Brief the attached article in one page/250 words

• Mil 111
In an exclusive excerpt
from his new book,
Good to Great autho
Jim Collins pinpoints
the insidious (and often
invisible) problems that
send great companies
crashing to earth
IN DEPTH
•
BOOK EXCERPT
IN AUTUMN 2004,1 RECEIVED A PHONE CALL from Frances Hesselbein,
founding president of the Leader to Leader Institute. '• "The Confer-
ence Board and the Leader to Leader Institute would like you to come
to West Point to lead a discussion with some great students," she said.
^ "And who are the students?" I asked, envisioning perhaps a group
of cadets. '! "Twelve U.S. Army generals, 12 CEOs, and 12 social sec-
tor leaders," explained Hesselbein. "They'll be sitting in groups of
six, two from each sector—military, business, social-and they'll re-
ally want to dialogue about the topic." 'j "And what's the topic?" ̂
"Oh, it's a good one. I think you'll really like it " She paused. "Amer-
ica." '! America? What could I possibly teach this esteemed group
about America? Then I remembered what one of my mentors, Bill
Lazier, told me about effective teaching: Don't
try to come up with the right answers; focus on
coming up with good questions, 'j I pondered
and puzzled and finally settled upon the ques -
tion: Is America renewing its greatness, or is
America dangerously on the cusp of falling from
great to good ? While I intended the question to
e rhetorical (I believe America ca
ies
a responsibility to continuously renew
itself, and it has met that responsibility
throughout its history), the West Point
gathering nonetheless erupted into an
intense debate. Half of the participants argued
that America stands as strong as ever, while the
other half contended that America teeters on
the edge of dechne. 'i History shows, repeatedly,
that the mighty can faU. The Egyptian Old King -
dom, the Chou Dynasty, the Hittite Empire -all
fell. Athens fell, Rome fell. Even Britain, which
stood a century before as a global superpower, saw its position erode. Is
that the U.S.'s fate? Or will America always find a way to meet Lincoln's
challenge to be the last best hope of Earth? 'j At a
eak, the chief exec-
utive of one of America's most successful companies pulled me aside,
"r ve been thinking about your question in the context of my company all
morning," he said. "We've had tremendous success in recent years, and
I wo
y about that. So what I want to know is: How would you know?" >]
"What do you mean?" I asked. <] "When you are at the top of the world,
the most powerful nation on Earth, the most successful company in
your industry, the best player in your game, your very power and success
might cover up the fact that you're akeady on the path of decline." That
027
HOW TO
PLAY IT
060
From the book,
How The Mighty
Fall And Why
Some Companies
Never Give In
By Jim Collins,
©200çByJim
Collins
MAY 25,2009 I BUSINESSWEEK
IN DEPTH
028 question—how would you know?—captured
my imagination and became part of the inspi-
ation for this book.
THE DYNAMICS OF
LEADERSHIP-TEAM BEHAVIDR
How managers interact says a lot about the state of a company
THE SILENT CREEP OF DOOM
At our research lab, we'd already been dis-
cussing the possibility of a project on corpo-
ate decline, in part because some of the great
companies we'd profiled in the books Good to
Grzat and Built to Last had subsequently lost
their positions of prominence. On one level
this fact didn't cause much angst; just because
a company falls doesn't invalidate what we can
learn by studying that company when it was at
its historical best.
But on another level I found myself becom-
ing increasingly curious: How do the mighty
fall ? If some of the greatest companies in his -
tory can go from iconic to i
elevant, what
might we learn by studying their demise, and
how can others avoid their fate? I returned
from West Point inspired to turn idle curios -
ity into an active quest. Might it be possible
to detect decline early and reverse course—o
even better, might we be able to practice pre-
ventive medicine?
I've come to see institutional decline like a
disease: harder to detect but easier to cure in
the early stages; easier to detect but harder to
cure in the later stages. An institution can look
strong on the outside but already be sick on
the inside, dangerously on the cusp of a pre-
cipitous fall.
Consider the rise and fall of one of the most
storied companies in U.S. business history.
In the wake of the 1906 San Francisco earth-
quake, A.P. Giannini, founder of the fledgling
Bank of Italy, found himself at odds with othe
ankers who wanted to impose up to a six-
month moratorium on lending. His response;
putting a plank across two ba
els right in the
middle of a busy pier and opening for busi-
ness. "We are going to rebuild San Francisco,"
he proclaimed.
Giannini lent to the little guy when the little guy need-
ed it most, and his bank, later renamed Bank of America,
gained momentum—little guy by little guy, loan by loan,
deposit by deposit,
anch by hranch, expanding ever out -
ward from San Francisco. By 1945 it had surpassed Chase
National Bank as the largest commercial bank in the world,
and by the late 1970s it had grown to more than a thou-
sand
anches in more than a hundred countries. Along
the way it became admired not just for its size but also fo
its quality of management. (Note of clarification: In IQQ8,
NationsBank acquired Bank of America and took the name;
TEAMS ON THE WAY DOWN
People shield those ¡n power from
unpleasant facts, fearful of penalties
and criticism for shining light on the
ough realities
People assert strong opinions without
providing data, evidence, or a solid
argument
The team leader has a very low
questions-to-statements ratio, avoiding
critical inpul and/or allowing sloppy
easoning and unsupported opinions
Team members acquiesce to a decision
ul don't unify to make the decision
successful—or worse, undermine it afte
the fact
Team members seek as much credit
as possible for themselves, yet do not
enjoy the confidence and admiration of
their peers
Team members argue to look smart or to
further their own interests rather than
argue to find the best answers to
support the overall cause
The team conducts "autopsies with
lame," seeking culprits rather than
wisdom
Team members often fail to delive
exceptional results and blame othe
people or outside factors for setbacks,
mistakes, and failures
Data: Jim Collins
TEAMS ON THE WAY UP
People
ing forth grim fads—"Come
here and iook, man, this is ugly"—to be
discussed; leaders never criticize those
who
ing forth harsh realities
People
ing data, evidence, logic, and
solid arguments to the discussion
The team leader employs a Socratic
style, using a high questions-to-state-
ments ratio, challenging people, and
pushing for penetrating insights
Team members unify behind a decision
once made, then work to make the
decision succeed, even if they
viQorously disagreed with it
Each team member credits othe
people for success, yet enjoys the
confidence and admiration of his o
her peers
Team members argue and debate, not
to improve their personal position but
to find the best answers to support the
overall cause
The team conducts "autopsies without
lame," mining wisdom from painful
experiences
Each team member delivers excep-
tional results, yet in the event of a
setback each accepts full responsibility
and learns from mistakes
the Bank of America described here is a different company
than NationsBank.)
Entering the 1980s, Bank of America held a revered posi-
tion and was widely regarded as one of the greatest compa -
nies in the world. Within eight years it would post some of
the biggest losses in U.S. banking history, rattle the finan-
cial markets to the point of
iefly depressing the U.S. dol-
lar, watch its cumulative stock performance fall more than
80% behind the general stock market, face a serious take-
over threat from a rival California bank, cut its dividend fo
the first time in 53 years, sell off its corporate headquarters to
help meet capital requirements, see the last Giannini fam-
BUSINESSWEEK I MAY 25, 2009
030
Üy board member resign in outrage, oust its chief executive,
ing a former CEO out of retirement to save the company,
and endure a ba
age of critical articles in the business press,
with titles such as "The Incredible Shrinking Bank" and
"Better Stewards (Corporate and Otherwise) Went Down
on the Titanic." Anyone predicting such a fall as the decade
egan would have been viewed as a pessimistic outlier.
If a company as powerful and well -positioned as Bank of
America in the late 1970s could fall so far, so hard, so quick-
ly, then any company can. If companies such as Motorola,
Circuit City, and Fannie Mae—icons that once served as
paragons of excellence—can succumb to the forces of grav-
ity, then no one is immune. If companies such as Zenith and
A&P, once the unquestioned champions in their fields, can
plummet from great to i
elevant, then we should be wary
about our own success.
Every institution is vulnerable, no matter how great. There
is no law of nature that the most powerful will inevitably re -
main at the top. Anyone can fall, and most eventually do.
But all is not gloom. By understanding the five stages of
decline we uncovered in our research for How the Mighty
Fall, leaders can substantially increase the odds of revers -
ing decline before it is too late—or even better, stave off de -
cline in the first place. Decline can be avoided. The seeds of
decline can be detected early. And decline can be reversed
(as we've seen with notable cases such as IBM, Hewlett-
Packard, Merck, and Nucor). The mighty can fall, but they
can often rise again.
STAGES
ECLINE
One of our pivotal findings is that companies
can appear to be thriving well after the seeds of
decline have been sown and taken root. In fact, a
company can reach the fourth of the five stages
efore its deterioration becomes fully apparent.
BUSINESSWEEK I MAY 25,2009
IN DEPTH
FIVE STAGES OF DECLINE
I feel a bit like a snake tbat swallowed two watermelons at
once. I 'd started this project as a diversion to engage my pen
while completing the research for my next full-sized book
on what it takes to endure and prevail when the world around
yon spins ont of control (based on a six-year research project
with my colleague Morten Hansen). Bnt after my West Point
visit, the question of how the mighty fall evolved into a topic
of passionate curiosity channeled into a research effort that
led to this small book.
In one sense, my research colleagues and I have been
studying failure and mediocrity for years. Our research
methodology relies on contrast, studying those companies
that became great in contrast to those that did not and ask-
GRASPING FOR
SALVATION
CAPITULATION TO
IRRELEVANCE OR DEATH
•
ing: "What's different?" But we had not explicitly delved
into the question: Why do some great companies fall, and
how far can a company fall and still come back ? I began to
joke with my colleagues: "We're turning to the dark side."
We had a substantial amount of data collected from prio
esearch studies, consisting of more than 6,ooo years of
combined corporate history. From this data set, we identified
a set of once -great companies that fell and constructed a set
of "success contrasts" that had risen in the same industries
during the era when our primary study companies declined.
Our principal effort focused on a two-part question: What
happened leading up to the point at which decline became
visible, and what did the company do once it began to fall?
Our comparative and historical analysis yielded a de-
scriptive model of how the mighty fall that consists of five
stages that proceed in sequence. And here's the really scary
part: You do not visibly fall until Stage 4! Companies can
e well into Stage 3 decline and still look and feel great,
yet be right on the cusp of a huge fall. Decline can sneak up on
you, and—seemingly all of a sudden-you're in big trouble.
Even so, I ultimately see this as a work of well-founded
hope. With a road map to decline in hand, institutions
heading downhill might be able to apply the
akes early and
everse course. We've found companies that recovered-
in some cases, coming back even stronger—a/ïer having
crashed down into the depths of Stage 4. Our research in-
dicates that organizational decline is largely self-inflicted,
and recovery largely within our own control. So long as you
never tall all the way to Stage 5, you can rebuild.
While a full exploration of the five stages is beyond the
scope of this excerpt, here is a
ief summary:
STAGE 1: HUBRIS BORN OF SUCCESS. Great enterprises
can become insulated by success ; accumulated momentum
can ca
y an enterprise forward for a while, even if its lead-
ers make poor decisions or lose discipline. Stage l kicks in
when people become a
ogant, regarding success virtually
as an entitlement, and they lose sight of the true underly-
ing factors that created success in the first place. When the
hetoric of success {"We're successful because we do these
specific things") replaces penetrating understanding and
insight {"We're successful because we understand why we
do these specific things and under what conditions they
would no longer work" ), decline will very likely follow.