A timely analysis that should be required reading for Ministers

BOOK REVIEW: How the Mighty FallBy Jim Collins; Random House; €18

THE THEME of this book is timely and resonates at both the firm-level and, to this reviewer, at the nation-state/governmental level also.

Over the past year and a half, many of the iconic names of capitalism have vanished, or have been vanquished and absorbed into different entities.

The turmoil wrought by credit contraction, market disruption, profligate government spending and consequent demand collapse has taken a huge toll on the productive sectors of the economy domestically and worldwide.

Yet, Collins asks a deeper question: how is it that once very successful companies get into difficulty and in some instances wither and die, while others survive and recover?

Many readers will be familiar with Collins’s other works, Built to Last and Good to Great, where he and his colleagues seek to understand the managerial factors underlying long-term success.

His approach in this book, similarly, is to investigate a series of paired comparisons between successful and unsuccessful firms and to abstract “lessons” from these contrasts.

The main insights developed through his analysis is that a form of death-spiral is frequently manifested across failing organisations. He characterises this death-spiral as having five stages.

The first stage, titled, Hubris Born of Success, speaks to the pathological consequences of success. Here the core reasons for success are forgotten or not held up to critical scrutiny, and so learning about sustaining success is inhibited.

This is followed by a stage called The Undisciplined Pursuit of More, where growth and ambitious targets are set, however the ability to exploit this growth profitably is constrained by the inability to learn inherited from stage one.

Stage three, the Denial of Risk and Peril, leads the firm to the cusp of decline.

Here the internal warning signs that things are not as they should be are heavily discounted by senior management and external “shocks” or events are blamed for any incipient performance disappointments.

As decline begins, stage four is reached, Grasping for Salvation. Here, as decline advances, the senior management searches for a “miracle cure”, something which offers profound help, fast!

Finally, as the silver bullets run out, the setbacks and disappointments associated with each shot sap the financial strength and organisational commitment of the employees and the organisation reaches stage five, Capitulation to Irrelevance or Death.

While this very depressing sequence takes up much of this short book, the author offers some hope at the end of the book with discussions of turnarounds at Xerox and IBM.

The basis for these turnarounds, the author argues, is to be conscious of the paths of decline outlined above, and to build management processes to avoid the downward spiral.

The book is a quick read and certainly gives one cause to reflect, guiding that reflection to some important messages about the management of success and decline.

It uses US case illustrations exclusively, and undoubtedly one’s enjoyment of the book would be related to the reader’s familiarity with the US business context.

While household names in Ireland such as HP, Motorola and Merck resonate, Nucor, Norton and Melville might appeal more to the 10-K-reading anoraks among us.

Yet, it is in the stages of decline that this book makes its most significant contribution.

Other authors have spoken to processes of downward spirals, but it is Collins’s prose, direct style and exemplification which make this elucidation a compelling read.

While the research is open to question on methods grounds, it serves, at least, as an important piece of carefully crafted journalism that challenges managers’ thinking and asks them to reflect on what they do.

While some might argue that such reflection is futile, on the basis that wider economic forces are shifting, I would argue that it is the practice of management in business organisations that will protect jobs in the short term, sustain them in the medium term and create jobs and wealth in the longer term.

On a broader context, this book reminds us that management is a vitally important art and science in the marshalling of resources to productive ends.

When managers make mistakes, profound problems arise.

Yet, when entrepreneurs and managers create and develop sustainable enterprises, everyone benefits.

It is this focus on managerial competence, accomplishment and potential that should be at the forefront of our national development efforts as we seek to emerge from this largely self-inflicted fall from the hubris-laden heights of the Celtic Tiger, through the undisciplined pursuit of more with the expansion of quangos; the denial of risk and peril as we were reassured that things would get “boomier and boomier”; the grasping for salvation with Nama; and the fundamental choice of whether we continue to look for another silver bullet, or reflect on the ingredients that made the Celtic Tiger: high-quality education, productivity growth and innovation.

Patrick T Gibbons is Jefferson Smurfit Professor of strategic management, UCD Smurfit School of Business