According to Jim Collins, the author of "How the Mighty Fall," there are five stages through which a proud and thriving company passes on its way to becoming a basket-case:
- First comes hubris born of success;
"When “we are successful because we do these specific things” replaces penetrating understanding and insight from “we are successful because we understand why we do these specific things,” decline will likely follow. This is where companies rule out the role of luck and chance and overestimate their own merit and capabilities in achieving their success."
- second, the undisciplined pursuit of more;
"One of the most damaging manifestations of stage 2 comes when a great company consistently grows revenues faster than its ability to get enough of the right people to implement that growth. The greatest warning sign for declining companies is a declining proportion of key seats filled with the right people."
- third, denial of risk and peril;
"A common behavior of late stage 3 is when those in power blame others or external factors for what has gone wrong, rather than confronting the frightening reality that the company may be in serious trouble. Another manifestation of denial that occurs in stage 3 is obsessive reorganisation. Reorganising and restructuring can create a false sense that you are actually doing something productive."
- fourth, grasping for salvation;
"The common saviours most often reached for during Stage 4 include a charismatic visionary leader; a bold but untested strategy; a radical transformation; a dramatic cultural revolution; a blockbuster product or a large-scale acquisition. Initial results from these drastic actions may appear positive, but they do not last."
- and last, capitulation to irrelevance or death.
"Organisations do not die from lack of earnings; they die from lack of cash, because everyone has to pay their bills with cash."
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