How The Mighty Fall: And Why Some Companies Never Give In
Written By: Jim Collins
JimCollins Publications (2009)
“All falling companies are alike; each of them falls in its own way.”
In How the Mighty Fall, Collins examines how and why once great companies have since declined. Relying on many years of research of several thousand companies, he identifies five stages of organizational decline: Hubris Born of Success, Undisciplined Pursuit of More, Denial of Risk & Peril, Grasping for Salvation, and Capitalization to Irrelevance or Death. This is a process that can continue for many years and, frequently, is not recognized – or at least not taken seriously — until it is too late.
As Collins explains, “The origins of this work date back to more than three years earlier, when I became curious about why some of the great companies in history, including some once-great enterprises we’d researched for Built to Last and Good to Great, had fallen. The aim of this piece is to offer a research-grounded perspective of how decline can happen, even to those that appear invincible, so that leaders might have a better chance of avoiding their fate…By understanding the five stages of decline discussed in these pages, leaders can substantially reduce the chances of falling all the way to the bottom, tumbling from iconic to irrelevant. Decline can be avoided. The seeds of decline can be detected early. And as long as you don’t fall all the way to the fifth stage, decline can be reversed. The might can fall, but they can often rise again.”
These are the five stages to which Collins refers:
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.”
Collins rigorously examines each of these five stages and suggests what lessons can be learned from companies that failed as well as other companies that fell and then rose again. For example, he explains how ten of the eleven great companies featured in Good to Great “fell [to Stage 2] despite showing behaviors contrary to complacency”: Addressograph, Ames, Bank of America, Circuit City, HP, Merck, Motorola, Rubbermaid, Scott Paper, and Zenith. He then explains how each of the ten and A&P (that had shown signs of complacency) has “grasped for salvation” in Stage 4.
With regard to fallen companies that rose again, Collins cites Xerox, Nucor, IBM, Texas Instruments, Pitney Bowed, Nordstrom, Disney, Boeing, HP, and Merck. “What do these companies have in common? Every one took at least one tremendous fall at some point in its history and recovered. Sometimes the tumble came early, when they were small and vulnerable, and sometimes the tumble came when they were large, established enterprises. But in every case, leaders emerged who broke the trajectory of decline and simply refused to give up on the idea not only of survival but of ultimate triumph despite the most extreme odds. And like [Anne] Mulcahy [CEO of Xerox], these leaders used decline as a catalyst. As Dick Clark, the quiet, longtime head of Merck manufacturing who became chairman after [Ray] Gilmartin, put it, “A crisis is a terrible thing to waste.”
Many of the companies cited by Collins and Jerry Porras in Built to Last are no longer “visionary” and of the companies that Collins cites in Good to Great are no longer great: following the publication of each book, they proceeded through a five-stage process of decline. In this context, I paraphrase the first line of Leo Tolstoy’s War and Peace when suggesting, “All falling companies are alike; each of them falls in its own way.”
Could falling companies avoid that process? Yes. Once embarked upon it, could they reverse the process? Yes, at least before falling into Stage 5. With all due respect to Jim Collins’ first two books, I think How the Mighty Fall (whose narrative is only 123 pages, followed by 83 pages of Appendices and Notes) will be his most valuable achievement thus far. Why? Because what he shares in it will help countless leaders to either avoid or recover from a subtle but relentless process of organizational suicide.
Bob Morris’s Bio:
An independent management consultant based in Dallas who specializes in high-impact knowledge management and accelerated executive development. Bob has also reviewed more than 2,200 business books for Amazon’s US, UK, and Canadian websites. Each week, we will add to the Networlding Business Bookshelf abbreviated versions in which he discusses a few of his personal favorites. To contact him directly, email: firstname.lastname@example.org.