How The Mighty Fall

I just finished Jim Collins’ latest book, How the Mighty Fall:  And Why Some Companies Never Give In.  The book is the result of his team’s research into why previously-successful companies went downhill and how their management teams dealt with decline poorly.  A quick read, it builds on a number of key ideas in Collins’ previous book, Good to Great.

The shorthand result of Collins’ team’s research is that organizational decline is largely self-inflicted, can be avoided, and can be reversed.  The team found the companies mostly shared five stages of decline, going through them at varying depths and paces.  I think what they learned can also serve as good warning signs for nonprofits and foundations.

Stage 1:  Hubris Born of Success – great enterprises can become insulated by success and allow it to blind them from continuous learning.  In my work, I’ve seen successful funders coasting on good investment returns, successful nonprofits boasting about their awards and short-term wins, and both ignoring early warning signs from their stakeholders – all in the name of “look how successful we are!”  Based on Collins’ information, answering “yes” to any of these questions indicates warning signs of this stage of organizational decline:

• Does your management team see success as “deserved” rather than something fortuitous or hard-earned in the face of daunting odds?
• Does management constantly distract itself with new opportunities, adventures, or extraneous threats?
• Is the rhetoric of success (“We’re successful because we do these specific things”) replacing continuous questioning of why specific things work and under what conditions they’d no longer work?
• Have management staff members lost an orientation to ongoing learning and inquisitiveness?

Stage 2:  Undisciplined Pursuit of More – overreaching and undisciplined growth damaged companies far more often than complacency.  They lost sight of the disciplined creativity (or “hedgehog” in Collins’ terminology) that led their enterprises to greatness in the first place.  They also lost sight of keeping talented people in key positions and planning for healthy leadership succession.  I think it is especially easy for foundations and nonprofits to confuse growth with success – to confuse more income and customers with high-quality impact.  Answering “yes” to any of these questions could mean warning signs of this stage of decline:

• Does your organization confuse big with great?
• Do your staff answer the question “What do you do?” with a statement of personal responsibility (their stake in the organization’s success) rather than a simple job title?
• Is there a declining proportion of talented, productive people in key positions?
• Are bureaucratic rules subverting the ethic of freedom and responsibility that marks a culture of discipline?
• Is management investing more (money, acclaim, privileges…) in itself and less in building the long-term greatness of the organization?

I’ll cover the other three stages of decline in my next post in a couple days.  In the meantime, do any of these problems sound familiar to you?  Do you think foundations and nonprofits are as susceptible to hubris and lack of discipline as businesses?