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 free How the Mighty Fall summary, you’ll get an overview of each of these 5 stages of decline, and how to prevent, detect or reverse the decline before it’s too late.
How the Mighty Fall: An Overview
Jim Collins 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. You can get more of these details in our complete summary bundle.
The 5 Stages of Decline
Here are the 5 sequential stages of decline in a nutshell. For more details, case-studies and symptoms/markers for each of the stages, do check out our full 12-page How the Mighty Fall summary:
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 the Good to Great summary” 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”. Our full summary covers the 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. For examples of Rubbermaid, Ames and Merck, with more insights on Stage 2 symptoms, check out our 12-page summary.
Stage 3: Denial of Risk & 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. You can read more about Motorola vs Texas Instruments (TI), as well as the “waterline principle” in our complete How the Mighty Fall 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 our 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. Our complete summary shares more about the fate of Scott Paper and Zenith.
Getting the Most from How the Mighty Fall
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.
Do also check out our combined summary of all Jim Collins’ strategy books or read the individual summaries here: Good to Great summary and Built to Last summary.
About the Author of How the Mighty Fall
How the Mighty Fall: And Why Some Companies Never Give In is written by Jim Collins—an American author, lecturer and business consultant on leadership and what makes great companies tick. He holds a bachelor’s degree in Mathematical Sciences and an MBA from Stanford University, and honorary doctoral degrees from the University of Colorado and the Peter F. Drucker Graduate School of Management at Claremont Graduate University.
Jim Collins began his research and teaching career at the Stanford Graduate School of Business, where he received the Distinguished Teaching Award in 1992. In 1995, he founded a management laboratory in Boulder, Colorado, where he conducts research and engages executives from the corporate and social sectors. Besides his work in the business sector, Collins also has a passion for the social sectors, such as education, healthcare, government, and cause-driven non-profits.
How the Mighty Fall Quotes
“Every institution is vulnerable, no matter how great… Anyone can fall and most eventually do.”
“Great companies can stumble, badly, and recover.”
“A core business that meets a fundamental human need – and one at which you’ve become best in the world – rarely becomes obsolete.”
“When an organization grows beyond its ability to fill its key seats with the right people, it has set itself up for a fall.”
“Big does not equal great, and great does not equal big.”
“When you abandon hope, you should begin preparing for the end.”
“Organizations do not die from lack of earnings. They die from lack of cash.”
“Success is falling down, and getting up one more time, without end.”
“As long as you never get entirely knocked out of the game, there remains always hope.”
Avoid the common mistakes that bring great companies down: