Jim Collins. How The Mighty Fall: And Why Some Companies Never Give In. HarperCollins, 2009. (222 pages)
The Silent Creep of Impending Doom
…effective teaching: don’t try to come up with the right answers; focus on coming up with good questions. (2)
History shows, repeatedly, that the mighty can fall. (2)
Five Stages of Decline
All happy families are alike; each unhappy family is unhappy in its own way.
I’ve concluded that there are more ways to fall than to become great. (19)
All models are wrong; some models are useful – George E. P. Box
STAGE 1: HUBRIS BORN OF SUCCESS. Stage 1 kicks in when people become arrogant, regarding success virtually as an entitlement, and they lose sight of the true underlying factors that created success in the first place. When the rhetoric of success…replaces penetrating understanding and insight…, decline will very likely follow. (21)
STAGE 2: UNDISCIPLINED PURSUIT OF MORE. Companies in Stage 2 stray from the disciplined creativity that led them to greatness in the first place, making undisciplined leaps into areas where they cannot be great or growing faster than they can achieve with excellence, or both. (21)
STAGE 3: DENIAL OF RISK AND PERIL. Those in power start to blame external factors for setbacks rather than accept responsibility. (22)
STAGE 4: GRASPING FOR SALVATION. Common “saviors” include a charismatic visionary leader, a bold but untested strategy, a radical transformation, a dramatic cultural revolution, a hoped-for blockbuster product, “game changing” acquisition, or any number of other silver-bullet solutions. (22)
STAGE 5: CAPITULATION TO IRRELEVANCE OR DEATH. …accumulated setbacks and expensive false starts erode financial strength and individual spirit to such an extent that leaders abandon all hope of building a great future. (22)
IS THERE A WAY OUT? …we do ourselves a disservice by studying only success. We learn more by examining why a great company fell into mediocrity (or worse) and comparing it to a company that sustained its success than we do by merely studying a successful enterprise. Furthermore, one of the keys to sustained performance lies in understanding how greatness can be lost. Better to learn from how others fell than to repeat their mistakes out of ignorance. | Second, I ultimately see this as a work of well-founded hope. (24-25)
Stage 1: Hubris Born of Success
…it’s far better to create your own future, repeatedly, than to wait for external forces to dictate your choices. (27-28)
…past accomplishment guarantees nothing about future success and an almost obsessive need for self-initiated progress and improvement. (28)
ARROGANT NEGLECT. Dating back to ancient Greece, the concept of hubris is defined as excessive pride that brings down a hero, or alternatively (to paraphrase classics professor J. Rufus Fears), outrageous arrogance that inflicts suffering upon the innocent. (29)
If you’re struggling with the tension between continuing your commitment to what made you successful and living in fear about what comes next, ask yourself two questions:
- Does your primary flywheel face inevitable demise within the next five to ten years due to forces outside your control — will it become impossible for it to remain best in the world with a robust economic engine?
- Have you lost passion for your primary flywheel?
CONFUSING WHAT AND WHY. Like an artist who pursues both enduring excellence and shocking creativity, great companies foster a productive tension between continuity and change. (36)
…the best corporate leaders we’ve researched remain students of their work, relentlessly asking questions — why, why, why? — and have an incurable compulsion to vacuum the brains of people they meet. To be a knowing person (“I already know everything about why this works, and let me tell you”) differs fundamentally from being a learning person. (39)
Stage 2: Undisciplined Pursuit of More
OVERREACHING, NOT COMPLACENCY. …innovation can fuel growth, but frenetic innovation — growth that erodes consistent tactical excellence — can just as easily send a company cascading through the stages of decline. (49)
…perhaps people want to attribute the fall of others to a character flaw they don’t see in themselves rather than face the frightening possibility that they might be just as vulnerable. (49)
OBSESSED WITH GROWTH.
If Merck had underpromised and overdelivered as a consistent practice, we might not be writing about Merck’s spectacular tumble. But that’s the problem; hubris can lead to making brash commitments for more and more and more. And then one day, just when you’ve elevated expectations too far, you fall. Hard.
We try never to forget that medicine is for the people. It is not for the profits. The profits follow, and if we have remembered that, they have never failed to appear. – George Merck II, 1950
…those who resisted the pressures to succumb to unsustainable short-term growth delivered better long-term results by Wall Street’s own definition of success, namely cumulative returns to investors. Those who built the great companies in our research distinguished between share value and share price, between shareholders and shareflippers, and recognized that their responsibility lay in building shareholder value, not in maximizing shareflipper price. The greatest leaders do seek growth — growth in performance, growth in distinctive impact, growth in creativity, growth in people — but they do not succumb to growth that undermines long-term value. And they certainly do not confuse growth with excellence. Big does not equal great, and great does not equal big. (54)
BREAKING PACKARD’S LAW. Discontinuous leaps into arenas for which you have no burning passion is undisciplined. Investing heavily in new arenas where you cannot attain distinctive capability, better than your competitors, is undisciplined. Launching headlong into activities that do not fit with your economic or resource engine is undisciplined. Addiction to scale is undisciplined. To neglect your core business while you leap after exciting new adventures is undisciplined. To use the organization primarily as a vehicle to increase your own personal success — more wealth, more fame, more power — at the expense of its long-term success is undisciplined. To compromise your values or lose sight of your core purpose in pursuit of growth and expansion is undisciplined. (55)
…a great company is more likely to die of indigestion from too much opportunity than starvation from too little. (55)
…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. (55)
…a Stage 2 company can fall into a vicious spiral. You break Packard’s Law and begin to fill key seats with the wrong people; to compensate for the wrong people’s inadequacies, you institute bureaucratic procedures; this in turn, drives away the right people (because they chafe under the bureaucracy or cannot tolerate working with less competent people or both); this then invites more bureaucracy to compensate for having more of the wrong people, which then drives away more of the right people; and a culture of bureaucratic mediocrity gradually replaces a culture of disciplined excellence. When bureaucratic rules erode an ethic of freedom and responsibility within a framework of core values and demanding standards, you’ve become infected with the disease of mediocrity. (56)
If I were to pick one marker above all others to use as a warning sign, it would be a declining proportion of key seats filled with the right people. Twenty-four hours a day, 365 days a year, you should be able to answer the following questions: What are the key seats in your organization? What percentage of those seats can you say with confidence are filled with the right people? What are your plans for increasing that percentage? What are your backup plans in the event that a right person leaves a key seat?
One notable distinction between wrong people and right people is that the former see themselves as having “jobs,” while the latter see themselves as having responsibilities. (57)
…while no leader can single-handedly build an enduring great company, the wrong leader vested with power can almost single-handedly bring a company down. Choose well. (62)
Stage 3: Denial of Risk and Peril
When making risky bets and decisions in the face of ambiguous or conflicting data, ask three questions:
- What’s the upside, if events turn out well?
- What’s the downside, if events go very badly?
- Can you live with the downside? Truly?
Reorganizations and restructurings can create a false sense that you’re actually doing something productive. Companies are in the process of reorganizing themselves all the time; that’s the nature of institutional evolution. But when you begin to respond to data and warning signs with reorganization as a primary strategy, you may well be in denial. It’s a bit like responding to a severe heart condition or a cancer diagnosis by rearranging your living room.
There is no organizational utopia. All organizational structures have trade-offs, and every type of organization has inefficiencies. (80)
Stage 4: Grasping for Salvation
The signature of mediocrity is not an unwillingness to change. The signature of mediocrity is chronic inconsistency. (92)
When we find ourselves in trouble, when we find ourselves on the cusp of falling, our survival instinct—and our fear—can evoke lurching, reactive behavior absolutely contrary to survival. The very moment when we need to take calm, deliberate action, we run the risk of doing the exact opposite and bringing about the very outcomes we most fear.
Stage 5: Capitulation to Irrelevance or Death
You can be profitable and bankrupt. (104)
We found two basic versions of Stage 5. In the first version, those in power come to believe that capitulation offers a better overall outcome than continuing to fight. In the second version, those in power continue the struggle, but they run out of options, and the enterprise either dies outright or shrinks into utter irrelevance compared to its previous grandeur. (105)
|And when you abandon hope, you should begin preparing for the end.|
DENIAL OR HOPE. The point of the struggle is not just to survive, but to build an enterprise that makes such a distinctive impact on the world it touches, and does so with such superior performance, that it would leave a gaping hole–a hole that could not be easily filled by any other institution–if it ceased to exist. (111-112)
A crisis is a terrible thing to waste. – Dick Clark, CEO of Merck
…the Gerstner philosophy: the right leaders feel a sense of urgency in good times and bad, whether facing threat or opportunity, no matter what. (117)
And if you’ve already taken a fall and you do face a genuine crisis, the sooner you break the cycle of grasping for salvation the better. The path to recovery lies first and foremost in returning to sound management practices and rigorous strategic thinking. (117)
The point being being, however you slice it, lack of management discipline correlates with decline, and passionate adherence to management discipline correlates with recovery and ascent. (118)
When the world spins out of control, when external tumult threatens to upend our best-laid plans, does our destiny remain in our own hands? Or must we accept that creative destruction reigns supreme and that success will be short and fleeting, even for the very best? Our research shows that it is possible to build a great institution that sustains exceptional performance for multiple decades, perhaps longer, even in the face of chaos, disruption, uncertainty, and violent change. In fact, our research shows that if you’ve been practicing the principles of greatness all the way along, you should get down on your knees and pray for severe turbulence, for that’s when you can pull even further ahead of those who lack your relentless intensity. But beware: if you get caught in the stages of decline during turbulent times — if you succumb to hubris, overreaching, denial, and grasping for quick fixes — your fall will be faster and more violent than in stable times. (119)
If you’ve fallen into decline, get back to solid management disciplines–now! (119)
…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)
The signature of the truly great versus the merely successful is not the absence of difficulty, but the ability to come back form setbacks, even cataclysmic catastrophes, stronger than before. Great nations can decline and recover. Great companies can fall and recover. Great social institutions can fall and recover. And great individuals can fall and recover. As long as you never get entirely knocked out of the game, there remains always hope.
Failure is not so much a physical state as a state of mind; success is falling down, and getting up one more time, without end. (123)
— VIA —
The fundamental principles of life, the insights of perception and emotional management, the inspiration of redemption and salvation, and the message of hope are all reasons why I love reading books like this. I am continually inspired and in awe at how reading about the behavior of companies and businesses reflect with such insight the core of human activity.