Failure of the Successful
At another of my “thousand cups of coffee” the other day, Jim Fay [USNA, '75] was trying to recall the details he had just read about reasons why successful companies fail. We had been talking about a specific company and a specific circumstance, and Jim remembered that one of the stages of failure was “desperate search for a savior“. The notion intrigued me, and so I started a mini-research campaign.
I found a reference to Jim “Good to Great” Collins and his new book “How the Mighty Fall”, which seems to be the source. At least, let me attribute this citation there and go on.
This book apparently outlines [and supports] the philosophy that there are five stages involved in the failure of good companies, and that these stages are readily identifiable. I wanted to offer these five stages to you, my readers, for your comments and observations, to see if you place in them the same degree of validity that I do.
Stage 1: the Hubris of Success – this involves the feeling that because we have been successful, we will continue to be successful. Now this might, in fact, be true, but being true does not make it something that one can or should believe prima facie. If you have investigated and analyzed why you have been successful, and the conditions remain favorable for continued success using these causes, and you continue to use these favor-gaining strategies, then you might have cause to believe in continued good fortune. But simply having done well in the past is no guarantee that you will continue to do well in the future. Proceeding on this assumption alone without investigation could be perilous.
Stage 2: the Undisciplined Pursuit of More – this can be the case of a company becoming “too big” for its own good and overreaching its ability to control itself, or it could be as matter of too much of a good thing [as is attributed to Karl Popper: just because some salt is good does not mean more salt is better]. The drive in American business today, though, seems to be to become as big as one possibly can. Remember your birthday parties as a child? Blowing up balloons? See how big it can be… oops!! As with the balloon, many times with one’s company, there is no recovery from “too big”. Growth must be disciplined and strategic, developed not simply accepted or permitted.
Stage 3: the Denial of Risk and Peril- an offshoot of Stage 1 and “before the pop” of Stage 2, this stage can set in, a feeling of invincibility. Even with investors and stockholders, certain leaders have a cachet of superpowers. Witness Bernie Madoff, before the fall. Carl Icahn in his heyday. Some names simply exude confidence. Sometimes this denial is active thought, that someone has considered the possibilities and is confident of overcoming them. Other times, it is a position of ignorance: the potential threats before us are simply discounted or not acknowledged. It is normally the confluence of these first three stages that forces a company or an organization into the next stage.
Stage 4: the Desperate Search for a Savior – in the book, I think this is called “Grasping for Salvation” but I liked Jim’s [Fay's, not Collins's] wording better. We see this most prominently in the “Musical Chairs” game of big name CEO’s. A company begins a free-fall into an abyss, and the call immediately goes out- get me Eisner, get me Welch, get me ANYONE!! The flaw in this is that the incumbent is not always the reason for the fall; in the words of Deming, it is the system that is in play. However, fortunes are made [and golden parachutes lined, just in case] in honor of this penultimate phase of failure of great companies.
And then there is Stage 5: called “Capitulation” in the book, Jim Fay covered it better as “Resignation to Insignificance”, where a company accepts the fact that it is [hopefully only temporarily] dethroned. This is the acceptance of what is perceived as “the inevitable“, but I would maintain that it is not. Inevitable, that is. In fact, none of these stages are terminal nor unavoidable.
Jim Collins, in his books, attributes the success of the successful to “discipline“, indicating that when the “great” companies fall from grace, it is due to lost discipline. Not to upstage Mr. Collins, in my estimation, each of these stages can be avoided, and cured, through improving the knowledge systems underpinning the company’s operations.
Every company has a knowledge system- most have not been designed, they have simply emerged as operations evolved. Consistent attention to your knowledge systems – the discipline to know – can resolve or remove these traps along the path to success.
As for Jim, I like the way this guy thinks…
