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Resources » Articles/Knowledge Sharing » E-Books »
Book Review : How the Mighty Fall
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Learning from others’ mistakes
How the Mighty Fall is a well-written, well-researched and thought-provoking book that may just help businesses learn from their and others’ miscalculations. A veteran of studying business success, Jim Collins was inspired to more closely analyze business failure when the CEO of a large company asked him how one would know if one’s business were on the verge of collapse. Mr. Collins set out to determine why successful businesses failed. His conclusions became How the Mighty Fall.
What he found, he says, with a nod to Tolstoy, is that all good companies are alike; while failing companies fail in many different ways.
However, by studying 11 formerly industry-leading companies that fell, he did manage to find and define five stages of organizational decline.
1. A successful company often becomes overly confident.
2. It begins an undisciplined pursuit of more.
3. It denies the risks inherent in such a pursuit.
4. As this behavior causes it to begin to fail, it grasps wildly for salvation, failing to return to that which originally brought it success.
5. It is finally forced to admit failure.
The evidence yields several main conclusions.
Focus should not be diverted from the core business that has brought a company its success. Other ventures can be explored judiciously and followed when the evidence supports such action, but not at the expense of the core business. And even if focus is prudently moved from that core to a proven venture, the philosophies and work ethic that brought initial success must never be abandoned.
People are more important than products or strategies. And personality is more important than skills, because the latter can be taught.
A common misconception the conclusions refute is that companies fail because they grow complacent. Ten of the eleven companies studied failed in large part due to excessive, imprudent growth or expansion.
Aiming to make a worthwhile contribution to the world is a strategy that often leads to profit. Aiming to make a profit is not.
As evidence for these conclusions, the book weaves short, interesting and memorable narratives that describe the behavior that led to the fall of each company. Bullet points, subheadings, figures, and insets summarizing important conclusions make the text reader-friendly. Even the quantitative evaluation that determined which businesses would be the subject of study, the most-technical section, was fairly straightforward.
Make sure to read the appendices, which are not only informative but, on balance, just as interesting as the main text.
The lessons taught by these organizations’ failures seem likely to transfer smoothly to other aspects of life as well. In fact, Mr. Collins uses some examples from extra-corporate environments.
Perhaps it’s no surprise that a book entitled How the Mighty Fall would touch upon the Roman Empire. Mr. Collins briefly explains why Julius Caesar’s choice of successor, his grandnephew Augustus, worked so well for the organization (Rome). He also uses the life of Winston Churchill to demonstrate that, if you keep faith in your guiding principles, you’re never too far down to rise back up.
However, as Mr. Collins asserts, a drastic fall isn’t an inevitable consequence of success, especially if a company knows what to look for. And if a company does start to fall, this book drives home the principles that should be adhered to; to reverse that decline before it becomes failure.
Excerpt:
Ames began in 1958 with the same idea that eventually made Wal-Mart famous and did so four years before Sam Walton opened his first Wal-Mart store. Over the next two decades, both companies built seemingly unstoppable momentum, Wal-Mart growing in the mid-South and Ames in the Northeast.
From 1973 to 1986, Ames's and Wal-Mart's stock performances roughly tracked each other, with both companies generating returns over nine times the market.
So where is Ames at the time of this writing, in 2008?
Dead. Gone. Never to be heard from again. Wal-Mart is alive and well, #1 on the Fortune 500 with $379 billion in annual revenues.
What happened? What distinguished Wal-Mart from Ames?
A big part of the answer lies in Walton's deep humility and learning orientation. In the late 1980s, a group of Brazilian investors bought a discount retail chain in South America. After purchasing the company, they figured they'd better learn more about discount retailing, so they sent off letters to about ten CEOs of American retailing companies, asking for a meeting to learn about how to run the new company better. All the CEOs either declined or neglected to respond, except one: Sam Walton.
When the Brazilians deplaned at Bentonville, Arkansas, a kindly, white-haired gentleman approached them, inquiring, "Can I help you?"
"Yes, we're looking for Sam Walton."
That's me," said the man. He led them to his pickup truck, and the Brazilians piled in alongside Sam's dog, Ol' Roy.
Over the next few days, Walton barraged the Brazilians with question after question about their country, retailing in Latin America, and so on, often while standing at the kitchen sink washing and drying dishes after dinner. Finally, the Brazilians realized, Walton—the founder of what may well become the world's first trillion-dollar-per-year corporation—sought first and foremost to learn from them, not the other way around.
Book: How the Mighty Fall: And Why Some Companies Never Give In
Author: Jim Collins
Publisher: Random House
Number of pages: 222
Price: Rs675
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