"Come, let us build ourselves a city, and a tower whose top is in the heavens; let us make a name for ourselves, lest we be scattered abroad over the face of the whole earth." -- Genesis 11:4
How the Mighty Fall takes a methodology similar to Built to Last and Good to Great and searches for differences among paired companies (Loser--Winner; A&P--Kroger; Addressograph--Pitney Bowes; Ames--Wal-Mart; Bank of America--Wells Fargo; Circuit City--Best Buy; Hewlett Packard--IBM; Merck--Johnson & Johnson; Motorola--Texas Instruments; Rubbermaid--None qualified; Scott Paper--Kimberly-Clark; and Zenith--Motorola) As you can see, it all makes for strange bedfellows (Motorola is on both sides of the divide and Rubbermaid doesn't have a winning comparison partner). As before, the analysis relies on public information from that period (such as annual reports, business journalism articles, and analyst reports).
From these data, Jim Collins discerns the following taxonomy of stages:
1. Hubris (excess pride) due to prior success
2. Undisciplined pursuit of more
3. Denial of risk and peril
4. Grasping for salvation
5. Capitulation to irrelevance or death
Reaching any one of these stages doesn't mean that stage 5 is inevitable in Collins' view.
The result is more like a monograph than a full business book with limited examples and observations. Many readers will find themselves hungering for more.
I was grateful to Mr. Collins for the excellent way that he defined and described his cases. As a result, I was able to look into what he was measuring to see what else might be there.
I had the good fortune to work with most of these companies as a consultant either just before or during the measurement period. As a result, I was able to think about what people inside the company had told me at the time about what they were doing and why they were doing it as well as what I observed about how they went about doing their work.
From those additional perspectives, I thought there were some other lessons:
1. Capable continual business model innovators (Kroger, Pitney Bowes, Wal-Mart, Wells Fargo, Best Buy, IBM, TI, and J & J) outperform those who mostly try to make old business models more efficient and effective.
2. Companies are more likely to try to do too much and swerve off in weird directions because the CEO feels insecure (Addressograph, Ames, Bank of America, Merck, Motorola, Scott, and Zenith) compared to a predecessor and the predecessor's track record (or a competitor CEO and that CEO's track record) rather than because of excess pride.
3. Denial of risk and peril arrives long before the company's performance peaks (Addressograph, Ames, Bank of America, Circuit City, Motorola, Scott, and Zenith). It just shows up as a problem later after a change in the environment causes the company to be exposed to worse results because of risk than before.
4. Ignorance about how to do big acquisitions successfully is rampant in large organizations (Ames, Hewlett Packard, Merck, and Motorola). Do a difficult large acquisition without understanding how to succeed, and you will probably fall flat on your face. Your stock will fall flatter than a pancake.
5. Pursuit of seemingly higher-growth markets is an irresistible lure for the portfolio-strategy-focused CEO (these names shall remain unidentified, but they know who they are) regardless of the real opportunity (think of the AOL-Time Warner merger).
This subject, I think, would be much better studied as a methodology by long-term tracking studies that include annual interviews and visits with a large number of competitors, customers, suppliers, and employees among the comparison companies. Perhaps someone from academia will move beyond the desire to write a quick case and do this kind of fundamental research to help answer the question: "How can we know when we are headed for a fall?"