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A five-stage framework on “How the Mighty Fall”

20 Jan

…“Even so, a staged framework of how the mighty fall did emerge from the data. It’s not the definitive framework of corporate decline –companies clearly can fall without following this framework exactly (from factors like fraud, catastrophic bad luck, scandal, and so forth)—but it is an accurate description of the cases we studied for this effort…”

…”The model consists of five stages that proceed in sequence. Let me summarize the five stages here and then provide a more detailed description of each stage in the following pages.”

…“Stage 1: Hubris born of success. Great enterprises can become insulated by success; accumulated momentum can carry an enterprise forward, for a while, even if its leaders make poor decisions or lose discipline. Stage 1 kicks in when people become arrogant, regarding success virtually as an entitlement, and they lose sight of the true underlying factors that created success in the first place. When the rhetoric of success (“We’re successful because we do these specific things”) replaces penetrating understanding and insight (“We’re successful because we understand why we do these specific things and under what conditions they would no longer work”), decline will follow…”

…“Stage 2: Undisciplined pursuit of more. Hubris from Stage 1 (“We’re so great, we can do anything”) leads right into Stage 2, the Undisciplined Pursuit of More—more scale, more growth, more acclaim, more of whatever those in power see as “success”. Companies in Stage 2 stray from the disciplined creativity that led them to greatness in the first place, making undisciplined leaps into areas where they cannot be great or growing faster than they can achieve with excellence, or both. …”

…“Stage 3: Denial of risk and peril. As companies move into Stage 3, internal warning signs begin to mount, yet external results remain strong enough to “explain away” disturbing data or to suggest that the difficulties are “temporary” or “cyclic” or “not that bad”… In Stage 3, leaders discount negative data, amplify positive data, and put a positive spin on ambiguous data. Those in power start to blame external factors for setbacks rather than accept responsibility…”

…“Stage 4: Grasping for salvation. The cumulative peril and/or risks-gone-bad of Stage 3 assert themselves, throwing the enterprise into a sharp decline visible to all. The critical question is, How does its leadership respond? By lurching for a quick salvation… Those who grasp for salvation have fallen into Stage 4. Common “saviors” include a charismatic visionary leader, a bold but untested strategy, a radical transformation, a dramatic cultural revolution … or any number of other silverbullet solutions. Initial results from taking dramatic action may appear positive, but they do not last.”

…“Stage 5: Capitulation to irrelevance or death. The longer a company remains in Stage 4, repeatedly grasping for silver bullets, the more likely it will spiral downward. In Stage 5, accumulated setbacks and expensive false starts erode financial strength and individual spirit to such an extent that leaders abandon all hope of building a great future … and in the most extreme cases, the enterprise simply dies outright”

Jim Collins (2009) HOW THE MIGHTY FALL and some companies never give in; Pp 19-23; Ed. The Random House Business Books; London; UK.

Check Jim Collins book page here. Buy the book from here.

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Posted by on January 20, 2011 in Management, Uncategorized

 

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