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Book Review: How the Mighty Fail

English: Jim Collins (James C. Collins), an Am...
English: Jim Collins (James C. Collins), an American business consultant, author of "Built to Last" and "Good to Great". (Photo credit: Wikipedia)
NEW YORK, NY - APRIL 27:  Clayton M. Christens...
NEW YORK, NY - APRIL 27: Clayton M. Christensen Founder of Disruptive Innovation Theory attends the Tribeca Disruptive Innovation Awards during the 2012 Tribeca Film Festival at the NYU Paulson Auditorium on April 27, 2012 in New York City. (Image credit: Getty Images via @daylife)
Cover of "Good to Great: Why Some Compani...
Cover via Amazon

As I’ve said repeatedly in previous reviews, there are certain business-book authors that are automatic purchases for me including Tom Peters, Geoffrey Moore, Gary Hamel, Ram Charan, Adrian Slywotzky, Clay Christensen, George Stalk and Jim Collins.  Since I buy all their books, I get behind, pile other books on top and later find a book that I’d forgotten.  Such is the case with How the Mighty Fail by Jim Collins which I recently discovered in my stack of books to get to.  Collins dramatically advanced business analysis with Good to Great, one of the biggest-selling business books of all time.  Even though this isn’t a hot-off-the-press book, here is my review.

In this work, Collins examines the opposite from his prior work: are there lessons to be learned from examining failed enterprises?  Or enterprises that manage to reverse a decline and reinvent themselves?  I’ve been fascinated by this topic for over twenty years, since the time when I was employed by Zale Corporation, prior to its hostile takeover by Peoples Jewelers (from which it really never recovered).  Zale operated a number of business units at the time, including O.G. Wilson, a catalog showroom.  Younger readers won’t know what a catalog showroom retailer was, but they were popular and widespread at that time.  O.G. Wilson reeled from losses to breakeven back to losses.  Zale invested millions, installed technology, opened or remodeled units and changed management.  All to no avail.  The intractability of the course of a business in decline made a strong impression on me.  Peter Senge described the self-reinforcing cycles of both improving and declining enterprises elegantly in his landmark Fifth Discipline.

Ever the researcher, Collins develops pairs of companies that branch, with one sinking and one thriving.  To qualify, the companies must have had an extensive public market history so that contemporaneous information could be gathered for an extended time frame.

He identifies five stages of decline: 1) Hubris born of success; 2) Undisciplined pursuit of more 3) Denial of Risk and Peril 4) Grasping for salvation and 5) Capitulation to irrelevance or death.

Importantly, he also examines the possibility of recovery with examples of businesses that arrested their decline and rebounded.  A quick observation – attempting that in stage five doesn’t have encouraging odds.  As most readers of business articles or books will know, the companies in the “Grasping for Salvation” phase that recruit the celebrity CEO don’t fare well.  Collins’ material supports that conclusion.  Examples of turnarounds in this book feature long-service executives promoted into the CEO role with deep knowledge of the company, markets, products and competitors.  Examples include Anne Mulcahy at Xerox and Tom Engibous at Texas Instruments.  (I would add Jim Skinner of McDonalds to that list).

There are also a series of appendices that draw some further lessons, but also one dealing with Fannie Mae.  Fannie Mae was included in an earlier Collins book as a success story and Collins wanted to comment on its decline.  In that particular case, I think Collins was too kind.  Many of us living in the Washington DC metro area at the turn of the century marveled at a company that paid salaries and bonuses like a big-time investment bank, but had the benefit of funding at treasury rates.  I remember commenting at the time that if I could borrow several billion at T-Bill rates, I could produce some earnings too.  Further, Fannie was exempt from filling full-boat 10K's etc. like the rest of public businesses.  They cleverly recruited spouses of every staffer in every congressman's office, and congressmen's spouses as well.  They could operate without constraint.  When Bush II and Greenspan separately commented that the agencies (Fannie & Freddie) were getting too large, there was a stampede to defend them.  This was a particularly egregious case, and Mr. Collins will have to do much more research on Fannie to find all the causes of their fall - although his hubris stage is a good place to start.
Add this to the permanent list on your management bookshelf.  There is a lot of good stuff here, and management hubris is a fast-moving and highly-contagious disease.

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