A short ebook, “How the Mighty Fall” by Jim Collins, published in 2010, presents an analysis of big, public, reputable American companies that have gone out of business, or made a major fumble but recovered.
The author and his colleague conducted extensive, comprehensive research on the reasons, across a range of dimensions. Collins writes, “We learn more by examining why a great company fell into mediocrity” than the opposite.
So as to avoid bias in how he viewed a company after its failure or recovery, Collins pored over documents in chronological order (thus remaining unaware of how a company ultimately fared until he reached the information in due time), starting well before the crisis.
Companies do need continual creative re-invention. However, “companies that change constantly but without any consistent rationale will collapse just as surely as those that change not at all.”
Collins developed a theory that there are five stages companies go through when heading for bankruptcy. The author provides examples in the histories of real-life businesses when they were being led by particular CEOs.
The difference between Wal-Mart and Ames (a competing department store chain that disappeared in 2002) is that in the late 1980’s, the former had a humble CEO who was always eager to learn. Unlike his narrow-minded peers, he met with Brazilian investors to find out about their retail culture. “Wal-Mart does not exist for the aggrandizement of its leaders.”
Collins’ data indicated a counterintuitive notion: many companies that fell were actually not resting on their laurels. They fell not because they failed to take bold action, but because they exceeded the limits of their resources in doing so. This blogger remembers Woolworth as one of those.
Another point the author conveys is that businesses that delivered cumulative returns to investors in the long term as opposed to focusing on unsustainable short-term growth to put on a show for Wall Street, became great businesses.
The author contends that another element of success is staffing a company with “the right people who accept responsibility” rather than building a bureaucratic hierarchy whose bureaucracy breeds more bureaucracy. The former bestows individual credit and blame.
Read the book to learn:
- the stages of decline;
- warning signs;
- different ways management reacts to them;
- why IBM was able to right itself by the late 1990’s from its low in 1993, while HP’s pain, starting in the late 1990’s, persisted much longer;
- why Texas Instruments got its mojo back but Motorola did not; and
- much more.