Jim Collins, author of the perennial business best-sellers Good to Great and Built to Last is back, and in this outing he presents what sounds like the most timely How the Mighty Fall: And Why Some Companies Never Give In. I must note that I count myself a big fan of his two earlier efforts, so I picked this up with high expectations.
A slender 240 pages (only 123 omitting appendices, notes, etc.), and just published this May, the book might initially strike you as a rush job designed to make a splash before our long economic nightmare is over. That may have been an understandable part of Collins’ motivation, but he’s too much the professional to do anything other than to provide a thoughtful, data-rich, empirically grounded and briskly written effort.
His thesis?
To borrow shamelessly from the promotional materials, which actually encapsulate his argument in a fashion that’s overall fair:
Decline can be avoided.
Decline can be detected.
Decline can be reversed.
Amidst the desolate landscape of fallen great companies, Jim Collins began to wonder: How do the mighty fall? Can decline be detected early and avoided? How far can a company fall before the path toward doom becomes inevitable and unshakable? How can companies reverse course?
In How the Mighty Fall, Collins confronts these questions, offering leaders the well-founded hope that they can learn how to stave off decline and, if they find themselves falling, reverse their course. Collins’ research project–more than four years in duration–uncovered five step-wise stages of decline:
Stage 1: Hubris Born of Success
Stage 2: Undisciplined Pursuit of More
Stage 3: Denial of Risk and Peril
Stage 4: Grasping for Salvation
Stage 5: Capitulation to Irrelevance or Death
By understanding these stages of decline, leaders can substantially reduce their chances of falling all the way to the bottom.
Great companies can stumble, badly, and recover.
Every institution, no matter how great, is vulnerable to decline. There is no law of nature that the most powerful will inevitably remain at the top. Anyone can fall and most eventually do. But, as Collins’ research emphasizes, some companies do indeed recover–in some cases, coming back even stronger–even after having crashed into the depths of Stage 4.
Decline, it turns out, is largely self-inflicted, and the path to recovery lies largely within our own hands. We are not imprisoned by our circumstances, our history, or even our staggering defeats along the way. As long as we never get entirely knocked out of the game, hope always remains. The mighty can fall, but they can often rise again.
The technique follows Collins’ patented MO: With his research team, he gathers an extraordinary amount of raw material (here, “more than six thousand years of combined corporate history…beginning with sixty major corporations…and systematically identif]ying] eleven cases that met rigorous rise-and-fall criteria.”) He then produces “paired” companies:
Loser–Winner; A&P–Kroger; Addressograph–Pitney Bowes; Ames–Wal-Mart; Bank of America–Wells Fargo; Circuit City–Best Buy; Hewlett Packard–IBM; Merck–Johnson & Johnson; Motorola–Texas Instruments; Rubbermaid–None qualified; Scott Paper–Kimberly-Clark; and Zenith–Motorola.
It takes little perspicacity to note that some of the “losers” today were viewed as big winners in his previous works (Circuit City and Motorola perhaps most conspicuous, and Motorola single-handedly performing the triple lutz of being identified both as a winner and as a loser, depending on the identity of the competitor). So it comes as no surprise that he devotes a fair portion of the introductory remarks to defending his previous methodology, by explaining, for example, that somebody who eats right, exercises, stays slender, and doesn’t smoke can fall off all those wagons and no longer serve as a paradigm of strong health. If his point is simply that it’s not “who a company is” but “what they do,” I suppose, then, fair enough. But it takes a bit of a reach for him to get there.
What then of his taxonomy of failure?
Conceptually, stages 1 & 2 (above) address how companies get into trouble, and stages 3–5 address management’s response. I found the second part of his analysis far more compelling than the first. We have all seen–and some of us have unfortunately been employed at–firms that were in denial about the peril they were in (#3), took desperate measures once it was undeniable (#4), and finally ran up the white flag entirely (#5). Collins does a strong job of describing the dynamics of these phases and, most interestingly, tries to identify what distinguishes those that pull out of their swoon from those that just accelerate and hasten their own decline. Good stuff.
But I was unconvinced by his discussion of how companies get into trouble in the first place, which, according to his own introduction, is the question that set him on the quest to write the book to begin with. The story he tells is of being invited to speak in 2004 at West Point, at the Conference Board and Leader to Leader Institute lecture, to address the small topic “America” in front of 12 US Army generals,12 CEOs, and 12 social sector leaders. The way he proposes to approach the topic is to ask whether America is renewing its greatness or is instead dangerously on the cusp of falling from great to good.
He then relates being approached by one of the CEOs at a break who asks, not implausibly “When you are at the top of the world,…the most successful company in your industry, the best player in your game, your very power and success might cover up the fact that you’re already on the path to decline. So, How would you know if you were actually on the path to decline?”
Tantalizing indeed.
But alas, from my view, only asked and not persuasively answered by Collins.
How does he attempt to answer the question?
Stage 1 can begin when people become arrogant and begin to view success as an entitlement. Worse, they lose sight of exactly what behavior made for their success in the first place. Rigorous understanding of why the firm is successful–“because we understand why we do these specific things and under what conditions they would no longer work”–is replaced by the mere rhetoric of success: “We’re successful because we do these specific things.” Not to pick on GM, but a true story from early in its ossification and decline into irrelevance was the example of an engineer’s determination to meet the bizarre, but real, corporate mandate of designing a dashboard ashtray that would work at -40°F. It worked, but it took two hands of strong men to open and close it. Hearing stories like that, of course, you gasp to yourself, “No wonder they were already on a greased flagpole of their own designing,” but if it’s that obvious do we need Jim Collins to tell us? Be it in sports, in Hollywood, or in investing and the hedge fund world, hubris has never been thought to be positively correlated with terrific outcomes.
Stage 2 shows more initial promise. The “undisciplined pursuit of more” (more scale, more growth, more acclaim) can indeed lead firms astray from their “core competence,” as well as inviting senior executive edifice complexes, “Air RJR” (an indelible image from Barbarians at the Gate, describing the RJR corporate aircraft fleet), multi-million dollar birthday bashes for CEOs, etc. But my larger reservation about this hypothesis is that I believe the evidence is even stronger on the other side of this argument: That failure is more often due to companies that are so wedded to the notion of doing what they have always done best that they become oblivious to threatening ways in which the world is changing.
This alternative, indeed contrary, hypothesis is the premise of the much more compelling and persuasive The Innovators Dilemma by Clayton Christensen. That book documented how so many once-great companies foundered by focusing with blinkered vision on their suddenly outmoded methods of doing business.
Collins’ own discussion of the A&P/loser–Kroger/winner saga would seem to bear this out. A&P failed not because it tried to move into used-car sales (Circuit City actually did, with CarMax–and you thought I was making this up), but because its small stores with narrow aisles were part of its “formula” and its management could not conceive that customers might want bigger, brighter, roomier stores (the Kroger recipe).
Where, then, are we left?
Unfortunately, with the most intriguing question unanswered.
So read How the Mighty Fall when you have a short (less than transcontinental) plane trip in front of you, for its rich cautionary tales of self-destructive and generally bone-headed behavior. But don’t anticipate you’ll come away with principles of wide applicability that you don’t already know in your gut.
