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
1973-1998
Confronting the Facts

In the affluent second half of the 20th
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.”

A Climate Where The Truth Is
Heard
•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
Lead With Questions, Not Answers


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
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
Engage In Dialogue and Debate, Not
Coercion

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
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
The Stockdale Paradox

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 2001.
- Gillette's key success was patience, the aptitude to see his business idea through, an
innovator when it comes to merchandising and advertising.


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.

AND at the
same time
Confront the most brutal
facts of your current reality,
whatever they might be.
Are the Optimists, if
we ignore something
it will go away.
• 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.”
