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How the Mighty Fall

An Overview

  • How the Mighty Fall presents the well-founded hope that leaders can learn how to stave off decline and, if they find themselves falling, at what stage they are in, do the necessary to reverse their course – in part by understanding and learning the 5 stages of decline uncovered in the four year research project behind the book.
  • Every institution, no matter how great, is vulnerable to decline. Anyone can fall, and most eventually do. But decline, it turns out, is largely self-inflicted, and the path to recovery lies largely within our own hands. We are not imprisoned by our circumstances, our history, or even our staggering defeat along the way. As long as we never get entirely knocked out of the game, hope always remain. The mighty can fall, but they can often rise again.
  • The approach is to examine the once-great companies to answer two important questions:
    • Why the company once done well had fallen and
    • What factor leading up to the point at which decline becomes visible.

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The Book Chapter Summary

The book consists of 8 main chapters and a detail appendix section.

1) The Silent Creep Of Impending Doom
  • The book begins with Collins recalling the advice of his mentor, Stanford professor Bill Lazier: “Don”t try to come up with the right answers; focus on coming up with good questions”.
  • Discuss on the issue of “How What You Know” that you are on the decline especially “When you are at the top of the world, the most powerful nation on Earth, the most successful company in your industry, the best player in your game, your very power and success might cover up the fact that you”re already on the path of decline.”
  • Looks at the rise and fall of one of the most storied companies in American business history – Bank Of America
2) Five Stages Of Decline

Explain on the research process used in the study and on how Jim Collins and his research team come out with their framework :

  • Companies In Recovery
  • Fannie Mae And Others Financial Meltdowns Of 2008
  • Success Comparison Set
  • Correlations, Not Causes
  • Strengths Of Historical Analysis

Illustrate and explain the 5-Stage Framework :

  • Stage 1: Hubris Born Of Success
    • The firm”s management becomes conceited, per success as nearly an entitlement.
  • Stage 2: Undisciplined pursuit of more
    • More scale, more growth, more acclaim. Companies’ management wander from the trained creativity that led them to greatness in the 1st place, making undisciplined leaps into areas where they can”t be great or growing quicker than they can achieve with excellence, or both.
  • Stage3: Denial of risk and hazard
    • Leaders of the company don”t give weight-age to negative information, give more price to positive information and put a positive spin on ambiguous data. Those in power start to blame external factors for reversals rather than accept responsibility.
  • Stage 4: Grasping for salvation
    • Common “saviors” include a charismatic visionary leader, a bold but untested strategy, a radical transformation, a “game changing” acquisition or any number of other silver-bullet solutions.
  • Stage 5: Capitulation to irrelevance or death
    • Accumulative setbacks and expensive false starts to erode the company financial strength and individual spirits to such an extent that leaders abandon all hope of building a great future. In some cases their leaders just sell out. In other cases the institution atrophies to utter insignificance.
  • Important Points And Comments
    • “Great companies can stumble badly, and recover. While you cannot come back from stage 5, you can tumble into the grim depths of stage 4 and climb out. Most companies eventually fall, and we cannot deny this fact. Yet our research indicates that organizational decline is largely self-inflicted, and recovery largely within our own control”
3) Stage 1: Hubris Born Of Success

Story lines and illustrating how successful companies fall into stage 1 of decline :

  • Motorola pursuit of past successful analog technology – “Forty-three million analog customer can’t be wrong”
  • Circuit City pursuit on an adventure called Divx – “This is a company that is in great shape”. “To be successful in any given area of activity, you have to keep pushing with as much intensity as when they first began building that flywheel, exactly what Circuit City did not do”
    • Whereas, Best Buy, succeed – Creating a consumer electronics superstore. Doing exactly opposite of Circuit City, pursue with intensity
  • Zenith (Exception case) – “fell largely because it stayed focused on its core business too long and failed to confront its impending demise”. Note: “A core business that meets a fundamental human need and one at which you’ve become best in the world rarely become obsolete”.
  • Great Atlantic amp; Pacific Team Company (Aamp;P) arrogant stance that “we will continue to keep things just the way they are and we will continue to be successful – well, we’re Aamp;P” forgotten why was Aamp;P successful in the 1st place.
  • Failure of Ames Department Stores versus the success of Wal-Mart (Note: Wal-Mart started 4 year later and actually learned from Ames). The different – “Wal-Mart maintained its near-religious fanaticism about its core values, purpose, and culture, Ames did the opposite in its quest for quick growth, catapulting itself right into stage 2”.

Important Points And Comments :

  • It is better to take approach 1, that is, to discount your own success than to take approach 2, attribute success to your own superior qualities.
  • Markers For Stage 1
    • Success Entitlement, Arrogance
    • Neglect Of A Primary Flywheel
    • What Replaces “Why”
    • Decline In Learning Orientation
4) Stage 2: Undisciplined Pursuit Of More

Story lines and illustrating how successful companies fall into stage 2 of decline :

  • Ames pursuit on acquisition destroyed the momentum built over 3 decades making it a significant urban player overnight – “Wal-Mart continued to focus 1st on rural and small town areas before making an evolutionary migration into more urban settings”.
  • Rubbermaid – “Our Vision is to grow”: “doing a lot of new stuff, all at the same time”, “Choking on nearly 1 thousand new products introduced in 3 years…”
  • Merck – pursuit of growth at all cost. “Merck’s quest for growth subtly diluted the power of – Merck’s purpose-driven philosophy that made the company great in the 1st place”. Note: “All three companies from Built To Last that fell in the analysis – Merck, Motorola and HP – pursued outsized growth to their detriment”.

Important Points And Comments :

  • Packard’s Law – “No company can consistently grow revenues faster than its ability to get enough of the right people to implement that growth and still become a great company”.
  • Markers For Stage 2
    • Unsustainable Quest For Growth, Confusing Big With Great
    • Undisciplined Discontinuous Leaps
    • Declining Proportion Of Right People In Key Seats
    • Easy Cash Erodes Cost Discipline
    • Bureaucracy Subverts Discipline
    • Problematic Succession Of Power
    • Personal Interests Placed Above Organizational Interests
5)Stage 3: Denial Of Risk And Peril

Story lines and illustrating how successful companies fall into stage 3 of decline :

  • Motorola – Undisciplined pursuit in the Iridium Program despite negative evidences. In contrast, Texas Instruments (TI) only dared its big leap only after diligently turning the DSP flywheel fifteen years. It didn’t bet big in 1982, when it 1st put DSP on a single chip as well as in 1986, when it had only $6 Million in DSP revenues.
  • Rubbermaid – “Our Vision is to grow”: “doing a lot of new stuff, all at the same time”, “Choking on nearly 1 thousand new products introduced in 3 years…”
  • Merck – pursuit of growth at all cost. “Merck’s quest for growth subtly diluted the power of – Merck’s purpose-driven philosophy that made the company great in the 1st place”. Note: “All three companies from Built To Last that fell in the analysis – Merck, Motorola and HP – pursued outsized growth to their detriment”
  • IBM – Historical fall in the late 1980s and early 1990s: Failure in the Leadership-Team Dynamic
  • Others In Stage 3 – Scott Paper, Zenith

Important Points And Comments :

  • Taking Risks Below The Waterline – “To be clear, great enterprises do make big bets, but they avoid big bets that could blow holes below the waterline. When making risky bets and decisions in the face of ambiguous or conflicting data, ask 3 questions”.
    • What’s the upside, if events turn out well?
    • What’s the downside, if events go very badly?
    • Can you live with the downside? Truly?
  • At this stage, Leadership-Team Dynamics is critical.
  • Markers For Stage 3
    • Amplify The Positive, Discount The Negative
    • Big Bets And Bold Goals Without Empirical Validation
    • Incurring Huge Downside Risk Based On Ambiguous Data
    • Erosion Of Health Team Dynamics
    • Externalizing Blame
    • Obsessive Reorganization
    • Imperious Detachment
6)Stage 4: Grasping For Salvation

Story lines and illustrating how successful companies fall into stage 4 of decline :

  • HP – Appointment Of Carly Fiorina as CEO; “The company of Bill Hewlett and Dave Packard is being reinvented”. Whereas, Louis V. Gerstner, Jr, CEO of IBM stated “The last thing IBM needs right now is a Vision”; doing “Nothing” for the 1st 100 day in office – “No, thank you. We’re going dark for a bit while we assess the task at hand”.
  • Ames, Circuit City, Aamp;P – Hired new CEOs
  • Motorola Versus IT – “Two great companies that stumbled; one fell through stage 4 while the other did not”

Important Points And Comments :

  • Searching For A Silver Bullet – “Stage 4 begins when an organization reacts to a downturn by lurching for a silver bullet. This can take a wide range of possible forms, such as betting big on unproven technology, pinning hopes on an untested strategy, replying upon the success of a splashy new product, seeking a game changing acquisition, gambling on an image makeover, hiring consultants who promise salvation, seeking a savior CEO, expounding the rhetoric of ‘Revolution’, or in its very late stages, grasping for a financial rescue or buyout”.
  • Markers For Stage 4
    • A Series Of Silver Bullets
    • Grasping For A Leader-As-Savior
    • Panic And Haste
    • Radical Change And “Revolution” With Fanfare
    • Hype Precedes Results
    • Initial Upswing Followed By Disappointments
    • Confusion And Cynicism
    • Chronic Restructuring And Erosion Of Financial Strengths
7)Stage 5: Capitulation To Irrelevance Or Death

Story lines and illustrating how successful companies fall into stage 5 of decline :

  • Scott Paper – “Had the company not fallen through stage 1, 2, 3 and 4 and not lost control of its financial freedom, the new CEO Dunlap would have never been brought in to burn the village in order to save it”.
  • Zenith – Explain how the company proceeds from stage 1 through stage 4. “Zenith churned through 5 CEOs in 10 years, fell into bankruptcy, and reemerged with less than 400 employees, 98 % fewer than the 36,000 employed in 1988. It had fallen from one of the greatest success stories of American business history at mid-century into a shadow of its former self”.

Important Points And Comments :

  • Denial Or hope – “Requires leaders who retain faith that they can find a way to prevail in pursuit of a cause larger than mere survival and larger than themselves, while also maintaining the stoic will needed to take whatever actions must be taken, however excruciating, for the sake of that cause”.
8) Well-Founded Hope

Story lines and illustrating how successful companies fall into stage 4 of decline :

  • Xerox – Illustrate how the CEO Anne Mulcahy in 2001 inherited a company mired in stage 4 and turn it around. She put the company after self.
  • Xerox. HP. Nucor. IBM. Merck. Texas Instruments. Pitney Bowes. Nordstrom. Disney. Boeing – “What do these companies have in common? Each took at least one tremendous fall at some point in its history and recovered”.

Important Points And Comments :

  • “The signature of the truly great vs. the merely successful is not the absence of difficulty. It”s the ability to come back from setbacks, even cataclysmic catastrophes, stronger than before. 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 hope”.
  • “Great leaders used decline as a catalyst”
  • “Right leaders feel a sense of urgency in good times and bad” – Gerstner, CEO IBM
  • The path out of darkness begins with those exasperatingly persistent individuals who are constitutionally incapable of capitulation. It”s one thing to suffer a staggering defeat—as will likely happen to every enduring business and social enterprise at some point in its history—and entirely another to give up on the values and aspirations that make the protracted struggle worthwhile. 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”.
9) Appendices And Notes
  • Explaining the fallen company selection criteria
  • Explaining the success-contrast selection criteria
  • Illustrating Fannie Mae and the Financial Crisis of 2008
  • Providing an evidence table – subverting the complacency hypothesis
  • Providing an evidence table – grasping for salvation
  • Illustrating the decline and recovery case of IBM, Nucor and Nordstrom
  • Providing Good-To-Great Framework – Concept Summary

My Takeaways From the Book

  • We tend to think that companies who failed were complacent. Some were, but that’s not what killed them. Collins says it the opposite: a wandering, undisciplined search for magic bullets. Collins clearly and passionately distinguishes disciplined from undisciplined growth.
  • Hubris born of success occurs when we confuse how we do things with why we do things. Collins says we must never confuse the nobility of our purpose with the wisdom of our actions.
  • “Whether you prevail or fail … depends more on what you do to yourself than on what the world does to you,” Collins writes. “We are not imprisoned by our circumstances, our setbacks, our history, our mistakes, or even staggering defeats along the way. We are freed by our choices.”
  • A useful and practical approach on actually “knowing” whether a successful company is on a verge of declining, at what stage of decline and how to avoid the fall.
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