COMPILED
NABIN SHRESTHA
Brand Strategist and Design www.water-comm.com

For those of you that have read ‘Good to Great’, and ‘Built to Last’, Collins’ previous forays into management analysis, ‘How the Mighty Fall’ tackles the flipside of most management books: what to do to ensure failure. As with his other works, Collins pours through the histories of some of the most well known of companies—Hewlett-Packard, Ames, and Merck to name but a few—in order to draw some insight into how they began their descent into, “capitulation to irrelevance or death.”

Every institution, no matter how great, is vulnerable to decline. There is no law of nature that says the most powerful will inevitably remain at the top. Anyone can fall and most eventually do. But, as Collins’ research emphasises, some companies do indeed recover – in some cases, coming back even stronger – even after a crash. Decline, it turns out, is largely self-inflicted, and the path to recovery lies largely within our own hands. When you are at the top of the world, the most powerful nation on earth, 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? The question – How would you know? Is the essence of this book. How do the mighty fall? If some of the greatest companies in history can collapse from iconic to irrelevant, what might we learn by studying their demise, and how can others avoid their fate?

Extensive research that began with 60 corporations representing over 30 industry sectors identified five-sequential steps in which to destroy a once sound business:

• STAGE 1: HUBRIS FROM SUCCESS.“Hubris” refers to excessive pride or arrogance. Stage 1 starts when people become over-confident, and forget the true foundations of their success.  People start to take success for granted, lose the hunger for learning, get distracted by non-core areas, and confuse their “Why” and “What”. 

• STAGE 2: UNDISCIPLINED PURSUIT OF MORE.The arrogance from Stage 1 leads the company to overstretch, jumping into areas where it can’t be great, or pursuing growth without the right people or resources. They become obsessed with growth (to the point of losing focus and discipline), and make the fatal error of growing faster than they can get the right people, and/or don’t put the right successors in place.   

• STAGE 3: DENIAL OF RISK AND PERIL. At this stage, the company is still delivering results, but there are growing signs of danger. Unfortunately, leaders view the data through coloured lenses and neglect the threats. Leaders play up the positives, play down the negatives, read ambiguous data favourably, and attribute problems to external factors. Fanatical reorganisation, and deterioration of team dynamics and culture are common. 

• STAGE 4: GRASPING FOR SALVATION. At this phase, the decline becomes undeniable. But, the organisation’s death is not yet imminent. Leaders’ responses at this point determine if the organisation sinks or swims. Those who panic and seek quick salvation (e.g. bringing in an external “Savior”, or jumping into drastic, untested changes) will accelerate their fall to Stage 5. Revival is only possible with a return to fundamentals, i.e. the organisation must labouriously rebuild and reinforce the flywheel once again, one step at a time. 

• STAGE 5: RESIGNATION TO DOWNFALL.The longer an institution stays at Stage 4, and the more its people try to find magic solutions, the faster its downward decline. Eventually, the financial resources dry up and people run out of steam. Collins calls this stage, “Capitulation to Irrelevance or Death”. At this point, there are usually 2 paths a company can take: (a) give up and sell the company, or (b) keep going until it exhausts its options.

We are not imprisoned by our circumstance, 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 still refocus, rebuild and rise again, one step at a time.