Opinion: Much can be gained from companies' past mistakes

Jim Collins, bestselling author of “Good to Great,” confronts the question of how good companies collapse in his new book, “How The Mighty Fall.”

Collins’ premise is that every organization, no matter how solid, is vulnerable to decline. How can you argue with that, especially looking back on the last two years?

Based upon the author’s four years of research, he concluded that there are five distinct stages of decline. According to Collins, if a leader understands the stages of decline then they can substantially reduce their chances of falling all the way to the bottom.

I wouldn’t immediately agree.

Many company leaders have successfully avoided collapse, but was that because they understood what could make their organization collapse and avoided it, or, was it due to other factors such as sound operational processes, innovativeness, adaptability or successful marketing strategy?

On a cerebral level, it is likely a little of both.  

That said, there are a number of insights to be gleaned from the five stages.

Stage 1. Hubris Born of Success
In the mid-1990s, Motorola was the No. 1 cell phone maker in the world, gobbling up nearly 50 percent market share. By 1999 Motorola’s market share declined to 17 percent.

How?

During its celebrated sales growth from $5 billion to $27 billion in annual revenues in less than a decade, they became arrogant.

Instead of acknowledging the shift from analog technology to digital, their attitude became “43 million analog customers can’t be wrong.”

In 1995, executives were banking on their newest analog cell phone, Star-TAC. They tried to strong-arm retailers by forcing them to carry 75 percent Motorola phones or they wouldn’t receive the new Star-TAC.

This backfired and competitors swooped in and devoured market share.

Stage 2. Undisciplined Pursuit of More
Collins maps out the fall of companies that declined faster, and further, due to little restraint for growth.

Take the company Ames, they bought Zayre department stores and destroyed the momentum they had built over three decades. While the acquisition more than doubled revenues from 1986 to 1989, buying Zayre, which relied on loss-leader promotions, significantly changed Ames’ strategy. This strategic shift departed from what had made Ames great, and from 1986 to 1992 Ames’ stock return plummeted and plunged the company into bankruptcy.

Undisciplined growth can bring hardship to large and small companies alike. Growth, in my view, is not a good objective in and of itself. Do the right things and growth will come.

Stage 3. Denial of Risk and Peril
An especially fascinating illustration in the book comes at the expense of the unfortunate space shuttle Challenger and its failed launch in 1986. What happened regarding the O-Ring issue with Challenger should make any leader stop and carefully consider how they make critical decisions for their company.

Instead of NASA and Morton Thiokol engineers framing the question as, “Can you prove that it’s safe to launch?” – as was typical in launch decisions — the question evolved to “Can you prove that it’s unsafe to launch?”

This was a page-stopper for me and I grabbed a highlighter. To fully appreciate how the way your question is posed can lead to disastrous decisions or outcomes, you’ll have to buy the book.

Stage 4. Grasping for Salvation
“This stage begins when an organization ‘reacts’ to a downturn by lurching for a silver bullet,” said Collins. He uses examples like betting on unproven technology, or untested strategy. Several others come to mind like wasting resources on brand awareness when the problem is actually low customer loyalty or inconsistent quality, believing a new product will sell itself, or lowering prices to generate sales at the expense of sufficient profitability.

Stage 5. Capitulation to Irrelevance or Death
Collins relates a lesson learned in college, “You pay your bills with cash!” Meaning, you can be profitable but bankrupt. Collins examines companies such as Zenith and Scott Paper and the lessons learned.

Bottom-line: There is a lot to like about this book if you share the author’s passion for understanding the reasons behind organizational greatness and decline.

Springfield-based consultant Mark Holmes speaks nationally on increasing employee and customer retention and improving employee performance. He is the author of “Wooing Customers Back” and “The People Keeper,” and writes a blog at www.managemyemployees.com. He can be reached at mholmes@managemyemployees.com.[[In-content Ad]]