Revisiting Jim Collins

Jim Collins

Rarely do I re-read a business book but recently made an exception with Jim Collins’ How the Mighty Fall because I wanted to correlate his five-stage process of decline with what Richard Tedlow has to say about once-great companies whose leaders could not “confront the brutal facts” (one of the Good to Great principles) that Tedlow rigorously examines in his latest book, Denial: Why Business Leaders Fail to Look Facts in the Face — and What to Do About It.

In How the Mighty Fall, Collins addresses these questions: 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? Contrary to what several reviews of this book suggest, Collins offers hope to organizations in a death spiral (Stage 1 does not inevitably lead to Stage 5). Here are the five stages of decline:

1. Hubris born of success: Faith and confidence become pride and arrogance. Leaders become careless and workers become complacent. “We’re so great we can do anything!”

2. Undisciplined pursuit of more: That is, more scale, more growth, more acclaim, “more of whatever those in power see as `success’ [and allow their companies to] stray from the disciplined creativity that led them to greatness in the first place.”

3. Denial of Risk and Peril: Although internal warning signs begin to mount, they are ignored because “external results remain strong enough to `explain away’ disturbing data or to suggest that the difficulties are `temporary’ or `cyclic’ or `not that bad,’ and `nothing is fundamentally wrong.’”

4. Grasping for salvation: “The cumulative signs of peril and/or evidence of risks-gone-bad” force leaders to decide: return immediately to being and doing what achieved greatness before or “grasp for salvation”? If the latter, the company will fall into Stage 4.

5. Capitulation to irrelevance or death: “The longer a company remains in Stage 4, repeatedly grasping for silver bullets, the more likely it will spiral downward.” The process of erosion and deterioration continues until either the leaders just sell out or “the institution atrophies into utter insignificance; and in most cases, the enterprise simply dies outright.”

In Denial, Tedlow analyzes Henry Ford and the Model T, the radial tire “revolution,” and A&P’s and Sears’s non-response or insufficient response to paradigm shifts within their respective industries. These are stunning examples of the process of decline on which Collins focuses in his book, especially Stage 3. Although presumably that was not Tedlow’s intention, his own research and analysis support Collins’ conclusions and the process by which he arrived at them. Having re-read How the Mighty Fall, I think even more highly of it and of its author now than I did before.

 

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