Jim Collins is the business world’s foremost author on why good businesses are “good” and how great businesses become “great.” If you’ve been a frequent reader of JerseySmarts.com, you’ll remember how I reviewed his most widely read work, Good to Great, about a year and a half ago. How The Mighty Fall does a phenomenal job of breaking down and explaining why certain companies are able to make that leap from being a good company to a great one. And in Collins’ latest work, How The Mighty Fall, we explore what factors are at play when those “great” companies take a major tumble down into obscurity.
In How The Mighty Fall, Collins defines and focuses on five stages of decline for a business. These stages (in order) are: hubris born of success, undisciplined pursuit of more, denial of risk and peril, grasping for salvation, and capitulation to irrelevance or death. As in his previous works, Collins uses real world examples to make his points in this book. And the story stuck with me after reading How The Mighty Fall is the story of the rise and ultimate fall of the Ames department stores.
Many younger folks won’t know about Ames and I admit that I was only in an Ames once in 2000 or 2001 (can’t remember). The store reminded me of the old Jamesway and Caldor chains, but Collins recounts how the Ames chain of discount department stores was actually the innovator in the industry before any other store brand. That’s right, Ames was the leader in discount stores before a certain Walmart was the top dog.
However, Collins tells the story of how Ames fell into the second stage of decline – the undisciplined pursuit of more. Specifically, Collins talks about how Ames’ acquisition of the Zayre department stores led to a 98% drop in stock prices and, ultimately, destroyed the company. By pursuing an acquisition/merger with one of its rivals, Ames took its focus off of doing what it did very well and eventually wound up in bankruptcy.
Those are the types of stories that you’ll find in How The Mighty Fall. The other story that really stayed with me after reading this book was a discussion brought up as Collins went over the third stage of decline – denial of risk and peril. For your understanding, this is the stage of decline where the company actually begins is descent from its high point. Specifically, the story that I remember (and which I assume most folks will remember after reading this chapter) is the explosion of the Challenger space ship in 1986.
Now, I was too young to remember the Challenger explosion, though somewhere in the recesses of my mind I seem to recall seeing some type of coverage about it on the news. My young memory was helped by Collins’ full review of the hours leading up to the launch and the reasons why certain decisions were made by NASA. What made this story stick in my mind is that there was an extended discussion regarding a certain ring/seal that was singled out as faulty in the Challenger. The discussion revolved around whether or not the seal would be able to withstand the trauma of takeoff and, eventually, the people at NASA decided to go ahead with the launch even with the knowledge that the seal wasn’t sufficient.
The rest, as they say, is history. The seal failed, the space ship exploded, and a national tragedy was created.
It’s that denial of risk that rattled around my head. And, frankly, it had me wondering whether or not the company that I work for is denying any risks at the moment and, thus, readying itself for a fall. It’s a scary thought when you read about how some of these great companies and initiatives achieved amazing success, but were ultimately unsuccessful because of getting caught in these stages of decline. If you’re a business reader or the type of person who likes to study the American economy, then I think How The Mighty Fall is nearly required reading. Although if you’re a casual reader and are interested in learning more about what makes strong companies strong and weak companies weak, then you’ll want to pick up a copy of this book and give it a once over, too. This is the type of book that will continue to occupy space on my bookshelf even after I’ve read through it two or three times.