Friday, July 15, 2011

Critical Book Review: How the Mighty Fall and Why Some Companies Never Give In by Jim Collins

Following his detailed and meticulous statistical review of Good to Great Companies, Jim Collins decided to view the other side of the looking glass in this book, How the Mighty Fall and Why Some Companies Never Give In. This book is a case study of eleven American companies and how they fell from being strong economic bastions of entrepreneurial spirit to almost non-existent or irrelevant organizations.

By identifying and then detailing five stages of decline, he supports his premise with hard facts along with some insightful quotations. Additionally within the Appendices and the Notes, there is even more information.

So how do the mighty fall?

As I read the first stage of decline, I was reminded of this old saying: Pride goeth before the fall. Stage one is all about the birth of hubris or arrogance. The attitudes of "we are too big to fail" to "I can lead this company out of its problems" signal the birth of hubris.

The early Greeks defined hubris as excise pride that brings down a hero or a more contemporary definition by is "outrageous arrogance that inflicts suffering upon the innocents." Beyond the companies that Collins researched, we have experienced the hubris of leaders all the time such as the Anthony Wiener or Bernie Madoff scandals to the falls of Fannie Mae and Freddy Mac.

Hubris happens when organizations fail to remember the purpose of business that being to serve the community. When your products no longer serve the community, you are destined to fall and fail.

Stage Two is the Undisciplined Pursuit of More. Here organizations experience incredible growth by overreaching or through an obsession to grow even more. When this type of growth happens, it sets the stage of Packard's Law that being "no company can consistently grow revenues faster than its ability to get enough of the right people to implement that growth and still become a great company."

In Stage Three, Denial of Risk and Peril, the leaders of the organization ignore reality. As they say, "Da Nile is not just a river in Egypt." Collins discussed the waterline approach as described by Bill Gore regarding taking risks. Making a bet on something that may blow a hole above the water line is Okay, but making a bet on something below the water line spells disaster.

Now stage four happens when management is grasping for salvation. Collins compared Hewlett Packard (HP) to IBM. Both companies had started to decline, but Louis V Gerstner, Jr. CEO of IBM changed the course of decline to one of re-growth and revitalization in both people and stock value.

The final and fifth stage is Capitulation to Irrelevance or Death. In this stage, money becomes very tight, the employees and even the customers lose hope. The opportunity for options becomes very limited.

This is a great book to read because of this one simple fact: Organizations are comprised of people. How the Mighty Fall is just as much about people as it is about businesses.

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