Wednesday 21 October 2009

Book Review: How the Mighty Fall

I am big fan of Jim Collins; I became one after reading his book, "Good to Great". I have also read his another book, "Built to Last". So when I came to know that his recent book has come to market, I immediately grabbed its copy.

In his preface, Jim Collins has mentioned that he had considered this topic more for an article than for a book. Right now it has come out as a lengthy article published in book form. It is a small book with a little more than 200 pocket-sized pages to read. Nevertheless, the content presented in this book is quite powerful and thought-provoking. In line with Jim Collin's style, the content is backed by 4-years long research that involved comparative study of failed companies in contrast to the companies that attained and/or sustained exceptional results during the same era.

The book describes a model consisting of five stages of decline, through which great companies go before becoming irrelevant. The great companies enter first stage named as "Hubris Born of Success" largely due to their arrogant neglect of their primary business and because rhetoric of success (what) replaces understanding and insights (why). The second stage, called as "Undisciplined Pursuit of More" happens largely due to unsustainable quest for growth, declining proportion of right people in key seats and problematic succession of power. Companies enter third stage of "Denial of Risk and Peril" as they make big bets in the face of mounting evidence to the contrary and as they indulge in externalizing blames and obsessive reorganizations. Stage 4 of "Grasping for Salvation" can be recognized with markers such as series of silver bullets and initial upswing followed by disappointments. The final stage of "Capitulation to Irrelevance or Death" is reached when company either gives up the fight or run out of cash.

The book makes certain statements, which are backed by the research but are not so much intuitive. Let me list those statements as IMHO they are the real learning from the book:

  • Whether you prevail or fail, endure or die, depends more on what you do yourself than on what the world does to you.
  • Great companies can stumble, badly, and recover.
  • Leaders who fail the process of succession set their enterprises on a path to decline.
  • The signature of mediocrity is not unwillingness to change. The signature of mediocrity is chronic inconsistency.
  • Most "overnight success" stories are about twenty years in the making.
  • Great companies can fall even if engaged in energetic and ambitious activity, thereby undermining the hypothesis that all great companies fall because they come complacent.
  • Right people for key seats show following six characteristics: they fit with company's core values; they don't need to be tightly managed; they understand that they do not have jobs but have responsibilities; they fulfill their commitments; they are passionate about the company and its work; they display "window and mirror" maturity (credit others for success, hold self responsible for failures).

The book also mentions the Packard's Law, which states that no company can consistently grow revenues faster than its ability to get enough of the right people to implement that growth and still become a great company.

In all, the book is an excellent reading for those who love studying management.

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