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How The Mighty Fall

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  • 1. Jim Collins How the mighty fall by Ramki ramakrishnan@gmrgroup.in
  • 2. Underlying Message Every company/ institution , no matter how great , is vulnerable to decline Any company can fall and most eventually d t ll do But decline as it turns out, is largely self- inflicted & the path of recovery lies largely within our own hands
  • 3. Underlying Message We are not imprisoned by our circumstances, circumstances our history or even our history, staggering defeats along the way. As long as we never get entirely knocked out of the game, h th hope always remains. l i The mighty can fall, but they can often rise again. Decline can be avoided Decline can be detected Decline can be reversed
  • 4. Five Stages of decline
  • 5. Stage -1 1 Hubris Born of Success
  • 6. Hubris of Success 1. Success entitlement, Arrogance -Success is viewed as “deserved” rather than fortuitous, fleeting or even hard earned in the face of daunting odds 2. Ignoring “Core Competencies”-invest in the “new”. 3. “What” replaces “Why” -Resistance to improve-we are “good and great” 4. Decline in learning 5. Discounting the role of luck Hurbis-exagerated p g pride and self confidence
  • 7. Motorola case Company founded in 1928 Era of Focus for Analysis of Decline: 1990s-2000s Success Contrast: Texas Instruments Primary Business: Cell Phones Example of "Fallen" Behavior: In 1995, its StarTAC phone, used analog technology; wireless carriers wanted digital-technology based phones. Result: After enjoying almost 50% market share, Motorola saw its market share plummet to 17%.
  • 8. Motorola 1. 1989-high marks a) Adherence to core values b) Willingness to experiment c) Management continuity d) Self-Improvement –leader in Six- Sigma e) Ten year “ Technology road maps” anticipate the future 2. Mid 90’s a) Ten years growth – US $ 5 b to $ 27 B b) Shift from humility to arrogance c) New launch StarTAC cell phone – small & sleek but analog launch- sleek-but d) Wireless carriers – the future is digital e) Motorola tried to strong-arm the wireless Co’s –StarTAC is hot f) StarTAC rules- 75% of the phones had to be Motorola rules g) StarTac rules- promote with stand alone advertising 3. Arrogance gave competitors an opening a. 1999-market share went from 50% (#1 position) to 17%
  • 9. Stage -2 Undisciplined pursuit of more
  • 10. Undisciplined Pursuit for More  Unsustainable quest for growth & Confusing big with great  Undisciplined discontinuous leaps  Declining proportion of the right people in key seats seats.  Easy cash erodes cost discipline.  Bureaucracy subverts discipline  Problematic succession of power.  Personal interests placed above organizational interests.
  • 11. Rubbermaid case Founded i 1920 as W F d d in Wooster R bb C Rubber Company Era of Focus for Analysis of Decline: 1980s-1990s Success Contrast: None qualified Primary Business: Kitchen Utensils Example of "Fallen" Behavior: Ambitious growth and new product introductions that made it vulnerable to rises in raw materials prices and problems filling orders on time. Result: S ld t N R lt Sold to Newell C ll Corp. O t 21 1998 company i now k Oct. 21, 1998; is known as N Newellll Rubbermaid.
  • 12. Rubbermaid case 1. 1980-1993 a) Increased revenues more than 6 times – earning 15 times b) Innovation machine- 1991- 30% revenue from new products – past 5 y ) p p years c) Innovation machine-1992-averaged one new product every day for 365 days d) 1999’s-Goal- One new market segment every 12-18 months e) Intense drive for growth and self-reinvention f) Objective- Objective double sales earnings , earnings per share every 5 years sales, 2. 1994- Leap growth-new market acquisitions, technologies, joint ventures 3. What happened a) Choking on 1000 new products in 3 years b) Raw material costs doubled in 18 months c) Failing a bas cs controlling cos s & de e g o time a g at basics- co o g costs delivering on e d) 1995 – reported first loss e) Eliminated 6000 product variations- closed plants – laid off 11700 f) Made a large acquisition g) R ) Recast th i t the incentive compensation & b t on th i t ti ti bet the internet t 1998 sold out to Newell
  • 13. Stage -3 Denial of Risk & Peril
  • 14. Denial of risk & peril 1. Amplify the positive-discount the negative 2. Big bets and bold goals without empirical validation. 3. 3 Incurring huge downside risk based on ambiguous data data. 4. Erosion of healthy team dynamics-management does not listen. 5. Externalizing blame-not us-them 6. Obsessive Reorganizations. 7. Imperious detachment- Management is detached from reality.
  • 15. Scott Paper case Founded i 18 9 F d d in 1879 Era of Focus for Analysis of Decline: 1960s-1990s Success Contrast: Kimberly-Clark Primary Business: Consumer paper products Example of "Fallen" Behavior: When faced with increased competition from various companies, Scott spent five years reorganizing rather introducing new products of its own. Result: Th company was sold t Ki b l Cl k i D R lt The ld to Kimberly-Clark in December 1995 b 1995.
  • 16. Scott Paper case 1. 1961 a) Most successful paper based consumer product franchise b) Commanding positions in all products such as napkins, tissues & towels c) P & G entered Scott’s market , while Kimberly Clark & George Pacific nibbled d) P & G launched Bounty towels on the high-end private brands attacked bottom 2. 1960-1971 a) Scott’s market share dropped from 50% to a third b) P & G launched in 1971 Charmin toilet tissue 3. 3 Response a) Re-organize- marketing & research b) No vigorous response to Charmin for 5 years c) More restructure- 3 times in four years d) Eroding market share Result –Sold company to Kimberly-Clark in 1995
  • 17. Stage -4 Grasping for salvation
  • 18. Grasping for salvation 1. A series of silver bullets 2. Grasping for a leader-as-savior. 3. Panic and haste 4. Radical change and “revolution” with fanfare. 5. 5 Hype precedes results-over promising and under delivering results over delivering. 6. Initial upswing followed by disappointments-no momentum. 7. Confusion and cynicism. 8. Chronic restructuring and erosion of financial strength. g g
  • 19. Addressograph case Company Founded in 1892 Era of Focus for Analysis of Decline: 1960s-1980s Primary Business: Office addressing and duplicating machines Success Contrast: Pitney Bowes Example of "F ll " B h i Wh X E l f "Fallen" Behavior: When Xerox i t d introduced th 2400 copier i 1964 a d the i in 1964, panicked Addressograph brought out 23 new products in three years, 16 of which failed, and lost track of $70 million in customer orders. Result: Filed for Chapter 11 in 1982. p
  • 20. Addressograph case 1. 1945-1960 a) Leader in office addressing & duplicating machines b) $ 10000 invested in stock in 1945 produced $ 500000 in 1960 c) 1965 Xerox introduced the 2400 copier 2. Response a) Panicked-crash program-launched 23 new products in 3 years b) Ignored position in offset printing –high volume –high quantity print jobs c) Lost track of billing & accounts receivables, $ 70 M in orders d) 16 out of 23 new products failed e) Early 1970’s hired a visionary leader a) Reinventions, Psychological transformation & Corporate revolution b) Office of the Future- Word processing & electronic office machines c) Let offset position fade d) Chaos-Leader fired 3. 1981 - Posted losses equaling 50 years of accumulated net worth Churned through 4 CEO’s and 2 bankruptcies in a 12 years
  • 21. Stage -5 5 Capitulation to irrelevance or death
  • 22. Capitulation to irrelevance or death 1. Spiral downward increasingly out of control. 2. Cash tightens. 3. Hope fades 4. Options narrow
  • 23. Zenith Founded i 1918 i F d d in 1918, introduced i fi B&W TV i 1948 d d its first in Era of Focus for Analysis of Decline: 1960s-1980s Success Contrast: Motorola Primary Business: Manufacturing of black & white TVs Example of "Fallen" Behavior: Ignored the threat from Japanese manufacturers; took on excessive debt to increase manufacturing capacity and lowered prices to gain market share; went into various businesses, including personal computers. Result: C i l d b it excessive d bt and th TV di i i R lt Crippled by its i debt d the division, th company sold th the ld the profitable computer division in 1989.
  • 24. Finally two part questions to be answered • "What happened leading up to the point at which decline became visible, and what did the company do once it began to fall?“ • "What do we learn by studying the contrast between success and f il ?" b t d failure?"
  • 25. Learning s Learning's  Changing the leadership  Focused  Dedicated  Experienced  Disciplined  Take inventory-what is working what is not  Keys-cost cutting and long term investment-stop the bleeding  Belief that the company will survive  Return to sound management practices  Rigorous strategic thinking  Make s re that you do not r n o t of cash sure o run out  Communicate
  • 26. Conclusion  The point of the struggle is not just to survive, but to build an enterprise/ institution that makes such a distinctive impact on the world it touches.  To accomplish this requires leaders who retain faith that they can find a way to prevail in pursuit of a cause larger than mere survival.
  • 27. Some more Cases
  • 28. The Great Atlantic & Pacific Tea Company Company Founded in 1859 Era of Focus for Analysis of Decline: 1950-1970s Primary Business: A&P Supermarkets Success Contrast: Kroger Example of "F ll " B h i A E l f "Fallen" Behavior: Assuming th t it position as th world's N 1 i that its iti the ld' No. retailer made it exempt from having to develop new store concepts; leadership failing to ask what were the fundamental reasons for A&P's success. Result: Had 16,000 stores in the Depression; in 2008 it had 460 , p ;
  • 29. Ames Department Store Founded in 1958 Era of Focus for Analysis of Decline: 1980s-1990s Success Contrast: Wal-Mart Primary Business: Discount retailing Example of "Fallen" Behavior: Bringing in an outsider who was interested in quick growth instead of appointing a successor from within who would have maintained focus on Ames' core values. Result: Aft filing f b k t more th once, th company announced it R lt After fili for bankruptcy than the d would close its last stores in 2002.
  • 30. Bank of America Founded in 1929 Era of Focus for Analysis of Decline: 1970s-1980s Success Contrast: Wells Fargo Primary Business: Banking Example of "Fallen" Behavior: Removing responsibility for making loans from individual Fallen loan managers to committees, allowing mediocre performers to hide behind bureaucracy. Result: The concepts of responsibility and meritocracy were compromised, and the company lost many "good young people" who could have constituted the next generation of leaders.
  • 31. Circuit City Founded in 1949 as Wards Company Era of Focus for Analysis of Decline: 1990s-2000s Success Contrast: Best Buy Primary B i Pi Business: El t i R t il Electronics Retailer Example of "Fallen" Behavior: Not recognizing the potential for growth in its core business after concentrating on its CarMax and Divx businesses. Result: Filed for bankruptcy on Nov. 10, 2008. p y ,
  • 32. Hewlett Packard Hewlett-Packard Founded in 1939 Era of Focus for Analysis of Decline: 1990s-2000s Success Contrast: IBM Primary Business: Computers, Printers Example of "Fallen" Behavior: The 2002 $24 billion acquisition of Compaq computers, which the authors cite as an example of Stage 4 (Grasping for Salvation) behavior. While the move increased HP's market share, earnings became erratic. Result: Carly Fiorina the architect of the deal was ousted as CEO HP has since Fiorina, deal, CEO. made a strong recovery under CEO Mark Hurd
  • 33. Merck Founded in 1891 Era of Focus for Analysis of Decline: 1990s-2000s Success Contrast: Pfizer Primary Business: Pharmaceuticals Example of "Fallen" Behavior: Merck's pursuit of becoming a top-tier growth company and its reliance on blockbuster drug Vioxx allowed its purpose-driven philosophy to become of secondary importance. Result: When data showed that Vioxx might not be safe it was voluntarily removed safe, from the market, and $40 billion in shareholder value dissolved in six weeks
  • 34. Happy Reading & Learning