How the Mighty Fall and Why Some Companies NEVER GIVE IN

Jim Collins 2009

Stage 1 Hubris Born of Success

Kicks in when people become arrogant, regarding success virtually as an entitlement, and they lose sight of the underlying factors that created success un the first place

Stage 2 Undisciplined Pursuits of More

Stray from disciplined creativity that led them to greatness, making undisciplined leaps into areas where they cannot be great or growing faster than they can achieve with excellence, or both

Stage 3 Denials of Risk & Peril

Leaders discount negative data, amplify positive data, and put a positive spin on ambiguous data. Those in power blame external factors

Stage 4 Grasping for Salvation

Looking for silver bullet saviors or actions

Stage 5 Capitulation to Irrelevance or Death

Accumulated setbacks and expensive false starts erode financial strength and individual spirit to such an extent that leaders abandon all hope of building a great future.

THE SILENT CREEP OF IMPENDING DOOM

Effective teaching: don’t try to come up with the right answers; focus on coming

Up with the right questions

Organizational decline is largely self-inflicted

Every institution is vulnerable

FIVE STAGES OF DECLINE

Great companies can stumble badly, and recover.

STAGE 1: HUBRIS BORN OF SUCCESS

IT’S FAR BETTER TO CREATE YOUR OWN FUTURE, REPEATEDLY, THAN TO WAIT FOR EXTERNAL FORCES TO DICTATE YOUR CHOICES

Hubris –excess pride that brings down a hero, or outrageous arrogance that inflicts suffering upon the innocent

To remain successful you have to keep pushing with as much intensity as when you first began building that flywheel

A core business that meets a fundamental human need rarely becomes obsolete

Great companies foster a productive tension between continuity and change

Great companies know the differences between current practices and enduring principles of their success

Companies that constantly change without consistent rationale will collapse

MARKERS FOR STAGE 1

1. SUCCESS ENTITLEMENT, ARROGANCE
2. NEGLECT OF A PRIMARY FLY WHEEL
3. ‘WHAT’ REPLACES ‘WHY’
4. DECLINE IN LEARNING ORIENTATION
5. DICCOUNTING THE ROLE OF LUCK

STAGE 2: UNDISCIPLINED PURSUIT OF MORE

Big acquisitions taken out of bravado rather than penetrating insight and understanding- can bring you down

Over reaching explains how the once invincible self-destruct, not complacency

Innovation can fuel growth, but frenetic innovation can send a company through the stages of decline

Hubris can lead to making brash commitments for more and more and more. Then one day you cannot deliver and fail

A constraint on growth and not the fundamentals can drive decline

Do not confuse growth with excellence

Problems of stage 2:

• undisciplined pursuit of more
• discontinuous leaps into arenas with no burning passions
• actions inconsistent with core
• addiction to undisciplined scale
• neglect of core
• use of organization for personal gain
• compromise values

Packard’s Law- no company can consistently grow revenues faster than its ability to get enough right people, to implement that growth and still become a great company

Any exceptional company depends first and foremost upon having self-managed and self-motivated people

If you have the right people, who accept responsibility, you don’t need to have a lot of senseless rules and mindless bureaucracy

Bureaucracy erodes the ethics of freedom and responsibility and breeds mediocrity

Right people see themselves as having responsibilities and not jobs- personal accountability

Leaders who fail the process of succession set the enterprise on the path of decline

Best leaders see themselves as unimportant as compared to building an executive team based on core values that are not dependant on a single leader

MARKERS FOR STAGE 2

1. UNSUSTAINABLE QUEST FOR GROWTH, CONFUSING BIG FOR GREAT
2. UNDISCIPLINED DISCONTINOUS LEAPS
3. DECLINING PORTION OF RIGHT PEOPLE IN KEY SEATS
4. EASY CASH ERODES COST DISCIPLINE
5. BUREAUCRACY SUBVERTS DISCIPLINE
6. PROBLEMATIC SUCCESSION OF POWER
7. PERSONAL INTERESTS PLACED ABOVE ORGANIZATIONAL INTERESTS

STAGE 3: DENIAL OF RISK AND PERIL

Great companies experiment with a lot of little things that might not pan out

3 questions of ambiguous data:

1- What’s the upside, if it turns out well?

2- What’s the downside, if events go badly?

3- Can you live with the downside?

Deterioration in gross margins, current ratio, or debt-equity ratio indicates an impending storm

Pay attention to customer loyalty and stakeholder engagement

Negative signs: externalizing blame; obsessive reorganization

There is no organizational utopia

MARKERS FOR STAGE 3:

1. AMPLIFY THE POSITIVE, DISCOUNT THE NEGATIVE
2. BIG BETS AND BOLD GOLDS WITHOUT EMPIRACLE EVIDENCE
3. INCURRING HUGE DOWNSIDE RISK BASED ON AMBIGUOUS DATA
4. EROSION OF HEALTHY TEAM DYNAMICS
5. EXTERNALIZING BLAME
6. OBSESSIVE REORGANIZATION
7. IMPERIOUS DETACHMENT

STAGE 4: GRASPING FOR SALVATION

This starts when looking for the silver bullet

The signature of mediocrity is chronic inconsistency

Be rigorous about what NOT to do

MARKERS FOR STAGE 4:

1. A SERIES OF SILVER BULLETS
2. GRASPING FOR A LEADER AS SAVIOR
3. PANIC AND HASTE
4. RADICAL CHANGE AND ‘REVOLUTION’ WITHOUT FANFARE
5. HYPE PRECEDES RESULTS
6. INITIAL UPSWING FOLLOWED BY DISAPPOINTMENTS
7. CONFUSION AND CYNICISM
8. CHRONIC RESTRUCTURING AND EROSION OF FINANCIAL STRENGTH

STAGE 5: CAPITUALTION TO IRRELEVANCE OR DEATH

CASH is critical

If no cash, no way to continue the fight

If you have clear and inspired purpose built upon solid core values, then the noble course may be to fight on, to reverse the decline, and to try and rekindle greatness

WELL FOUNDED HOPE

Right leaders feel a sense of urgency in good times and in bad, whether facing threat or opportunity

Right people will drive improvement and will never take well to manipulation

The path to recovery lies first and foremost in returning to sound management practices and rigorous strategic thinking

Lack of management discipline correlates with decline

Adherence to management discipline correlates with recovery and ascent

The truly great come back from setbacks stronger than before

NEVER GIVE IN:

1. be willing to change tactics, but never give up your core purpose
2. never give up on the principles that define your culture
3. never give up on building a great company
4. never give up on the discipline to create your own future
5. never give up faith in your ability to prevail

SUCCESS IS FALLING DOWN AND GETTING UP ONE MORE TIME WITHOUT END.

Jim Collins