Sunday, January 13, 2019

How the Mighty Fall (2009) by Jim Collins, Book Review

How the Mighty Fall: And Why Some Company Never Give In (2009) by Jim Collins

It’s been years since I wanted to read Jim Collins’ books such as Built to Last, Good to Great and Great by Choice but somehow I couldn’t find the motivation to do so. This year I’m decided – one of my resolutions – to learn about entrepreneurship, start-ups, and business and I would like to start with his books (Although, I’ve already started this year by reading The Lean Startup by Eric Reis halfway then decided to stop because… well, boring). So, I decided to read How the Mighty Fall for two reasons: 1) It is different from his other books. Instead of studying only about success, this book documented how and why the giants fall. Jim Collins writes, “Better to learn from how others fell than to repeat their mistakes out of ignorance”; and 2) It is more concise, straight to the point and no doubt, a shorter book than the rest.

Among the fallen-companies that Collins use for his team research for this book are A&P, Addressograph, Ames, Bank of America, Circuit City, HP, Merck, Motorola, Rubbermaid, Scott Paper and Zenith (see Appendix 1 on the selection criteria). I only familiar with HP and Motorola. Jim Collins asks: 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? So in this book, he confronts these questions, shares the analysis results, pinpoints the pitfalls and offers his insights to overcome the decline. This is my favorite quote from this book: “Every institution is vulnerable, no matter how great. No matter how much you’ve achieved, no matter how far you’ve gone, no matter how much power you’ve garnered, you’re vulnerable to decline. There is no law of nature that the most powerful will inevitably remain at the top. Anyone can fall and most eventually do.” When I read this, I thought of churches, NGOs, Christian Fellowship (CF) and our new Malaysian government too. A decline can be avoided, detected and reversed. Read this book!

In Collin’s research project of more than 40 years, he has uncovered five stages of decline that is consistent with the studied companies. If we as leaders can understand these stages, we can substantially reduce the chances of falling all the way to the bottom:

Stage 1: Hubris Born of Success
Stage 2: Undisciplined Pursuit of More
Stage 3: Denial of Risk and Peril
Stage 4: Grasping for Salvation
Stage 5: Capitulation to Irrelevance or Death

Here is my oversimplification summary for each stage of decline:

Stage 1: Hubris Born of 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 1 reminds me of Proverbs 16:18, “Pride goes before destruction.”

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 “colored lenses and neglect the threats.” Leaders play up the positives, play down the negatives, read ambiguous data bias-ly, and attribute problems to external factors. “Fanatical reorganization and deterioration of team dynamics & culture are common.”

Stage 4: Grasping for Salvation. At this phase, the decline becomes undeniable. But, the organization’s death is not yet imminent. “Leaders’ responses at this point determine if the organization sinks or swims. Those who panic and seek quick salvation (e.g. bringing in an external “Saviour”, or jumping into drastic, untested changes) will accelerate their fall to Stage 5.” Revival is only possible with a return to fundamentals – the WHYs.

Stage 5: Capitulation to Irrelevance or Death. The longer a company stays at Stage 4, and the more its people try to find “magic solutions,” the faster it's downward decline. Eventually, the financial resources dry up and people run out of motivation. At this point, there are usually 2 paths a company can take: 1) Give up and sell the company, or 2) Keep going until it exhausts its options.

For each stage, Collins also summarize with a series of markers. These markers can be used as a self-diagnostic checklist. This is very helpful. As I go through these stages, I ask myself, is there hope? Collins puts it this way: “The signature of the truly great versus the merely successful is not the absence of difficulty, but the ability to come back from setbacks, even cataclysmic catastrophes, stronger than become. Great nations can decline and recover. Great companies can fall and recover. Great social institutions can fall and recover. And great individuals can fall and recover. As long as you never get entirely knocked out of the game, there remains always hope.” Hope… yes!

P.s: If you want to listen to a great summary of this book, listen to The Investors Podcast entitled TIP167: How the Mighty Fall by Jim Collins (Business Podcast) by Preston Pysh and Stig Brodersen. You can also search for it on YouTube.


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