Press Room

May 28th, 2010 - How The Mighty Fall

Jim Collins is at it again. Well known for having written two of the classic business book, Good to Great and Built to Last, he recently published his latest book, How The Mighty Fall. In view of the economic collapse and its aftermath we’ve all had to figure our way out of, this book couldn't have been timelier.

The decision to write this book was partly the result of a meeting Collins was asked to facilitate at West Point. The meeting was between 12 US Army generals, 12 CEO’s and 12 social sector leaders. The subject he was asked to focus on was America so Collins decided to frame the discussion around the question, “Is America renewing its greatness or is America dangerously on the cusp of falling from great to good?” During one of the breaks he was approached by the CEO of one of America’s most successful corporations. The chief executive asked Collins. “When you are at the top of the world, the most powerful nation on earth, the most successful company in your industry, the best player in the game, your very power and success might cover up the fact you’re already on the path to decline. So how would you know?” This question so intrigued Collin it became one of the inspirations for this book.

How The Mighty Fall considers two questions. Why do companies fail? How does management respond when the company gets into trouble? Collins approach to answering these questions was to compare the contrast between matched pairs of similar companies both of whom were no longer considered great but one was on the mend and the other wasn't. Among the comparison he researched were the following.

Fallen Company	Success Contrast
HP	IBM
Ames Dept. Stores	Wal-Mart
Motorola	Texas Instruments

From this study, Collins discovered a five stage model of how the mighty fall. The first two stages address why companies fail and the next three stages explain how management responds to these challenges. As Collins pointed out, the model is not perfect, but what it provides insights that may be useful to leaders who want to prevent, detect, or reverse decline. The five stages of decline are summarized as follows.

Stage 1: Hubris Born of Success – In this stage, success breeds arrogance, which in turn leads to a sense of entitlement, resulting in a shift in focus away from the disciplines that built the company in the first place.

Stage 2: Undisciplined Pursuit of More - The Hubris of Stage 1 (we’re so great, we can do anything) leads to a reckless pursuit of growth in other areas, often neglecting the core business that bore the company success in the first place.

Stage 3: Denial of Risk and Peril – At this point, the leaders tend to discount negative information, amplify positive date, and ignore ambiguous data. Even though warning signs suggest the current path may lead to failure, the leaders ignore the data in hopes they can overcome it.

Stage 4: Grasping for Salvation – As the company starts to decline, the leaders in Stage 4 tend to look for quick fix solutions, the proverbial “silver bullet”, such as new CEO, new strategy, new acquisition, rather than focusing on business basics.

Stage 5: Capitulation to Irrelevance or Death – The accumulated setbacks eventfully cause the leaders to lose hope about creating a great future. Some of these once great companies simply resign to being a small player, others get sold, and some simply close their doors.

For me one of the most instructive parts of the book was the appendices. In one section, Collins analyzes 3 great companies that had fallen (IBM, Nucor, and Nordstrom) and provides insight into the steps they’ve taken to recover. He relates these steps to the principals in Good to Great such as, level 5 leadership, right people on the bus, confronting the brutal facts, the hedgehog concept, and a culture of discipline.

Overall I liked the book. It’s well written and easy to read – only 120 pages. While there is nothing really new in it, it does reiterate the basics he outlined in his other works. Just to provide some perspective on the book, I looked at a number of comments written about the book. Here is a sampling.

A number of commentators have taken exception to Collins conclusion Company’s get into trouble because they stray from their core business. They point to a large body of research that suggests companies fall because they stick to close to their core business. They get locked in by what they did well and when circumstances change they struggled to adapt. Great examples exist such as Wal-Mart and IBM who tend to outperform their peers because they constantly innovate rather than focus on being more efficient and effective. For more on this subject, check out the following titles at amazon.com.

Why Growth Stalls, HBR article by Matt Olsen, Derek van Bever, and Seth Verry (won the McKenzie award for best article published by HBR
How Competitive Forces Shape Strategy, HBR article by Michael Porter
The Science of Success, by Charles Koch
A Sense of Urgency, by John Kotter

Another issue worth noting was the fact Collins never really answered the question - How do you know? Noting in the book points to the hard criteria one could use that would indicate decline was imminent. Among the criteria the commentator outlined were issues such as an increase in dissatisfied customers, growing receivables, mounting debt, inadequate cash flow. It’s a fair comment and I plan to tackle this in a future article.

Here is the funniest comment I saw about the book. It may be tongue in check but it makes you think.

“His major finding? Humans suffer from their own delusions of grandeur…Plato and the Greeks understood this 3000 years ago. Human nature is that we really don’t learn from our mistakes and so we keep repeating them. What did the French philosopher Montaigne say? Mankind is a slow learner.”

Hope you found this useful.

Bob