In his keynote presentation at the 2011 National Association of College and University Business Officers (NACUBO) convention in July, Jim Collins shared findings from his most recent book, How the Mighty Fall and Why Some Companies Never Give In 2009, HarperCollins). In his earlier writing, including Built to Last: Successful Habits of Visionary Companies (with Jerry Porras, 1994, HarperBusiness) and Good to Great: Why Some Companies Make the Leap … And Others Don’t (2001, HarperBusiness) and the monograph “Good to Great and the Social Sectors” (2005, Jim Collins) addressing non-profit organizations, Collins focused on what made organizations successful. He identified organizational characteristics and behaviors such as identifying and maintaining the core values and purpose of the organization, building momentum, having the right people in the organization, setting ‘big, hairy, audacious goals’, and the concept of ‘Level 5’leaders, those more interested in the long-term wellbeing of the organization than in their own fame and renown.
Collins’ research has used matched pairs of organizations. In his earlier research he matched those that did very well over the long term compared to those that were only good, or did not last. In his current work, he used the same comparative approach, this time using matched pairs of organizations that failed and those that did not, to look for patterns in what was different between the pairs. As Collins points out on p. 8, “Every institution…no matter how great… [is] vulnerable to decline.”
Collins found five stages of decline and failure. Within an organization the stages may overlap, and the time an organization remains in each may vary.
In Stage 1, Hubris Born of Success, the organization takes its success for granted. It neglects the need to continue the learning and maintain the momentum developed earlier in achieving success. It loses sight of its core purpose and value. This can lead to Stage 2, Undisciplined Pursuit of More. The organization pursues growth without discipline or focus. It neglects its core business and takes actions inconsistent with its core values and purpose. In Stage 3, Denial of Risk and Peril, there are early internal warning signs of developing problems and being off track, but external data still look good, and any problems are blamed on external factors. If there are attempts to correct the problems, they take the form of high-risk initiatives without data to support them. At Stage 4, Grasping for Salvation, the problems are apparent to all. There may be panic. Often there is a search for a leader who will save the organization or a fast change that will turn things around. Unfortunately, this search for a quick fix or a silver bullet often fails, leading to Stage 5, Capitulation to Irrelevance or Death. The organization may fail, be bought out by another organization, or keep looking for a quick fix until it runs out of resources and dies.
Collins points out that this path is not inevitable. It is possible at any stage of the decline for the organization to move to a stage of Recovery and Renewal, and rebuild and recover. To make this turn, the organization needs to recognize the problems and get back to the fundamentals that made it great – identifying its core values and purpose, having the right people in the organization, building and maintaining momentum, and focusing on the long-term sustainability and growth of the organization.