Every great institution stumbles at some point in its history. All companies, no matter how established or successful, can fail. The crucial questions are, “how do you know if you’re on the verge of a decline”, and “how can you turn things around”? Through 4 years of research, Jim Collins discovers that most great companies fall through 5 stages of decline, which can be detected early and avoided. In this summary of “How the Mighty Fall: And Why Some Companies Never Give In”, we’ll give a synopsis of each of these 5 stages of decline, and how to prevent, detect or reverse the decline before it’s too late.
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Jim Collins’ bestselling books, “Good to Great” and “Built to Last” looked at how good companies broke away from the rest to consistently outperform the market, and how visionary companies like Disney and 3M lasted the test of time to lead and shape their industries. Yet, some of these great companies (e.g. Merck, Motorola) eventually fell. This book builds on earlier research to uncover what happened, and to identify if such decline could be foreseen, avoided or reversed.
Jim Collins shares the research methodology leading to the selection of 11 companies that demonstrated the rise-and-fall phenomenon: Great Atlantic and Pacific Tea Company (A&P), Addressograph, Ames Department Stores, Bank of America, Circuit City, Hewlett-Packard (HP), Merck, Motorola, Rubbermaid, Scott Paper, and Zenith. [More details in the book or our full book summary].
Here are the 5 sequential stages of decline in a nutshell. Please refer to the the book or our full summary for more details, case-studies and symptoms/markers for each of the stages:
• Stage 1: Hubris from Success. “Hubris” refers to excessive pride or arrogance. Stage 1 starts when people become over-confident, and forget the true foundations of their success (read “Good to Great” for the 6 ingredients of greatness and the flywheel concept). People start to take success for granted, lose the hunger for learning, get distracted by non-core areas, and confuse their “Why” and “What”. [See the book / full summary for examples of Motorola and Circuit City, and details of the various Stage 1 symptoms].
• Stage 2: Undisciplined Pursuit of More. The arrogance from Stage 1 leads the company to overstretch, jumping into areas where it can’t be great, or pursuing growth without the right people or resources. They become obsessed with growth (to the point of losing focus and discipline), and make the fatal error of growing faster than they can get the right people, and/or don’t put the right successors in place. [See the book / full summary for examples of Rubbermaid, Ames and Merck, with more insights on Stage 2 symptoms].
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• Stage 3: Denial of Risk and Peril. At this stage, the company is still delivering results, but there are growing signs of danger. Unfortunately, leaders view the data through colored lenses and neglect the threats. Leaders play up the positives, play down the negatives, read ambiguous data favorably, and attribute problems to external factors. Fanatical reorganization, and deterioration of team dynamics & culture are common. [Read more about Motorola vs Texas Instruments (TI), as well as the “waterline principle” in the book / full summary].
• Stage 4: Grasping for Salvation. At this phase, the decline becomes undeniable. But, the organization’s death is not yet imminent. Leaders’ responses at this point determine if the organization sinks or swims. Those who panic and seek quick salvation (e.g. bringing in an external “Savior”, or jumping into drastic, untested changes) will accelerate their fall to Stage 5. Revival is only possible with a return to fundamentals, i.e. the organization must laboriously rebuild and reinforce the flywheel once again, one step at a time. [In the book / full summary, we cover the contrast between HP vs IBM, Motorola vs TI, with more details on the Stage 4 symptoms of decline].
• Stage 5: Resignation to Downfall. The longer an institution stays at Stage 4, and the more its people try to find magic solutions, the faster its downward decline. Eventually, the financial resources dry up and people run out of steam. Collins calls this stage “Capitulation to Irrelevance or Death”. At this point, there are usually 2 paths a company can take: (a) give up and sell the company, or (b) keep going until it exhausts its options. [In the book / full summary, we share more about the fate of Scott Paper and Zenith].
All great companies stumble at some point, e.g. IT, IBM, Nordstrom, Disney, Boeing, HP, Merck. So long as you haven’t fallen too far to run out of options, you can still refocus and rebuild, one step at a time. The book ends with how Xerox managed to make such a turnaround, and also includes several appendices with details such as :
• An overview of the “Good to Great” principles;
• The selection process of the 11 companies;
• The 6 success-contrast selection criteria and scoring framework;
• Notes about Fannie Mae (which seemed to be in Stage 3 of decline);
• The 6 generic characteristics of the “right people” for key seats;
• Decline and recovery case studies for IBM, Nucor, and Nordstrom (using the Good to Great framework); and
• Markers which may indicate an institution is in a particular stage of decline.
For more details, please refer to the official book website for How the Mighty Fall: And Why Some Companies Never Give In, get a copy of the book or our How the Mighty Fall summary bundle. Check out our combined summary of all Jim Collins’ strategy books here.
Avoid the common mistakes that bring great companies down:
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