Chaotic Economy

Most of the books I recommend are full of sunshine and optimism. But this month, I explored the dark world of corporate decline within the book “How the Mighty Fall and Why Some Companies Never Give In” by Jim Collins.

This topic is interesting to me, because we lived through America’s Great Recession of 2008, and watched formerly great companies struggle and topple. Experiencing the uncertainty and chaos of that time impacted me and left me with questions about our economy.

So while most of the time, I prefer to study success, strength, and strategy, I do think it’s important to take a look at the opposite side of the coin. As author Jim Collins says, “we do ourselves a disservice by studying only success.”

Collins and his team conducted a multi-year research project and published “How the Mighty Fall” in 2009. They identified some of the greatest companies in American corporate history that fell from their former glory, for example, Bank of America, Circuit City, and Hewlett-Packard, Merck, Motorola, Rubbermaid, and Zenith. Some fo the companies that fell closed their doors permanently, while some companies were able to recover and rise to greatness again.

The research behind “How the Mighty Fall” reveals 5 Stages of Decline that almost all failing companies go through. Collins says his findings are dark, but full of well-founded hope, because “the path to recovery lies largely within our own hands.” Collins explains: “Whether you prevail or fail, endure or die, depends more on what you do to yourself than on what the world does to you.”

Keeping that note of optimism in mind, Collins uses the pages of his book to explain the 5 Stages of Decline. Below, I’ve listed brief summaries of each stage. For Collins’ full descriptions of these ideas, I encourage you to read the “How the Mighty Fall” or listen to Collins read the audiobook. Both are engrossing and enlightening.

Five Stages of Decline

Stage 1 – Hubris Born of Success: Success entitlement and arrogance. Neglect of the basic engines that create and sustain success. Decline in learning. Discounting the role of luck and fortuitous events.

Stage 2 – Undisciplined Pursuit of More: Unsustainable quest for growth. Declining proportion of right people in key seats. Bureaucracy subverts freedom, responsibility, and discipline. Personal interests placed above organizational interests.

Stage 3 – Denial of Risk and Peril: Amplifying the positive while discounting the negative. Making big bets without empirical validation. Erosion of healthy team dynamics, externalizing blame, obsessive reorganizations.

Stage 4 – Grasping for Salvation: Inconsistent series of attempts to create breakthroughs with “silver bullets,” grasping for a leader-as-savior, panic and haste, hype precedes results, initial upswing followed by disappointments, confusion and cynicism, erosion of financial strength.

Stage 5 – Capitulation to Irrelevance or Death: Giving up the fight, running out of options, leaders abandon all hope of building a great future.

Reversal & Recovery

Collins explains it’s helpful to understand these stages. It’s also possible for companies to reverse their fate to experience recovery and renewal if they catch decline in stages 1, 2, or 3. Collins elaborates: “And in some cases, you might even be able to reverse course once in stage 4, as long as you still have enough resources to get out of the cycle of grasping and rebuild one step at a time.”

Collins acknowledges that “life offers no 100-percent guarantees,” but in general, “we are freed by our choices.” Companies, organizations, and individuals have a significant amount of impact on their own futures. As Collins explains: “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.” He contends that great companies continuously strive for excellence – and disciplined moderation – in bad times and in good.

Great by Choice

Companies can turn around decline by returning to solid management principles. Collins described some of these ways companies can thrive despite turbulence in his book “Great by Choice,” which he wrote with co-author Morten T. Hansen. Several months ago, I wrote a blog article about Great by Choice. The research for “Great by Choice” and “How the Mighty Fall” was conducted simultaneously, and the two books go hand-in-hand. Here are the management principles described in Great by Choice:

• Fanatic Discipline
• Empirical Creativity
• Productive Paranoia
• Level 5 Ambition
• SMaC Recipe: Specific, Methodical, and Consistent
• Maximizing Return on Luck, Especially Bad Luck

Collins explains additional research findings on winning management principles in his books “Good to Great” and “Built to Last.”

In “How the Mighty Fall,” Collins explains his ultimately hopeful perspective on decline and recovery: “The signature of the truly great versus the merely successful is not the absence of difficulty, but 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 always remains hope.”

Fascinating stuff. Since the Great Recession, the economy has steadily improved. But the health of the economy is cyclical, and there will surely be additional recessions and turbulent times. It’s helpful to have the well-researched frameworks outlined in “How the Mighty Fall” and “Great by Choice” to put it all into perspective and stay empowered.

Next Week: “Use a Timer to Maximize Effectiveness – My Thoughts on the Good Life”

Photo by Paula Williams