The Root of All Failure

A funny thing happened to Jim Collins (Author of Good to Great & Built to Last) on his way to write his next book on companies that survive economic turbulence. A bunch of great companies he profiled in his previous two books started going belly-up or experiencing major problems, and he had to write another book just to address the crisis. Collins remarks in his preface, "I considered setting this piece aside until we'd finished the turbulence book, but then the mighty began to fall, like giant dominoes crashing around us." Take a look at the material he had to work with.

Circuit City. Bankrupt. Liquidated. The brand name and web domain was recently bought by the parent company for CompUSA at a reported $14 million price.

Fannie Mae. The harbinger of a major lending crisis so severe that it sent shockwaves throughout the entire global economy.

Hewlett-Packard. Experienced considerable difficulty trying to keep up with the dot-com bubble and lurched about for a bit before (as of this moment) recovering.

In his new book, How the Mighty Fall, Collins set out to identify the qualities that characterize a once-great company that fails. Although he doesn't claim causality, he wonders if a fall can be predicted and avoided if the company recognizes it's in one of the first four stages of decline.

Stage 1: Hubris born of success
Stage 2: Undisciplined pursuit of more
Stage 3: Denial of risk and peril
Stage 4: Grasping for salvation

Some companies realize they're in stage 4 and are able to recover. Others proceed to Stage 5: Capitulation to irrelevance or death.

But how do you know it's coming? And more importantly, how do you turn things around? If you thought, like I did, that great companies fail because they become complacent and lazy, you'd be just as wrong as I was.

"I've come to see institutional decline like a staged disease: harder to detect but easier to cure in the early stages, easier to detect but harder to cure in the later stages. An institution can look strong on the outside but already be sick on the inside, dangerously on the cusp of a precipitous fall."- Jim Collins

As is probably true with most failures, the companies analyzed here failed because they were arrogant. They were arrogant because they were successful and they remained arrogant because they had been successful in the past. (See related post: The Marketing of Conceit)

The good news is all is not lost. And Collins discusses how and why some companies recovered.

There is a lot to appreciate about this work.

The first thing I noticed is that Collins doesn't claim that any one thing causes a fall and he explains why he is unable to do so. Also, Collins doesn't claim to be unbiased. He's human, he says, and it's difficult to erase any preconceived notions he had about companies.

However, unlike some other brilliant and popular authors, he takes great pains to explain the methodology he used to minimize bias and to identify the characteristics that precipitated the fall of great companies. This way, there is no magic box. The reader can judge the work and analysis on its merits.

Even so, like his other books, this work is supremely readable and informative. It's relatively short, so a motivated student can read it in a single sitting. I read it in two.

Whether you're a big company wondering what you can do to stay relevant or a small company wondering what principles characterize great, lasting enterprises, you can't buy and read this book quickly enough. I highly recommend it. Buy it today. - Cam Beck