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Commerce Matters - Ladue News: Business & Wealth

Commerce Matters

Review of “How the Mighty Fall”

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Posted: Thursday, April 22, 2010 12:00 am

Jim Collins’ 2001 bestseller Good to Great talked about what takes companies from good to great. Collins takes a different perspective in his latest book by asking the question, What happens when even the best companies slip,  finding themselves dropping out of the consumer’s eye and even worse, into the red? 

    How the Mighty Fall: And Why Some Companies Never Give In is not a doomsday read on the worst business decisions or collapses in history. It is a must-read for leaders who want to know how to weather the storm of decline and possibly reverse their course for smoother sailing. I grew up listening to the sage advice of my dad, Dr. Samuel Ola Akande, who always said we have to learn from the mistakes of others because life’s too short to make all the mistakes ourselves.

  Collins contends that we do ourselves a disservice by paying attention only to success and not delving into why businesses fail. That’s why understanding the five stages of decline Collins uncovered during the four years he researched this book is so important.  Anyone can fall for reasons out of their control. While decline, Collins contends, is self-inflicted, recovery is within our control.

      The first step in Collins’ five stages of decline is ‘Hubris Born of Success.’ It’s when success is seen as deserved and leaders stop learning; rhetoric replaces understanding and insight. Stage two, ‘Undisciplined Pursuit of More,’ follows soon, in which businesses confuse ‘more’ with ‘great,’ and the increasing price of that mindset prompts a loss of competitiveness.  This is what happened to Merck, Collins contends, as the company pursued growth instead of focusing on delivering. The pursuit of more at any cost led to its huge success with Vioxx, but then the medication had to be pulled from the market, and the attendant price to Merck was catastrophic.

     When companies reach stage three, ‘Denial of Risk and Peril,’ they have their blinders fully embedded in their heads. Here, leaders explain away or discount the negative, are fast to find blame outside themselves, and make bets that would have Las Vegas bookies drool. The 2008 financial crisis exemplifies this problem in the way parties involved played fast and loose with probabilities. As the bubbling housing market grew, so did the chance of a real estate crash. But with all that money being made, what do you do?  “When the music is playing,” said a disgraced CEO of one of the nation’s largest banks, “you’ve got to keep dancing.”

    ‘Grasping for Salvation,’ stage four, is the last in which a company can attempt a ‘rebound.’  Here Collins found companies looking for a savior (Circuit City), making game-changing acquisitions and chronic restructuring (A&P). Then one day the company runs out of options and straight into stage five, ‘Capitulation to Irrelevance or Death.’ Goodbye, Scott Paper and Rubbermaid.

    Those skirting fate are outlined by Collins in the appendix, which showcases the recovery of such heavy hitters as IBM, Nucor and Nordstrom. But what if you’re not running one of the nation’s largest corporations?  What can you get from How The Mighty Might Fall?  Readers can get the answer to what Collins has outlined as “some basic human questions” on how to take something from mediocre to meteoric, and how to explain why some become great despite the most adverse conditions. Again, Collins shows us how to go from good to great, but only if we refuse to give in. 

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