Lessons from the book ‘How the mighty fall’ by Jim Collins

If you like to read about building great businesses and organizations, you might be familiar with the work of Prof. Jim Collins. ‘Good to great’ is the book that introduced me to his work.

Reading ‘how the mighty fall’ was an equally insightful experience — filled with crisp articulations and nuanced understanding of warning signs about how organisations lose track and decline over time.

Who should read this book?

I definitely recommend that you read and reflect on the book if you are in the process of building a truly lasting business. Even if you’re not an entrepreneur/CXO and you simply enjoy learning about how firms grow, this book is a great read.

Summarising my key takeaways below, focusing on the insights which resonated most with my experience:

1. Types of hubris that lead to decline of great firms:

• Undisciplined leaps into new areas
• Pursuit of growth beyond ability to deliver excellence
• Risky decisions against the evidence
• Neglecting internal or external threats

2. When you divert your critical attention and resources away from your primary flywheel, due to interest in new opportunities or threat to your primary business, you run the risk of losing momentum on your primary flywheel. (This is the most common mistakes I’ve seen startup founders making while chasing a ‘hotter’ market)

3. Hubris from success — warning signs for stage 1 of decline:

• People believe that organisation deserves success instead of seeing that it is earned and is not permanent
• Primary flywheel is not being improved
• What replaces why — the discussions and decisions are not based on insights (why will this plan work and why not) but on conclusions (we are successful because we do this)
• Leaders are not inquisitive and learning

4. One of the biggest warning signs predicting decline— “Declining proportion of key seats filled with the right people”

5. Right people see themselves as having ‘responsibilities’, wrong people see them as having jobs

6. A leadership vacuum can result if the leader fails to develop strong successors

7. Undisciplined pursuit of more — warning signs for stage 2 of decline:

• Unsustainable quest for growth — setting unrealistic targets, misaligned incentives, and bad systems strains and demotivates people
• Undisciplined leaps into new markets that neither fits the core values of the company and nor are based on the conviction that the organisation can be the best in the world at these activities
• Key people leaving the important seats
• Loss of discipline in cost management
• Bureaucratic systems suffocating the freedom leaving people thinking in terms of jobs
• Problematic succession of power
• Personal interests placed above organisational interests

8. For declining organizations — team leader has a very low questions to statement ratio. For teams on the way up, team leader asks challenging questions pushing for penetrating insights.

9. For teams on the way down — teams do not really get behind a decision, or worse, they undermine the decision

10. Denial of risk — warning signs for stage 3 of decline:

• Team dynamics are based on discounting negative news and amplifying positive news, however trivial
• Shift towards a dictatorial style of management
• Setbacks and failures are externalised
• Chronical reorganisations are done to find a quick fix without looking deeper into the root cause of problems
• Big bets and bold goals are set that aren’t in sync with the reality or data

11. The signature of mediocrity is not an unwillingness to change. The signature of mediocrity is chronic inconsistency.

12. Grasping for salvation — warning signs for stage 4 of decline:

• Companies stuck in stage 4 try all sorts of new programs — new visions, new acquisitions, new technologies, new leaders.
• Game changing search for silver bullets wastes lot of critical energy and resources of the firm.
• Hype precedes results — leaders promise exceptional future in the face of poor performance
• Searching for the saviour — an outside saviour with just the ‘right capabilities’ is expected to come and magically solve all the problems
• Confusion- people cannot articulate what the organisation stands for — core values have eroded and organisation has become just another place to work
• People lose faith in their ability to triumph and prevail. There is general distrust in visions and values.
• Chronic restructuring and erosion of financial health

13. Resignation to downfall — warning signs for stage 5 of decline:

• At this stage the resources and energies have been exhausted
• Either you give up and sell the company
• Keep going till you exhause the options

I am writing this to largely serve as reminder of key points for me and for anyone else who has read this book. In case you have any comments/inputs or you want to recommend an interesting book on how organisations grow, feel free to comment.