Business Today

Is your company dying?

Collins charts the demise of big companies and finds that in most cases indisciplined growth, arrogance, and big bets without empirical validation are culprits.

Gopal Vittal        Print Edition: August 9, 2009

In the late 1950s, a tiny company launched a discount retail chain meant for small town and rural America. Almost overnight, the company decimated its main competitor, Kmart. One dollar invested in its stock grew more than 6,000 per cent in 15 years. If you thought this company was Wal-Mart you guessed wrong. It was Ames. Begun in 1958, four years before Sam Walton opened his first store, Ames grew explosively till the mid-80s. Today, Ames is gone.

Gone because it extended its core idea of discount retailing for rural and small town America into premium urban retailing through the acquisition of Zayre, an area where it lacked distinctiveness, eventually bleeding itself to death. Wal-Mart, despite being a later entrant with the same idea, is today a $379-billion behemoth. Jim Collins, in his new book, How the Mighty Fall, has used primary research to pull together scores of such examples from the decline of companies such as Motorola, Zenith, HP and many others to unravel why great companies fail.

In doing so, Collins has unearthed five stages through which a company declines: Hubris born of success characterised by arrogance, a sense of entitlement and a failure to nurture, reinvent and focus on the core of what made the company famous; the undisciplined pursuit of more due to an obsession with growth, where the short term becomes far more important than doing what is right; denial of risk and peril which involves failure to take responsibility, a penchant for risk-taking based on ambiguous data and an obsession with internal restructuring; grasping for salvation involving a silver bullet solution, a desperate search for new visions, inconsistency and cynicism; finally, capitulation to irrelevance or death characterised by a tightening of cash and mounting losses, leading to its demise.

Ultimately, the most profound lesson from this book is the value of leadership. The humility, curiosity and learning orientation that Sam Walton displayed and attempted to inject into Wal-Mart, the methodical, self-imposed discipline and low profile approach of Lou Gerstner in rescuing IBM were often in sharp contrast to the bullying tactics and arrogance of a Motorola in the ’90s or the flashy and magnetic over-promises of Carly Fiorina when she led HP.

The challenge for every CEO is to combine rigour, discipline, curiosity, calmness and the capacity to instill responsibility while building a solid succession of leadership to sustain greatness of the institution. Above all, it is critical to retain a deep sense of humility. The greatest leaders are those who continue to recognise that luck combined with the tail wind of the market have given their businesses momentum as opposed to personal fame, glory and charisma alone.

There are several companies in India across telecom, banking, technology, automotive, retail and power sectors that have seen unbridled growth. The markers that Collins refers to— arrogance, the quest for personal fame, overreaching, obsession with growth at the cost of the long term and succession—are all aspects that CEOs of these companies need to be vigilant about. After all, most Indian CEOs are not genuinely challenged within their companies or questioned by their boards. This book will hold up a mirror to them. That is why it is worth a read.

Google Speaks: Janet Lowe, bestselling author of Warren Buffett Speaks, uses a similar conversational style to reveal a behindthe-scenes story of how Google founders built a pioneering company while leading modest lives.

Toyota Supply Chain Management: Toyota practically defined supply chain management, and this book explores the firm’s legendary production system. Also included are insider tips and hands-on guidance.

Gopal Vittal is a board member and Executive Director for the Home and Personal Care business of Hindustan Unilever

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