The following is a guest blog by my colleague, David Spader, which I’ve decided to run at this time because of its timeliness for those companies currently running the risk of self-delusion’ from such patterns as market-given success and increasing industry consolidation being pushed by OEM’s. David is a consultant with Spader Business Management (ddspader@spader.com), a company with a proven track record of providing both financial and human performance guidance for a variety of industries for the past thirty years.
In his most recent book, How the Mighty Fall, Jim Collins shares interesting insights related to the decline of successful companies. One of the key practical applications of his research is that this process of decline is like a ‘disease’---harder to detect in the early stages but easier to recover from at that point versus easier to detect in the later stages but harder to recover from! So let’s focus first on these earlier Stages 1 and 2. (Separately, our research at Spader has found that in addition to Collins’ five stages of decline in large companies, that 75% of ALL decline characteristics apply to ALL companies—great or not, large or small, across industries.)
It is often assumed that successful companies (like people) become arrogant and sit
on their haunches convinced that they can’t fail. This can and does occur, especially the arrogance part. Collins actually identified the first stage of decline as Hubris Born of Success and it is characterized by the attitude, "We’re so great, we can do anything!"
It is the second stage that is surprising to many. It seems that successful companies are less tempted to sit on their "successful" haunches than to overreach their capabilities and capacity. Collins calls this stage The Undisciplined Pursuit of More. He states "although complacency and resistance to change remain dangers to any successful enterprise, overreaching better captures how the mighty fall".
Collins coined something called Packard’s Law, "we named this law after David Packard, cofounder of HP, inspired by his insight that a great company is more likely to die of indigestion from too much opportunity than starvation from too little".
Here are some of the markers that Collins identified to indicate that your organization might be experiencing this stage:
· Unsustainable quest for growth, confusing big with great
· Undisciplined, discontinuous leaps
· Declining proportion of the right people in key seats
· "Easy cash" erodes cost discipline
· Problematic succession of power
· Personal interests placed above organizational interests
Is your company considering or has it experienced significant growth? Do you have any of these signals of "indigestion"?
And, most importantly, What can you do to reverse it? The primary solution Collins recommends is to be consistently guided by those core business values required for your on-going business success with all its key stakeholder groups, not the ‘ego’s or self-serving/deluding aspirations of individuals within it.’ In our own experience at Spader working with thousands of companies, this is consistent with two of our findings. First, there are few truly values-driven and visionary companies. Second, far too many leader-managers within companies fail to follow the proven business management and development success principle of ‘stability before growth’. In addition, the ‘great’ companies we work with realize that they need to focus on BOTH financial and human performance in pursuit of greatness. It is only in doing so that they are truly able to sustain the levels of excellence that clearly differentiate them with their customers, employees and other stakeholder groups.
(You can see a brief video that summarizes Collins’ stages and research at http://www.businessweek.com/magazine/content/09_21/b4132026786379.htm).
