Have you ever wondered how the legendary brands you see all over the place like Kodak and Nokia have vanished into thin air? How the mighty fall by Jim Collins explains exactly just that.
Their falls had nothing to do with economic factor nor bad luck, Jim argues. Instead it’s their leaders who steer them in the wrong direction exacerbates crises through mismanagement.
Every company no matter how great is vulnerable to fall.
The decline of Roman Empire is the epitome of no matter how vast or successful something is, it is always in danger of collapse.
More often than not, successful companies fall not because they fail to act because they act in the wrong way. Take Nokia for example. While Apple and Samsung were researching and innovating in smartphone technology, executives in Nokia decided to innovate in other less profitable areas. The problem isn’t that failing firms don’t innovate. In fact, they show very high levels of innovation and energy. The problem is failing firms innovate in the wrong areas.
Great success lead great companies to succumb to hubris and destined to fall.
Motorola was rolling in cash in early 1990s, with revenues rocketing to almost $27 billion. Their spectacular rise was later followed by overconfidence and big mistakes. One such mistake was the development of StarTAC cell phone which used analog system while other manufacturers were heading to digital.
Motorola management refused to change course and pushed on with StarTAC, boasting that “43 million analog customers can’t be wrong”. Needless to say, StarTAC failed and Motorola market share plummeted.
When companies succumb to hubris, they often branch out to new areas.
They forgot what brought them success in the first place. Circuit City, a consumer electronics corporation, started selling used cars to renting DVDs after achieving lots of success. They pursuit without discipline so much so that the electronics business was left to rot. Losing this core business hit the company hard and eventually went to wall.
Don’t get this wrong. There’s nothing wrong with entering new markets and doing research, innovating as long as you stay focused on your core business, i.e., where your success came from.
Great companies can decline if they decide to chase unsustainable levels of growth and innovation.
Instead of keeping costs down or increasing profit margins, they follow undisciplined pursuit of more. Rubbermaid, a household manufacturer, is a great example. Once declared by Fortune as America’s most-admired company, Rubbermaid was admired for its high levels of innovation, yet the company took it to extreme, aiming to introduce one new product every day,
This strategy came at a huge cost. In the process, their ‘Why’ became fuzzy. They lost control of their costs and constantly failed to meet orders. Eventually they went bust and taken over by a rival.
Failing companies often choose to ignore criticism and blame others.
Instead of using constructive criticism, leaders refuse to take off their colored lens by continuing to play up the positives and play down the negatives. On top of that, they intentionally attribute the decline and problems to external factors.
Failing companies often take risky and sweeping changes.
In the search for silver bullet, they do something completely different. Take HP for example. In 1990s, when facing low growth, HP made sweeping changes to its business culture. They replace current CEO with Carly Fiorina, a flashy, media-savvy figure who through a series of ads and media appearances sought to completely update the company’s outlook. She thought a more modern-looking company would do better. Still, it didn’t work. Too much change caused HP to lose drive and focus.
If you’re in decline, stay calm, disciplined and make one change at a time, instead of taking massive risks. The first thing leaders can do to reverse decline is to adopt the right mindset. Instead of taking massive changes, take one small step at a time. If you have to take a risk, take an informed and manageable one.
With the right determination and discipline, even the fallen can rise again.
Xerox did just that when they realized just how deep they were in trouble. Anne Mulchay came on board as new CEO and in 4 years, she didn’t take a single weekend off in the battle to make Xerox profitable again. 5 years after it looked like it was going under, Xerox posted profits of $1 billion, the spectacular turnaround that was attributed to having the right mindset.
In short, companies going through five stages of decline can ultimately make a decision to recover before collapse.
Here are the five stages of decline:
- Hubris born of success.
- Undisciplined pursuit of more.
- Denial of risk and peril.
- Grasping for salvation.
- Capitulation to irrelevance or death.
A revival is possible by getting back to fundamentals, i.e., the company must invest in reflecting their core competency and culture that brought them success in the first place. With this they can learn to turn the flywheel once again, one step at a time. All great companies (IBM, Nordstorm, Disney, Boeing, HP, Apple) have fallen at some point but eventually managed to self-correct and recoup their legacy this way.
If you got something out of this summary, I believe you will also like two other pieces from the same author: Good to Great and Great by Choice.