How the Mighty Fall: And why some companies never give in
Random House £15.99
How do you follow the best-selling management book of all time? Good to Great, Jim Collins' earlier book, has sold 2.5 million copies worldwide over the past eight years. In it, he described how a group of modest, unassuming leaders transformed their organisations through an unwavering commitment to a core purpose and a focus on people.
The book struck a chord with managers of firms large and small because it made transformation accessible and believable, rather than the preserve of larger-than-life CEOs.
Good to Great also redefined the entire genre of management books: Collins wrote stories about real people, rather than sterile case studies; he broke his case down into self-contained lessons, one per chapter, each with a clear and compelling metaphor, such as 'The Flywheel and the Doom Loop'; and he built his arguments on a solid base of empirical data to give them additional credibility.
But the world has moved on. Some of the 'great' companies have since found themselves in trouble, and of course the economic crisis led to the spectacular failure of many once-revered firms. So Collins has put together a sequel to help us make sense of this turn of events. How the Mighty Fall describes the stages that companies go through when they get into trouble. Hubris born of success (stage 1) leads to the undisciplined pursuit of more (stage 2) and denial of risk and peril (stage 3), then as things start to fall apart, they find themselves grasping for salvation (stage 4) and finally capitulating to irrelevance or death (stage 5).
He paints a clear picture of the arrogance, confusion and blind panic that readers will recognise from recent accounts of Lehman Brothers, RBS and General Motors. And he offers a ray of hope. The five steps should not be seen as destiny: many companies have turned themselves around and reversed this process, and the sooner you see the warning signs, the likelier you are to reverse your decline.
Collins stays true to his formula in this book. By comparing the companies that fell into oblivion with others that did not, we get a more accurate picture of the key factors that shaped the process. And many of his favourite themes from Good to Great come back.
The fallen companies in his study suffered from trying too many initiatives at once, and tended to bring in external CEOs as saviours. In contrast, the survivors stuck doggedly to their proven success formula (their flywheel), and preferred to promote from within.
It's an enjoyable read, and destined to do well. Collins keeps the pace up, and he's the master of blending interesting personal details about the protagonists with the big-picture changes their companies are going through. There are plenty of thoughtful analogies, and key insights are conveniently summarised and boxed.
Yet I finished the book feeling a bit disappointed. Many previous studies have looked at business failure, and some are really insightful - Danny Miller's The Icarus Paradox and Don Sull's Why Good Companies Go Bad come to mind. But Collins doesn't acknowledge them. Instead, he builds his own grand theory of success and failure. It wouldn't matter if the insights in this book were as thoughtful as those in earlier studies, but alas this is not the case. Miller's Icarus Paradox charts four classic flight-paths of failure, and he shows that the fate befalling a technology-focused firm is unlikely to be the same as the fate befalling one focused on marketing. Collins lumps these four categories together and concentrates on the fairly obvious themes of hubris and overstretch.
My other nagging worry is that his book offers limited value to a successful company teetering on the brink of collapse. For example, it is obvious to all of us today that RBS's acquisition of ABN Amro was a case of hubris and overstretch, but many observers at the time thought RBS would pull it off.
Could we have used Collins' analysis, and the set of markers he identifies for each stage in the model, to reliably predict RBS's fall from grace? I doubt it. The trouble is, the qualities that made the bank successful are, for the most part, those that got them into trouble.
If there's a broader insight in How the Mighty Fall, it's that business failure, even more than business success, doesn't lend itself to simple formulas or predictable stage models. Notwithstanding Collins' careful matched-pair analysis, the patterns in the data are vague, and the general principles of how to revitalise a troubled company are limited. Collins does an excellent job of describing the process of decay, but I would be wary of using his analysis to prescribe a path to recovery.
Read the book and enjoy it, but don't let it substitute for the hard work of developing a way forward that suits your own circumstances.
- Readers can purchase How The Mighty Fall for the special price of £13.99, including free UK p&p. To order, please call 01206 255 800 and quote the ref 'Jim Collins'.
- Julian Birkinshaw is professor of strategic and international management at London Business School.