Sunday, August 23, 2009

How The Mighty Fall

There are five stages of corporate decline, most of which are avoidable, according to author Jim Collins in his new book "How the Mighty Fall." The book is in answer to the question, "what causes an organization to fail?" Equally important, it helps leaders identify characteristics that put a successful firm on the slippery slope to potential failure.

The author of "Good to Great" and co-author of "Built to Last" identifies the five stages of decline as:

Stage 1: Hubris Born of Success
Stage 2: Undisciplined Pursuit of More
Stage 3: Denial of Risk or Peril
Stage 4: Grasping for Salvation
Stage 5: Capitulation to Irrelevance or Death

Matching similar firms with comparable early performance (Ames v. WalMart, Circuit City v. Best Buy) before history proved one a winner and the other a loser, the author documents these five categories as progressively responsible for ultimate failures if not reversed by a strong leader (i.e., Gerstner at IBM, Mulcahy at Xerox).

While law firms don't make or sell widgets like the corporate giants studied in this book, it has important implications for attorneys in two ways:

1. The elements of success and stages of decline apply to law firms also; and
2. Lawyers may gain increased insight into corporate performance factors as a result of reading this book.

Collins' recommendations resulting from his research include:

1. Talent. Make sure the right people are in the right seats. The right leaders and the right values can turn a company around (or presumably prevent it from going off course in the first place).
2. Core competency. Don't take your eye off the primary business line responsible for the company's success unless it is a conscious decision to move in a new direction.
3. Accept responsibility; avoid placing blame. Failure to tackle reality accelerates the rate of decline.
4. Build lasting greatness with succession planning, thought discipline, culture discipline and a focus on the customer.

Collins introduces the "hedgehog concept," an operating model that reflects understanding of three intersecting circles:
1. what you can be the best in the world at
2. what you are deeply passionate about; and
3. what best drives your economic or resource engine

This book is a quick read at 122 pages plus appendices, but rich in insight on organizational performance.

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