Key Messages
How The Mighty Fall: Uncovering The Causes Of Crushing Corporate Failure
In How the Mighty Fall, Jim Collins teaches you not only why some businesses fail due to mismanagement, but also how businesses can come back from a period of decline.
The book is based on years of research about businesses that have both prospered and suffered, with invaluable insight into why one performs better than the other.
From this research, Collins outlines five stages which outline how companies can fall from great success to crushing failure: Hubris Born Of Success, Undisciplined Pursuit Of More, Denial Of Risk And Peril, Grasping For Salvation and Slamming On The Breaks.
He then gives advice on how leaders can identify whether they are in danger of slipping into one or more of these stages and how they should manage them accordingly.
By following his recommendations, managers can turn around their business fortunes if they reach a point where it needs help recovering.
Collins’s book is an incredibly valuable resource for business professionals who are seeking to stay ahead of potential crises and manage their own success effectively.
It illustrates through powerful examples exactly what kind of leader would be best for your business – as well as what not to do in order to rebound from a momentary lull in performance.
Make sure to check out How the Mighty Fall if you’re looking for answers at rebuilding your company!
The Causes Of Decline: Mismanagement Leads To A Collapse In An Otherwise Successful Entity
No matter how large, successful, or influential a company or institution may be, it is always vulnerable to decline.
The collapse of the Roman Empire was a perfect example of this — once the strongest power in Europe and the Middle East, it was gone in just a couple centuries.
How can something so mighty fall? While outside factors can play a part, it is often poor management that leads to a company’s downfall.
Take Nokia as an example — 15 years ago they were at the top of the market, but now they share only 3% of it with other competitors — why? It all comes back to their decision not to focus on smartphone innovation while their competitors worked on researching and innovating in this new space.
It wasn’t that they were lazy; rather, they put energy into activities that weren’t profitable for them.
Likewise, Bank of America had a number of modernizing practises which seemed like positives but ended up costing them significantly – despite a lot of energy and effort being put into updating its operations, it posted some of the biggest losses ever recorded in banking history!
The lesson here is clear: even if an organization looks powerful and invincible from the outside, mismanagement can lead to its eventual crash-and-burn no matter what size it is!
The Perils Of Hubris: Why Overconfidence Leads To Failure In Business
When companies experience great success, they are often guilty of becoming overly confident and succumbing to the temptation of hubris.
This confidence can lead them down a dangerous path.
Take Motorola who, between the late 1980s and early 1990s saw their annual revenues skyrocket from $5 billion to $27 billion.
Arrogantly, they assumed people couldn’t be wrong about their StarTAC mobile phone which uses an analog system instead of going digital.
However, it flopped and Motorola’s market share plummeted from 50 percent to 17 percent as a result of the overconfident decision.
Another area where companies become too confident is with arrogant neglect – when businesses become so excited about branching out into new areas that they forget about their core business.
An example of this is Circuit City’s consumer electronics which was left to rot while they tried to take on different markets such as used cars and DVD rentals.
As they abandoned their main area of business, ultimately leading to their downfall when it couldn’t sustain them anymore.
It’s clear that when a company becomes successful, there is always danger in believing that you can do anything you set your mind to without consequences.
In order for businesses to remain successful in the long term, they need be aware of how hubris can cause their downfall if the right precautions aren’t taken.
Companies Failure Is Often Due To Attaining Unsustainable Levels Of Innovation And Overreaching In The Pursuit Of Growth
If companies don’t maintain a good balance of innovation and sound business practices, they may find themselves in trouble.
A prime example of this is Rubbermaid – once an admired company that was declared by Fortune magazine as America’s “most-admired” – who pursued an unsustainable level of innovations, pushing for one new product each day, and ended up losing control of their costs and not being able to meet orders.
At the same time, publicly listed companies driven by shareholder profits can also look to grow too fast and take on unnecessary risks.
This is what happened with the banks prior to the 2008 financial crisis: in their quest for short-term rewards, banks opted to borrow heavily, invest in risky products, and ignore costs – leaving them vulnerable if and when the system failed.
It goes without saying; it’s important to remember the basics when pursuing big goals.
Companies that chase unsustainable levels of innovation or growth without considering other factors such as cost control or profitability risk running into big problems down the line.
Companies Should Take Constructive Action Instead Of Ignoring Criticisms Or Blaming Others For Their Failures
When the first signs of a company’s decline start to appear, companies will often recklessly choose to ignore them or worse, blame others for their own shortcomings.
This was the case at Motorola when they decided to push forward with the satellite phone project Iridium in spite of criticism over its quality and cost compared to existing cell phones.
Instead of facing up to the truth and taking action, Motorola continued with Iridium and wasted $2 billion in the process.
Even though it’s sometimes difficult, ignoring valid criticism or deflecting responsibility onto other people is not a productive way to deal with bad news; true success lies in recognizing it, evaluating it honestly, and using it in a constructive way.
Don’T Put All Your Hope In A Silver Bullet: How Tinkering Too Much With Business Strategies Can Lead To Disaster
When companies are facing the catastrophe of decline, they often face a difficult decision: should they take risky, sweeping changes in an attempt to save their business or simply give up? This was the dilemma faced by Hewlett Packard (HP) and Scott Paper.
HP chose to go big with Carly Fiorina, a flashy and media-savvy figure who sought to completely update the company’s image through advertising and public appearances.
Unfortunately, this change didn’t help HP stem its decline and instead led to further confusion and disorganization.
Meanwhile, Scott Paper chose a more drastic solution: giving up and cutting their losses.
A new CEO was brought in and an extensive restructuring plan ensued that cost 11,000 employees their jobs.
Ultimately, what was left of the once proud company was sold to their archrival.
It demonstrates that when faced with catastrophe, companies must tread carefully when it comes to taking drastic measures.
The silver bullet approach may provide a temporary boost but it won’t solve ongoing problems – sometimes abandoning ship is the only option available.
The Right Attitude Is Essential To Making The Best Decisions As A Leader
Since decline is always self-inflicted, it’s important to work on improving your attitude if you want to avoid disaster.
The most successful leaders are those who understand that their achievements are not purely due to their own prowess, but at least in part to luck and the help of others.
It’s also important for leaders to be willing to learn from mistakes and grow from them.
Having a good attitude means being humble and admitting that you don’t know everything as well as learning from people around you.
Leaders like Sam Walton, for example, never stopped wanting to learn.
At one point, he asked two Brazilian entrepreneurs how they went about doing business–showing his willingness to keep growing even when he was already so successful!
Finally, it’s essential not to let hubris or arrogance dictate your decision making process.
Remember the sad case of Circuit City–a company that spread its reach too far and paid the price in the end?Ultimately, decline is caused by our own decisions, which is why it’s important for us to focus on bettering ourselves first before anything else.
The Key To Taking Smart Risks In Business: The Waterline Principle
If your business finds itself in decline, be careful not to take any drastic or uncontrolled risks.
This can be an easy trap to fall into: you feel like you’ve got nothing to lose and so you start trying crazy strategies in a desperate attempt to save the company.
But this approach often leads to further problems down the road.
Instead, it’s wise to stay calm and disciplined, even when faced with tough times.
Don’t forget the waterline principle: any wrong decision could blow a hole in your boat and put it at risk of sinking.
This means that if you do have to take a risk, make sure that its consequences are manageable, with resources committed for repair and remediation if things go wrong.
The rule of thumb here is simple – don’t try to achieve sweeping changes overnight.
Take small steps and make small adjustments as needed.
Making too radical of changes may leave you feeling overwhelmed and off-balance – instead build slowly on what has already been established and achieved before; just look at Hewlett Packard as an example of how major alterations brought only instability without positive results.
If you find yourself falling, remain steady instead of taking massive risks—it’s the best way to ensure future success!
Believing In Yourself And Working Hard Is The Key To Turning Failure Into Success
When a company finds itself in dire straits, it can be tempting to just give up and walk away.
But there’s no need, because fallen companies can always turn things around and recover with the right determination and willpower.
Take, for instance, the example of Winston Churchill during the early 1930s who found himself on the outside looking in when Britain was dealing with economic hardship—and he was suffering from depression on top of that.
Everyone thought he was a spent force, yet he never gave in and eventually went on to become Prime Minister.
Another example is Xerox photocopying company which saw its stock value drop 92 percent in two years before Anne Mulcahy took over as CEO.
She worked around the clock for four years straight to make the firm profitable again and five years later they had an annual profit of $1 billion.
It shows that if leaders show determination and willpower, even fallen companies can recover—so don’t ever give up!
Wrap Up
In Jim Collins’ book, “How the Mighty Fall”, he outlines the main message: no company is too big to fail, and if it does, it’s often caused by a panic-driven response.
Collins provides actionable advice on how to stay clear of this kind of decline – take baby steps and don’t blame others when something goes wrong.
As a final summary, we can say that if you want to keep your business from failing or faltering it’s essential to stick to good practices, remain calm and focus on doing what you do best.
Take small actions so that any mistakes can be rectified easily and never point fingers at someone else for the misfortunes that may occur.
A good way to measure success is if the company continues to grow.
If not, look at why and start making adjustments!
