Lately it isn’t uncommon to see a story in the news about another failed company or one that is in its death throes. There are just as many reports claiming to explain why these companies have failed. Some may be right, some wrong, but I doubt any have done the research and study that has produced Jim Collin’s latest offering, How the Mighty Fall and Why Some Companies Never Give In.
I must confess that I did not get around to reading Collin’s From Good to Great until fairly recently and while I found that book to be well researched and full of terrific information, I was troubled by two of his “great” companies; Circuit City and Fannie Mae. Circuit City had gone bankrupt and out of business by the time I read the book and Fannie Mae, well, you know. So, I was pleased to see How the Mighty Fall would address these companies.
But, Fannie Mae and current economic issues are not the purpose of the book. In fact, Collins specifically mentions in the Preface that he purposefully avoided the 2008 financial situation. Instead, the book stems from his own “curiosity about why some of the greatest companies in history, including some once-great enterprises we’d researched for Built to Last and Good to Great, had fallen.”
Though it’s nice to keep a positive outlook, especially in today’s environment, study of failure is important too, if only to try to avoid other’s mistakes. Collin’s research revealed five stages of decline: Hubris born of Success, Undisciplined Pursuit of More, Denial of Risk and Peril, and Capitulation to Irrelevance or Death. Of course, as is mentioned, such things as fraud can also result in a company’s demise, but these five stages are a good framework for studying how failure happens.
It’s interesting to note that companies that found themselves in stage 1 and stage 2 did not seem to realize they were starting down the path to doom. Circuit City was a “great” company in 1997 but Collin’s more recent study indicates it had already entered the second stage of decline by then and had ignored the come-from-behind success of its primary rival Best Buy.
Unfortunately, my discomfort with Fannie Mae being listed as a “great” company in Good to Great was not eased by How the Mighty Fall, though perhaps Fannie Mae is an example of the sort of decline Collins mentions that doesn’t fit his model. There were plenty who were uncomfortable with both Fannie Mae and its sister Freddie Mac by the time they achieved their “greatness.” In fact, a 1997 article in the New York Times reported on increased concerns within some government circles. The fact is that Fannie Mae was and is subject to many influences from government that other companies do not (until recently anyway) experience. Reporting seems to indicate that both their rise and fall had a lot to do with political influence and maneuvering, all probably fitting the description of Stage 1; hubris. To his credit though, Collins does not include Fannie Mae in the study, citing the recency of the surrounding events. He does include a somewhat incomplete analysis in an appendix.
Collin’s portrayal of stage 5 is a little depressing — for good reason. His research shows that once a company enters that stage, it doesn’t recover. There are two manifestations of that failure. First is the company that gives up and dies. The other is the company that fights on in an effort that might have been successful earlier but is futile at this stage. This inescapable death spiral serves well to demonstrate the importance of early recognition of the preceding stages.
As we’ve come to expect from a Collins offering, How the Mighty Fall is very well documented and the research is presented in a series of appendices containing a wealth of information about how the study and comparison companies were chosen. As a refreshing conclusion, Collins presents the case of three companies, IBM, Nucor, and Nordstrom who were in decline but were able to recover. Though his examples are a bit dated (the data is a few years old), the companies presented are still doing pretty well as of this writing (I checked).
Collins makes a significant comparison with the principles laid out in Good to Great. In fact, he shows that failing to follow those principles is how companies can progress through the five stages of decline. Again, he places heavy emphasis on leadership being a steady hand at the wheel and not a reactionary superstar: an important lesson for all leaders at all levels.
If you haven’t read Good to Great, you might want to before reading How the Mighty Fall. It isn’t essential though as Collins provides a summary in the appendix. In fact either way, read Appendix 7 first and you’ll be up to speed. But don’t wait too long to read the book. If you’re in stage one or two, you’ll want to know that now.
How the Mighty Fall - A Review
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