Book written by Jim Collins Reviewed by Ralph Grabowski
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This article is the second in a series in upFront.eZine examining complexity and what we can understand about it. Here we learn about failure and overcoming it.
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We like being associated with success, but in the real world we experience failure. By understanding what can cause failure, we can learn how to avoid it, and if we cannot avoid it, then we can learn how to navigate it.
A failure warning I took to heart early on is Intel CEO Andy Grove's declaration, “Only the paranoid survive.” Well, it's not that the paranoid necessarily survive, but your business is more likely to survive when it looks in all directions for possible dangers.
Danger is complex because it comes from many directions. Changes in market. Loss of customers. Reduced ability to deliver. Extended power or Internet outages. Even something as obscure as sudden changes in currency exchange becoming severe enough to pummel revenues.
Some dangers can be mitigated by looking back to what has happened in the past, and others by thinking about what might occur in the future. We can only guess, and then make preparations that might never be needed.
As I write this, Hertz is protecting itself with a bankruptcy filing. It has the ongoing cost of leasing three-quarters of a million vehicles for which it has insufficient customers. We understand why it is happening (politicians made the coronavirus-inspired decision to reduce movement), but could such a danger have been predicted?
As a part of learning about the complexity of failure, I have found corporate biographies fascinating reading, learning of how Corel, American Express, Shell, Enron, Palm Computing Time-Warner, ComputerLand rose or failed. Luck often paid a role in rising; failure mostly came about from decisions by executives.
How the Great Fall
When Jim Collins wrote Good to Great, he ended up with a four-million copy bestseller. He didn't realize he would need a followup to document how the great become broken. He was horrified to observe some of the greats in his book fall from lofty perches after attaining perfect business practices, HP and Circuit City most of all.
He and his staff set about rummaging through tens of thousands of business documents to learn the vectors of failure. One source of information he did not consult was the horse's mouth, the staff and executives who worked at the failing companies. From experience, he knew their anecdotal stories would be biased -- too positive or too negative. Instead, he consulted mountains of paperwork that public companies generate, such as annual reports, press releases, and minutes of meetings.
Mr Collins came up with five steps that start a successful company on the path to failure:
Step 1. Hubris [foolish pride] born of success Step 2. Undisciplined pursuit of more Step 3. Denial of risk and peril Step 4. Grasping for salvation Step 5. Capitulation to irrelevance, or death
The companies he examined are these ones:
- A&P (Great Atlantic and Pacific Tea Company) knew their customers so well that when a hearse went by, execs could say, "There goes another customer."
- Addressograph launched 23 new copier products in three years to counter upstart Xerox, and engaged in other flip-flopping to loose itself.
- Ames Department Stores overtook A&P by establishing itself in smaller towns, but then was overtaken by Wal-Mart in exactly the same way.
- Bank of America fell from its position as the largest bank in the world when the then-new CEO drove a wedge between top performers and non-performers.
- Circuit City expanded too fast to used car megastores (CarMax) and encrypted DVD rentals (DivX), while not keeping an eye on upstart BestBuy's warehouse concept.
- Hewlett-Packard broke Packard's Law, which states that companies are more likely to die of indigestion from too much opportunity than from starvation.
- Merck gave itself high growth goals in an industry where only one out of an average of 1,150 molecules becomes a possible medication.
- Motorola got to the point where it felt it had to keep spending too much on satellite phones and satellites launches, even as terrestrial cell phone towers blossomed.
- Rubbermaid grew so fast that it couldn't keep up with itself (see below).
- Scott Paper failed to appreciate consumer demand for a competitor's more absorbent paper towels and softer toilet paper
- Zenith didn't take the new competitors from Japan seriously (just as American car makers initially didn't) and did not keep up with lower prices and higher quality
(The book more briefly covers other firms that stumbled and recovered, such as IBM, NASA, and TI.) Not all collapsed, as hinted at by the subtitle: "Why Some Companies Never Give In." Bank of America, HP, and Merck are still independent firms today. Other names familiar to us (Rubbermaid, Scott) now exist as subsidiaries of larger corporations.
Ask Yourself
The book spends time emphasizing the nature of leadership, those CEOs who understand the market, those who do not. Mr Collins asks you to ask two questions about your business:
A. If you believe your business is successful due to luck, what happens when it runs out of luck? B. If you think you success is due to your amazing abilities, what happens when you are wrong?
(Luck includes being in the right place at the right time, finding a niche, having a product that's unexpectedly and wildly popular with customers, landing a sugar daddy.)
Answers by Mr Collins: A. Position your firm for when luck runs out B. Know that the best corporate leaders remain students
Good leaders are not Knowing people ("We know how to be successful!"); they are Learning people, relentless picking the brains of others ("Why? Why? Why?").
The case history that I found most remarkable was Rubbermaid's decision in 1994 to release one new product every day for three years, 365 days a year. It didn't help that Fortune magazine gushed over it as the #1 Most Admired Company. It declined in just four years, eliminating six thousand products, closing nine plants, laying off 1,170 jobs, and finally in 1998 selling itself to Newell.
- Its luck ran out: commodity prices went up
- Its amazing ability collapsed: it found itself unable to fill orders
This book was written just before the housing-driven economic collapse of 2008 and subsequent Internet-driven destruction of businesses. Had he waited, he could have written about Target's expansion into Canada.
America's second largest retailer (after Wal-mart) was beloved by Canadian cross-border shoppers for its trendy-looking products at reasonable prices. Canadians even nicknamed it with a French-sounding "Tarjay." So it made sense for Target to enter Canada. The company bought out many leases of low-end retailer Zellers (my favorite place for clothes), and then remodeled locations as quickly as possible, opening an astounding 133 Target Canada stores in under two years.
Then it was hit by perception problems:
- Due to insufficient warehouse space, Target Canada was unable to restock store shelves quickly enough, and so shoppers came to stores that looked partially empty. The stuff Canadians loved to buy wasn't there.
- Due to the exchange rate, prices were 30% higher. The prices Canadians expected to pay were more than the ones they were familiar with from shopping in the States.
Three years after it arrived, the company racked up two billion dollars in losses, and then pulled out of Canada.
What Ralph Grabowski Thinks
Here are some of the tactics I deployed in my 29 years as a free-lance writer:
The Business
- Have many fingers in many pies: when one type of work becomes less popular, several others keep you going.
- Find a niche: mine is to tell my readers what they don't know.
- Look for new opportunities: don't stay comfortable with what you know.
- Become desirable: work fast, deliver on-time, stay on-budget, and deliver an excellent product.
- Don't be arrogant: learn from customer complaints by implementing them as suggestions.
- Maintain friendships: connect with and learn from others in your industry.
- Fire customers who frustrate you: living a frustrated life is not worth the money it brings in.
- Read voraciously: understand history, and learn which trends might be useful to your business.
The Money
- Don't depend on a single large customer: losing it represents a sudden, catastrophic loss of income.
- Have no debt: owe no one, pay all bills immediately, and avoid subscriptions.
- Hound those who owe you money: it is, after all, your money, not their's.
- Maintain cash reserves: you can coast on them when pickings are slimmer for a time.
- Invest profits: take advantage of economic ups and downs by investing in a range, such as mutual funds (stock market), bonds, investment certificate (fixed interest), physical gold, even cashback credit cards.
- If you work internationally, then maintain bank accounts in major currencies: move funds when exchange rates are advantageous.
- Minimize the possibility of legal attack.
The Office
- Work from home: avoid the time and costs of commuting.
- Don't upgrade software unless you have to; upgrade hardware only when it makes you faster at what you do.
- Maintain backups: uninterruptible power supplies, alternative Internet access, large capacity portable solid state drives, off-site backups, spare computers and parts (monitor, keyboard, mouse, hard drives, toner), and insurance coverage.
- Consider faults in your office's physical location: earthquakes, landslides, fire, alternative exit routes, and so on.
In short: Assume problems will occur. Try to figure out what they might be. Implement protective actions.
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I appreciated the lessons from this book, but I felt it has too few chapters and too much in the way of appendices. Mr Collins initially considered 60 companies, and I wish he'd have covered more of them and their failures.
How The Mighty Fall: And Why Some Companies Never Give In by Jim Collins 240 pages Published by Jim Collins, 2009 ISBN-10: 0977326411 ISBN-13: 978-0977326419 |
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Bless whoever posted this about the USB extender. Wish I'd known this years ago! This just fixed a major headache, and a 6-foot extender was all it needed.
I so wish Logitech "support" had told me this as a possible solution, rather than many useless install/reinstall software suggestions. Thank you to all who posted this! - Anon (via WorldCAD Access)
Re: Dassault Systemes vs Solidworks
Where can one find a sufficiently reliable statistics on, say, copies of Solidworks annually sold or have been installed and so? For example, those you recently mentioned regarding Inventor vs Solidworks. - L. D.
The editor replies: Nowhere. CAD vendors no longer report seats, unless it suits their marketing to show that they are superior to their competitors. There are a few financial and market analysts who attempt to track numbers, such as by asking retailers for sales.
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Thanx for another good expose, but this time about Solidworks. The [Dassault] idea of 'roles' is BS. It’s just another way to split a program up into bits and pieces, each of which can be charged separately, thus raising revenues for the investors.
I’ve been on a quest for two decades to find a CAD program that does everything well. But to my dismay, not only are all the bits and pieces at Autodesk, Dassault, Hexagon, etc. not doing what I want, they don’t have any intentions any time soon to do so. Why? Because there will be no money in it.
Once a business finds they can do everything with the tools they currently possess, they won’t spend more money at the cad store. A perfect example is automatic drawings and dimensioning of detail parts in 3D documentation. That would save at least 30% of the time and work in a project’s life cycle. Neither Inventor nor Solidworks has that, but you can find it done by independent developers for small companies using their APIs. - Chris Cadman |
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