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Is your ‘great’ company sowing the seeds of its own future failure?

Jun 22, 2009 Business Daily, Strategy

“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 of decline.” That question—how would you know?—captured my imagination and became part of the inspiration for this book.”

JIM COLLINS, How the Mighty Fall (2009)

Jim Collins is back with a new book, and it is already making waves. The famous author of Built to Last and Good to Great, phenomenal business bestsellers both, has written How the Mighty Fall, a study of how organisations go from iconic to irrelevant.

Collins’ key message is a chilling one, and I hope it will chill the bones of some of our iconic leaders. No matter how great, how dominant, how well-regarded your company is, the seeds of its potential downfall are always being sown. And the really worrying thing is that it is precisely at the height of your success that you should be most worried: that is probably when you are doing the very things that will lead to a reversal of fortune.

One of the telling examples is Bank of America. At the beginning of the 1980s, Collins points out, this was one of the world’s most revered companies. “Within eight years it would post some of the biggest losses in U.S. banking history, rattle the financial markets to the point of briefly depressing the U.S. dollar, watch its cumulative stock performance fall more than 80% behind the general stock market, face a serious takeover threat from a rival California bank, cut its dividend for the first time in 53 years, (and) sell off its corporate headquarters to help meet capital requirements…”

He warns: “If a company as powerful and well-positioned as Bank of America in the late 1970s could fall so far, so hard, so quickly, then any company can. If companies such as Motorola, Circuit City, and Fannie Mae —icons that once served as paragons of excellence — can succumb to the forces of gravity, then no one is immune.” There is “no law of nature that the most powerful will remain at the top”. Anyone can fall, and many do.

The good news, however, is that decline can avoided or at least mitigated – provided you can detect its seeds early enough. Collins provides a framework for assessing where your company is, which he terms the “five stages of decline”: hubris; undisciplined growth; denial; grasping for salvation; and death.

Big company carnage is all around us today. Many a big name has been brought to its knees by a failure to understand the causes of failure. We extol and celebrate success so much that we forget to analyse failure. This new book is a useful corrective which focuses our attention on those who have undergone humiliating reversals. The key point is that we create our own failures. Much as we blame markets and external conditions for every reversal (read any company annual report over the past 18 months), the enemy usually lurks within.

That enemy has many names: complacency; over-confidence; myth-building; greed; arrogance. As human beings we find it all too easy to let a bit of success go to our heads. If we were more able to understand that success is a very complicated thing, we might foresee our failures before they happen.

The ultimate lesson is to have a set of core beliefs which do not change. Business ideas can (and should) change; big operations can be shut down if necessary. What we must never abandon is the desire to build lasting greatness, regardless of economic cycles. Let us be willing to accept fluctuating numbers, but never accept fluctuating values.

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