addressograph in address-duplicating machines – and both faced the imminent reality of losing their monopolies.
However, by 2000, PB had grown to over 30,000 employees and revenues in excess of $4billion, compared to the sorry remnants of AD, which had less than $100million and only 670 employees. For the share holder, PB outperformed AD 3581 to 1. Whereas both PB and AD faced the loss of their monopolies, only PB squarely faced that most brutal fact and with faith they prevailed.
WINSTON CHURCHILL IN THE SECOND WORLD WAR
Winston Churchill understood the liabilities of his strong personality, and he compensated for them beautifully during the Second World War. Churchill, as you know, maintained a bold and unwavering vision that Britain would not just survive, but prevail as a great nation – despite the whole world wondering not if but when Britain would sue for peace. During the darkest days, with nearly all of Europe and North Africa under Nazi control, the United States hoping to stay out of the conflict, and Hitler fighting a one-front war(he had not yet turned on Russia),Churchill said: “We are resolved to destroy Hitler and every vestige of the Nazi regime.
From this, nothing will turn us. Nothing! We will never parley. We will never negotiate with Hitler or any of his gang. We shall fight him by land. We shall fight him by sea. We shall fight him in the air. Until, with God’s help, we have rid the earth of his shadow”.
Armed with this bold vision, Churchill never failed, however, to confront the most brutal facts. He feared that his towering, charismatic personality might deter bad news from reaching him in its starkest form. So, early in the war, he created an entirely separate department outside the normal chain of command, called the Statistical Office, with the principal function of feeding him-continuously updated and completely unfiltered- the most brutal facts of reality. He relied heavily on this special unit throughout the war, repeatedly asking for facts, just the facts. As the Nazi panzers swept across Europe, Churchill went to bed and slept soundly: “I had no need for cheering dreams,” he wrote. “Facts are better than dreams.”

31. Kroger was like Stockdale, and A&P was like the optimists who always thought they’d be out by Christmas.
Pitney Bowes versus Addressograph both facing the loss of their monopolies; and Churchill faced with the might of Hitler; all demonstrated this paradoxical psychological pattern – the Stockdale Paradox.
The Stockdale paradox is a signature of all those who create greatness, be it in leading their own lives or in leading others.

33. Chapter 43, page 756, 3rd Paragraph:
Would my colleagues and I have embarked on our journey had we known the hazards and perils we would face when we formed the People’s Action Part (PAP) in November 1954?
Had we known how complex and difficult were the problems that lay ahead, we would never have gone into politics with the high spirits, enthusiasm, and idealism of the 1950s

34. Chapter 43, page 757, 1st Paragraph:
We pressed on, oblivious of the dangers ahead. Our visceral urges were stronger than our cerebral inhibitions. Once plunged in, we were sucked ever deeper into the struggle. We had to fight the communists sooner than we expected, contending against their open-front labor, student, and cultural organizations, all backed by their armed underground.

35. Chapter 43, page 757, 1st & 2nd Paragraphs:
We overcame one problem only to be faced with an even more daunting one. There were times it looked hopeless. We learnt some valuable lessons in those early years as apprentices in the exercise of power. We never stopped learning because the situation kept on changing and we had to adjust our own policies.

36. Confidence… Chapter 4, Page 87, 2nd Paragraph:
If I have to choose one word in explaining why Singapore succeeded, it is confidence. This was what made foreign investors site their factories and refineries here.

37. Strong Moral Foundation United Confidence in the Future of Singapore
Public Sector
Private Sector
NGOs
Nationalities
Education
Integrity, Quality,
Patriotism
Mature Society
Strong Moral Foundation
United Confidence in the Future of Singapore
Ethnicity
Social Class
Nepotism
Religion
Ignorance
Immature Society

38. “I am a slow walker, but I never walk backwards”
Developing the Indomitable Spirit
“I am a slow walker, but I never walk backwards”
Lost his job in 1823.
Defeated for Legislature in 1832.
Failed in business in 1833.
Lost his sweat heart to death in 1836.
Had a nervous breakdown in 1836.
Was defeated for speaker in 1838.
Was defeated in a bid for Congress in 1843.
Lost nomination in a bid for Congress in 1848.
Was rejected for land officer in 1849.
Was defeated for senate in 1854.
Lost nomination for Vice Presidency in 1856.
Again defeated for senate in 1858.
Was elected as the 16th President of America in 1860
Abraham Lincoln

39. Developing the Indomitable Spirit
Walt Disney went to 312 banks before he was financed for his cartoon animations
He went bankrupt seven times
John Creasey received 753 publishers’ rejections before the first of his 550 books was published
The Summary
It did not matter how bleak the situation or how stultifying their mediocrity, the good-to-great companies maintained unwavering faith that they would not just survive, but prevail as a great company. And yet, at the same time, they become 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 must focus on the few things that would have the greatest impact. They were able to do so in large part because they operated from both sides of the Stockdale Paradox, thereby increasing the odds of making a series of good decisions that moved them forward.