CONFRONT THE BRUTAL FACTS

1. CONFRONT THE BRUTAL FACTS [Yet Never Lose Faith] Andrei Gololobov, Svetlana Grimes, Laura McMannis

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

3. 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)

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

5. 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

6. “Facts are better than dreams”-Winston Churchill • 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

7. 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

8. 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

9. 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

10. Johnsons & JohnsonAnd 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

11. Johnson & JohnsonAbbot 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

12. 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

13. 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

14. 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)

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

16. 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

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

18. 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”

19. Two philosophical forces that drive leadersto confront brutal facts • Discipline • Entrepreneurial spirit

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

21. 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

22. 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

23. 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

24. 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

25. 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.