Why Companies Fail?

On my last trip to Madrid, Spain last week I bought Jim Collins latest book, HOW THE MIGHTY FALL. He is the best selling author of GOOD TO GREAT, and co-author of BUILT TO LAST.

The book was an easy-read during the long flight. It is a little over 200 pages, including charts and appendices. It is well written and easy to absorb.

While writing his book, Collins was overwhelmed by his research stats. Unlike the research for his previous books, he was confounded by the number of variables. He soon realized that, while companies can succeed by focusing on a handful of effective practices, failure can come from a multitude of sins.

To more effectively communicate his findings Collins arranged the results into five step-wise and coherent stages of decline:

1. Hubris Born of Success.
2. Undisciplied Pursuit of More.
3. Denial of Risk and Peril.
4. Grasping for Salvation.
5. Capitulation to Irrelevance and Death.

The five stages seem to track an organization's lifecycle.

Collins' findings suggest that every institution, no matter how great, is vulnerable to decline and eventual death. Contrary to Darwin's premise that only the strong survive, he points out that the mighty can also falter and die. Decline is more often than not self-inflicted, and recovery is within management's reach. He goes on to show cases where mighty companies faltered, but never gave in.

As I was reading the book, my brain was searching its recesses to find examples from my personal experience that validated Collins' findings. I found two groups: one large group of mighty companies that never recovered, and another populated by a few that did. As I mulled over the difference between the two groups, a light bulb started to blink.

BLINK ... Institutional success is dependent on superior leadership, but institutional failure or decline often comes from mediocre or poor management.

For some time I have toyed with the idea that leadership and management are two sides of the same coin: leadership being the maker, and management being the breaker... BLINK. That is, superior leadership gives you a competitive advantage while lack of management skill makes you vulnerable. I might have read in Collins book more than he intended...BLINK. But since I had written about this notion earlier in one of my blogs, my brain could not resist making the connection...BLINK.

BLINK ... I have been watching long-distance the turmoil in my alma mater. "Making money" trumped "making history." The latter being the goal of the CEO, and the former the objective of the major shareholder. Inability to manage different expectations might have contributed to the early sell-off of its African assets and a resizing of the institutional dream. Hindsight? Perhaps!

How about you! Have you seen any mighty fall? Did they recover? Think about what made them fail and what made them succeed.