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An inquiry into the decline of companies (1)

Shobha Sengupta

Jim Collins’ bestselling Good to Great addressed the question how a company could make the quantum leap to greatness. His Built to Last investigated how a company could sustain its performance. His latest, How the Mighty Fall, is on corporate decline. Collins has researched companies, great or otherwise, thoroughly for more than a decade, producing bestsellers that have been translated into at least 29 languages. How the Mighty Fall, released worldwide on May 19, is probably the most gripping, and is of interest even to the lay reader.

There is a single inspiring blurb on the back cover which epitomises the spirit of the book: "Whether you prevail or fail, endure or die, depends more on what you do to yourself than on what the world does to you." In this slim volume, Collins has divided the book into two sections.

The first is the core text, comprising 123 pages. It is a fascinating straight read, the essential quality being its crystal clarity. Collins does not clutter this section with any statistics or technical jargon. The second section comprises case studies which illuminate the first, revisiting corporate histories and putting forward a huge range of examples.

The central issue is placed squarely in the last phase of the death of a company: "As an organisation becomes big and successful, cash consciousness atrophies. Organisations do not die from lack of earnings. They die from lack of cash." Placed as it is against the backdrop of last year’s worldwide financial crisis, How the Mighty Fall underscores the fact that mismanaging real questions and ignoring ground realities are what destroy companies. The idea is "not to neglect that (primary) flywheel .while you turn your attention to the Next Big Thing." And the need of the hour is to take "calm, deliberate action" as opposed to "lurching, reactive behaviour", and to enforce humility and discipline all the way.

This is a brilliant book which, though it may appear to be especially relevant in these times, is a book on business strategy, on the pitfalls that every company — even in the best of times — is bound to come across. It tells in the plainest of terms and in the most inspiring way possible how to recognise them, and how to deal with them. The bigger the company, the more it tends to ignore pitfalls on its way to the top, and the lower its ability to confront ugly facts. This is the raison d’etre of the book. How the Mighty Fall is a clearly structured, hugely realistic book based on the hope that leaders can stave off decline.

Collins describes the five stages of a company’s decline: giving in to hubris — pride comes before a fall (remember the biblical saying), the undisciplined pursuit of more or simply overreaching and the accumulation of debt, living in self-denial rather than a confrontation of brutal facts, discounting negative data and the neglect of vigorous, fact-based dialogue grasping for a desperate, quick-fix solution such as a bold, but untested strategy, or a game-changing acquisition, or in some cases, employing a charismatic visionary leader from the outside, and finally, "accumulated setbacks and expensive false starts", leading to the end of a company — when all hope is abandoned. The use of tables and summarised information makes the book very usable. The use of highlighted boxes, graphic similes, and the economy in language together present a framework that will help business leaders identify decline and process a recovery course. The analysis is vigorous and in-depth and can be used by companies as well as successful individuals seeking to avoid such a fate. As the writer puts it: "If we discovered that organisational decline is a function first and foremost of forces out of our control, we could rightly indulge in despair. But that is not our conclusion, not if you catch decline in Stages 1, 2 or 3. And in some cases, you might even be able to reverse course once in Stage 4, as long as you still have enough resources to get out of the cycle of grasping and rebuild one step at a time."

Collins’ How the Mighty Fall is certain to be a blockbuster of a bestseller.

Shobha Sengupta owns and runs Quill and Canvas, a bookstore-cum-art gallery in Gurgaon