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ColHowt 09-09-133 |
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How the Mighty Fall And
Why Some Companies Never Give In Jim
Collins HarperCollins,
2009, 221 pp., ISBN 978-0-97-732641-9 |
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Jim Collins, student of companies, is the noted
author of the highly regarded leadership books Built to Last and Good to
Great. "Decline, it turns
out, is largely self-inflicted, and the path to recovery lies largely within
our own hands." (back flyleaf) For effective teaching, "don't try to come
up with the right answers; focus on coming up with good questions." (2) "I've come to see institutional decline like
a staged disease: harder to detect but easier to cure in the early stages,
easier to detect but harder to cure in the later stages. An institution can look strong on the
outside but already be sick on the inside, dangerously on the cusp of a
precipitous fall." (5) "Every institution is vulnerable, no matter
how great … Anyone can fall and most eventually do." (8) "Clearly, the solution to decline lies not
in the simple bromide 'Change or Die'; Bank of America changed a lot, and
nearly killed itself in the process.
We need a more nuanced understanding of how decline happens…"
(22) This study is done by comparing pairs of companies
that succeeded and failed within the same businesses and the same time frame. Five Stages of Decline: Stage 1:
Hubris Born of Success "Great
enterprises can become insulated by success … and lose sight of the true
underlying factors that created success in the first place." Stage 2:
Undisciplined Pursuit of More Companies in
stage 2 may overreach by making undisciplined leaps into areas where they
cannot be great or growing faster than their ability to fill key spots with
capable people. Stage 3:
Denial of Risk and Peril Companies in
stage 3 begin to discount or explain away disturbing data, blame outside
forces, and take outsized risks without giving enough weight to the
consequences. Stage 4:
Grasping for Salvation Instead of
getting back to the disciplines that made them great, companies take dramatic
action, seeking a silver bullet solution. Stage 5:
Capitulation to Irrelevance or Death Some companies
move quickly through the stages while others take years or decades. "One of the keys to sustained performance
lies in understanding how greatness can be lost." (24) "Great
companies can stumble, badly, and recover. …Most companies eventually
fall… Yet our research indicates that
organizational decline is largely self-inflicted, and recovery largely within
our own control." (25) Stage 1: Hubris Born of Success Past accomplishment guarantees nothing about
future success. (28) "A core business that meets a fundamental
human need…rarely becomes obsolete."
(32) Unless your primary
flywheel faces inevitable demise or you have lost your passion for it,
"continue to push your primary flywheel with as much imagination and
fanatical intensity as you did when you first began." This means never-ending creative
renewal. (35) Foster a productive
tension between continuity and change.
Adhere to the principles that produced success but continually evolve
and modify with creative and intelligent adaptation. (36)
Maintain humility and a learning orientation. Stage 2: Undisciplined Pursuit
of More Big acquisitions that do not fit your core values
or undermine your culture or defy economic logic can bring you down. The problem is not necessarily complacency
or lack of energy. Overambitious
growth targets and frenetic innovation, while failing at the basics, can
start a downward spiral. Undisciplined
pursuit might be action inconsistent with your core values, launching into
activities that do not fit, addiction to scale, neglecting your core
business, focusing on your own personal success, compromising your values, or
losing sight of your core purpose are all examples of undisciplined pursuit. Perhaps the best warning sign is a declining
proportion of key seats filled with the right people. (57)
"Leaders who fail the process of succession
set their enterprises on a path to decline." "…one of the most significant indicators
of decline is the reallocation of power into the hands of leaders who fail to
comprehend and/or lack the will to do what must be done--and equally, what
must not be done--to sustain
greatness." (60) "…overreaching tends to increase after a
legendary leader steps away."
"But whatever the underlying dynamic, when companies engage in
Stage 2 overreaching and bungle the
transfer of power, they tend to hurtle downward toward Stage 3 and
beyond." (61) "…the wrong
leader vested with power can almost single-handedly bring a company
down." (62) Stage 3: Denial of Risk and
Peril Making big bets in the face of mounting evidence
to the contrary. Luck is not a
reliable strategy. "The greatest
danger comes not in ignoring clear and unassailable facts, but in
misinterpreting ambiguous data in situations when you face severe or
catastrophic consequences if the ambiguity resolves itself in a way that's
not in your favor." (70) (Read
Challenger O-rings.) "For businesses, our analysis suggests that
any deterioration in gross margins, current ratio, or debt-to-equity ratio
indicates an impending storm. … Customer loyalty and stakeholder engagement
also deserve attention."
Externalizing blame is an indicator.
"Reorganizations and restructurings can
create a false sense that you're actually doing
something productive." (80) Stage 4: Grasping for Salvation Stage 4 begins when an organization reacts to a
downturn by lurching for a silver bullet.
This can take a wide range of possible forms, such as betting big on
an unproven technology, pinning hopes on an untested strategy, relying upon
the success of a splashy new product, seeking a 'game changing' acquisition,
gambling on an image makeover, hiring consultants who promise salvation,
seeking a savior CEO, expounding the rhetoric of 'revolution,' or in its very
late stages, grasping for a financial rescue or buyout. The key point is that they go for a quick,
big solution or bold stroke to jump-start a recovery, rather than embark on
the more pedestrian, arduous process of rebuilding long-term momentum."
(89) "The signature of mediocrity is not an
unwillingness to change. The signature
of mediocrity is chronic inconsistency." (92) "…rebuilding greatness requires a series of
intelligent, well-executed actions that add up one on top of another. Some decisions are bigger than others, but
even the biggest decisions account for only a small fraction of the total
outcome that makes a great company.
Most 'overnight success' stories are about twenty years in the
making." (94) "…our ongoing research…shows a distinct
negative correlation between building great companies and going outside for a
CEO." (95) "If you want to reverse decline, be rigorous
about what not to do." (97) One marker is confusion and cynicism. "Instead of passionately believing in
the organization's core values and purpose, people become distrustful,
regarding visions and values as little more than PR and rhetoric." (101) Stage 5: Capitulation to Irrelevance or Death The company either capitulates or runs out of
options and cash. Hope alone is not
enough; you need resources. Near this stage, ask, "What would be lost,
and how would the world be worse off, if we ceased to exist?" If the noble course is to fight on, it
should be "to build an enterprise that makes such a distinctive impact
on the world it touches, … with such superior performance, that it would
leave a gaping hole…if it ceased to exist." (111-12) Well-Founded Hope "The path to recovery lies first and
foremost in returning to sound management practices and rigorous strategic
thinking." (117) "…lack of
management discipline correlates with decline, and passionate adherence to
management discipline correlates with recovery and ascent." (118) "If you're still strong, be vigilant for
early markers of decline."
Remember that "circumstances alone do not determine
outcomes." (120) "…the main
message of our work remains: we are not imprisoned by our circumstances, our
setbacks, our history, our mistakes, or even staggering defeats along the
way. We are freed by our
choices." (120) Following Churchill's speech, "Never give
in. Be willing to change tactics, but
never give up your core purpose. Be
willing to kill failed business ideas, even to shutter big operations you've
been in for a long time, but never give up on the idea of building a great
company. Be willing to evolve into an
entirely different portfolio of activities, even to the point of zero overlap
with what you do today, but never give up on the principles that define your
culture. Be willing to embrace the
inevitability of creative destruction, but never give up on the discipline to
create your own future. Be willing to
embrace loss, to endure pain, to temporarily lose freedoms, but never give up
faith in the ability to prevail. Be
willing to form alliances with former adversaries, to accept necessary
compromise, but never--ever--give up on your core values." (123)
Appendix 3: Fannie Mae and the Financial Crisis of 2008 "Whenever people begin to confuse the
nobility of their cause with the goodness and wisdom of their actions--
'We're good people in pursuit of a noble cause, and therefore our decisions
are good and wise' --they can perhaps more easily lead themselves astray. Bad decisions made with good intentions are
still bad decisions." (148) Appendix 5: What Makes for the 'Right People' in Key Seats? The right people
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