Decline comes in stages. For Collins as well?
by professor André de Waal, MBA, is an Associate Professor at the Maastricht School of Management and Academic Director of the HPO Center
Following the huge success of his previous book, Good to Great (2001), it had been quiet on the writer’s front for some time for Jim Collins. That quiet has now been broken with How The Mighty Fall And Why Some Companies Never Give In. This book deals with the questions of how come successful organizations slide downwards towards insignificant status and sometimes even go bankrupt and whether it is possible to predict when this decline begins and/or whether the decline can be stopped or reversed. The research approach described in How the Mighty Fall is largely the same as in Collin’s book Good to Great. In other words, it deals with a pairwise comparison, in which continuously successful companies are compared to similar organizations whose performance shows a gradual decline, in order to identify the differences between both categories and in turn to label the success factors.
The study yields a model with ‘the five stages of decline’. In stage 1, ‘Hubris Born of Success’, organizations become overconfident as a result of their success. They think that everything they touch will turn to gold and become more and more arrogant in their belief that they are simply ’entitled’ to that success. These organizations start to significantly overestimate their own capabilities. They no longer say that "we are successful because we understand why we do certain things and know when these no longer work” but rather that “we are successful because we do certain things, period.” During stage 2, ‘Undisciplined Pursuit of More’, the organization becomes increasingly greedier and starts drifting further and further away from its core competencies and critical success factors. In a continuous hunt for ‘more’, all kinds of actions are taken that have little to nothing to do with the company’s original business. All of this is done under the motto of, “We’re so good, we can do it all!”. During stage 3, ‘Denial of Risk and Peril’, disappointing results are denied and argued away. “Things might be a little difficult now, but will soon be better” and “There is nothing fundamentally wrong with our business model, so we do not really need to change.” The management primarily blames the outside world and never looks into the true causes of the poor performance. If stage 3 goes on for long enough, organizations automatically end up in stage 4, ‘Grasping for Salvation’. During this stage, organizations panic and try to save themselves in any way possible. Unfortunately, they often do this by means of actions that have the contrary effect, such as hiring a charismatic CEO (who turns out not to be as strong as expected), a comprehensive transformation, but “you can’t reorganize yourself out of the problems”, hoping that a blockbuster new product will be a hit (but whose success never materializes) or desperately acquiring a promising competitor (who then gets caught up in the fall of the parent company). All of this results in stage 5, ‘Capitulation to Irrelevance or Death’. During this stage, the organization hopes for rescue and the company is sold or downsized to the point of having virtually nothing left of what was once a magnificent company. Every stage is illustrated with interesting and compelling anecdotes about the ups and downs of both successful and poor-performing companies.
According to Collins, organizations undergo the five stages sequentially, but these can take place at different rates. Also, the fate of the organization can still change during any of the stages, if the organization ‘repents’ and takes the right measures. Most important of all is management discipline. The research data shows a strong correlation between a lack of management discipline and the decline of the organization, and between passionate dedication to carrying out certain management techniques in a strict and disciplined fashion and making the organization successful or regaining success. Another interesting point is that, unlike in his Good to Great book, this time Collins mentions the ’luck’ factor. He claims, for example, that luck and fortuitous circumstances do in fact affect the performance of an organization. However, management that is blinded by success thinks that they have not had good luck, but that the organization’s success story is a result of their own qualities (page 44).
How the Might Fall is a peculiar book. Peculiar in that, according to Collins himself in the introduction, the book is not complete. The text was intended for an article while Collins was working on his next book (about managing during turbulent times). This ‘inflating’ of his article has resulted in a relatively slim book of only 123 pages, the rest of which (100 pages) comprises a series of appendices. In addition, whereas Collins became a trendsetter with Good to Great, he has now broached a topic that is far from original. There are many other and, quite honestly, better books on the mistakes made by organizations and their leaders, such as The set-up-to-fail syndrome (Manzoni and Barsoux, 2002), Why Smart Executives Fail and What You Can Learn From Their Mistakes (Finkelstein, 2003), Why CEOs Fail (Dotlich and Cairo, 2003), The Self-Destructive Habits of Good Companies … And How To Break Them (Seth, 2007), and Billion Dollar Lessons, What You Can Learn From The Most Inexcusable Business Failures of the Last 25 Years (Carroll and Mui, 2008). His research approach is also problematic. A large percentage of the research data for How the Mighty Fall is derived from the databases used for Good to Great. As has already been written in Holland Management Review (“Good to Great – or just Good?,” Niendorf and Beck, no. 125), the scientific value of these databases can be questioned, and study results should therefore be taken with a large grain of salt. Incidentally, Collins implicitly criticizes his own approach to Good to Great when he writes that ’our contrast method does give us greater confidence in our findings than if we studied only success...’ (page 17), which is exactly what happened in Good to Great. Another point is the large number of anecdotes. These make the book highly readable; Collins is unmistakably a good writer. But the impression left behind by the end of the book is that Collins’ argumentation appears to rest almost in its entirely on the same anecdotes. None of the stages are systematically supported by detailed data; instead, Collins tells a story and expects that story to be enough to convince readers of his arguments. But anecdotal evidence is not evidence.
Will How the Mighty Fall become a bestseller? I doubt it. The book is well written and the author’s reputation will attract numerous potential readers, but it gives too much of the impression of being merely a ’filler’ between other publications. The research is thin and yields less notable or appealing results. It would be better to wait for Collins’ next fully fledged book.
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