Some people know that I write management book reviews (in Dutch) for a Dutch management book site. They send me the books of choice, I read them and write a 600 words review, they publish it online and sometimes in the paper magazine. 
I'd like to share these reviews, but many books are only available in Dutch. Next to that, translating the review is a lot of work. But sometimes I get an English book, which I think may be of interest for more people. Not so long ago I reviewed "How the mighty fall", written by Jim Collins, which you can read here (warning: this is a long posting!).
How is it possible that a profitable company collapses, up to bankruptcy or selling? This is the question a workshop participant asked to Jim Collins when a series of giants began to fall like dominoes. What started as an idea for a paper, became the latest book of the author we know from “Built to last” and “Good to great”: “How the mighty fall”.
“How the mighty fall” can be seen as successor of “Built to last” and “Good to great”, because Collins uses companies from his earlier two books in this book. This had a great practical advantage; after all, Collins’ researchers already had collected a database full of data of these companies. For “How the mighty fall”, Collins selected eleven companies that first were successful and than collapsed. He posed two questions: What happened with the company before the fall became visible?, and What did the company do once it began to fall? Healthy companies want to know whether it is possible to recognize the fall well in time and what can be done to change the process.
The collapse of a successful company consists of five stages, as resulted from Collins’ study. These stages are: 1 Hubris born to success 2 Undisciplined pursuit of more 3 Denial of risk and peril 4 Grasping for salvation 5 Capitulation to irrelevance or death.
A company doesn’t start to fall without reason and it will take some time before it becomes visible for the rest of the world. The process starts with a period of success. How the company reacts is important: arrogance and ignorance of the most important drivers for the success, instead of keeping wondering, asking questions about the why of the success.
Success makes eager and the company tips the balance in the second phase. It bursts of ambition and its inclination to undisciplined growth, unruly risk taking, too much innovation, can lead to an unsustainable situation. Gradually, the outside world notices something is going wrong, but in this third stage, the company is in denial of failure. The blame is to external factors or facts are simply ignored.
The fall becomes clearly visible in phase four and the company can no longer ignore it. This stage not necessarily leads to downfall, provided that the company (or CEO) reacts properly. Examples, such as IBM, Texas Instruments and Xerox, show it is possible to get out of this stage, sometimes even better than before. In this stage, fear is a bad advisor.
In panic, a new product is launched or the company reorganizes. It’s no use and in stage five the end comes closer. This stage has two varieties: management gives up the fight or it keeps trying till the company runs out of resources. The company stops to exist or shrinks to a small, unremarkable company.
“How the mighty fall” is a rather thin book with a dark, grave cover. When you don’t count the appendices and literature references, the remaining text is even less. The appendices however are interesting; they contain information about the company selection, case descriptions and “evidence” for the different stages. Collins often got criticized for his research method and selection criteria and it is obvious he wants to take away any criticism in this book. Overall, I found “How the mighty fall” an interesting book that shows we cannot blame all collapses of companies to the financial recession. That was the drop that floods the bucket.
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