Monday, February 8, 2010

How the Mighty Fall and Why Some Companies Never Give In by Jim Collins

I picked up Jim Collins’ Good to Great a couple years ago while on vacation. It was an easy-to-read, research-based, insightful look at how companies make the leap from, as the title suggests, good to great. This book examines the opposite phenomenon, category leaders that make a series of mistakes and plummet into irrelevance or non-existence. With the same diligent research, Collins and his team find five stages of decline and the warning signs that a company might be headed down that path:

1. Hubris born of success. The company enjoys success and develops an arrogant belief that they have it figured out or an attitude that they no longer need to innovate and can rest on their past successes.
2. Undisciplined pursuit of more. A company’s success in their core business leads them to a reckless pursuit of growth in other areas, often over-committing financially and/or simultaneously neglecting the core business that bore them success in the first place.
3. Denial of risk and peril. Although warning signs start to emerge that a company’s current path is untenable, they ignore the risk in hopes that they will overcome it or that, in another show of hubris, their previous success makes failure impossible.
4. Grasping for salvation. With their impending demise staring them in the face, the company makes drastic, often ill-advised changes in an attempt to pull out of their nosedive. They might hire a new superstar CEO, rebrand themselves, or implement a series of company-wide reorganizations. Collins makes the point that it actually is possible for a sinking company to recover from Stage 4 and even come back stronger than before, but it requires, at the very least, a disciplined return to their core competencies, not just a reshuffling of the deck chairs.
5. Capitulation to irrelevance or death. In a final death rattle, the once-great company resigns to being irrelevant, is swallowed by another company, or closes its doors for good.

These are the commonalities in the process of demise from company to company, but Collins points out that the specifics that lead a company down this dark path can vary. He quotes Tolstoy: “All happy families are alike; each unhappy family is unhappy in its own way.” Like in Good to Great, the most interesting part of this book is these specific case studies. Across industries, Collins examines companies that got it right, and then got it spectacularly wrong.

While Good to Great was probably a more helpful book with more concrete answers, as Collins points out, sometimes it’s more about the questions than the answers. And “What should I not do?” is a good question. There’s also something tragic (in the Shakespearean sense) to the company that rises to greatness only to collapse under the weight of its own arrogance. And that can be enjoyable to read about.

The audiobook is read by Collins, who can be over-the-top at times, but he obviously feels passionate about what he’s saying, so it’s tolerable.

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