This week I have been reading a little known Jim Collins book called How the Mighty Fall. Unlike Built to Last, Good to Great and Great by Choice, How the Mighty Fall is a book originally intended as a research paper until, as Collins says, it defied the constrictions of an article’.
Written just after the financial crash in 2008 (although not about those events) How the Mighty Fall is a study of businesses that were once great but fell from greatness. As with all Collins research based projects, he contrasts each fallen company with a successful company in the same sector at the same time and seeks to find reasons why they failed.
He asks ‘Can decline be detected and avoided?’ and ‘Can leaders reduce their chances of failing?’
What he discovered is that decline is largely self-inflicted and follows five-stages:
Stage 1: Arrogance born of success, what Collins calls hubris, where businesses lose sight of the underlying factors that made them successful in the first place. They say ‘We are successful because we do these things’ rather than ‘We are successful because weunderstand why we do these things and in what conditions they wouldn’t work’.
Stage 2: The pursuit of more of what those in power see as success, so more growth, more acclaim, and bigger bonuses. The business strays from disciplined creativity and makes leaps into areas where it cannot be great. Collins says: ‘Although resistance to change remains a danger to any successful enterprise, overreaching better captures how the mighty fall’.
Stage 3: Denial of the warning signs and risks. In stage 3, leaders discount negative data, put a positive spin on ambiguous data and start to blame external factors for setbacks. The vigorous, fact based disciplines that characterise successful businesses start to be ignored or disappear altogether.
Stage 4: Seeking salvation. In this stage leaders either react by lurching towards a quick salvation (charismatic new leader, cultural revolution, eye-watering acquisition) or by getting back to what made them great in the first place. None of the companies in Collins research project did the latter.
Stage 5: Capitulation. The longer a company remains in Stage 4, Collins found, the more likely it is to fail either by selling up, withering away or simply dying outright.
Whilst this may all appear gloomy, Collins’ conclusion is that unless a business falls all the way to stage 5 it can recover and become successful again. Interestingly it turns out that much of the answer lies in persistence and adhering to highly disciplined management practices.
Wasn’t it Napoleon Hill in ‘Think and Grow Rich’ who extolled the virtues of persistence?
For a business to succeed there is a requirement for constant vigilance. At its most basic level someone needs to interrogate the management accounts each month – monitoring the margins, questioning the costs. Luke Johnson (firstname.lastname@example.org) says: “A persistent tension between costs, revenues, prices and margins lies at the heart of all companies that endure”.
- Never give in;
- Be willing to change tactics, but never give up on your purpose;
- Be willing to evolve but never give up on the principles that define your culture;
- Embrace creative destruction but never give up on the discipline to create your own future;
- Be willing to endure loss and pain but never give up on the right to prevail;
- Accept compromise but never give up on your core values;
- Failure is not so much a physical state as a state of mind; success is falling down and getting up one more time without end.