Jim Collins, a management guru, ponders business failure
ONE of the keys to being an inspirational management speaker is not to dwell too long on the negative. No wonder Jim Collins is almost apologetic in his new book on corporate failure, “How the Mighty Fall”. As he writes, “When I sent a first draft of this piece to critical readers, many commented that they found our turn to the dark side grim, even a bit depressing.” Happily, he reaches an upbeat, empowering conclusion: “Whether you prevail or fail, endure or die, depends more on what you do to yourself than on what the world does to you.” He expands on this theme by quoting Winston Churchill’s injunction to “Never give in, never give in, never, never, never, never...”
The risk for a management guru with a sunny outlook is that writing books praising companies creates hostages to fortune. One well-known title, “In Search of Excellence”, left its authors wiping egg from their faces when many of the firms they profiled quickly proved to be anything but excellent. Even worse was Gary Hamel’s celebration of Enron, “Leading the Revolution”, which was still arriving in bookstores when the energy-trading company blew up in 2002.
So Mr Collins has wisely grasped this nettle before any of his critics could sting him with it. As he readily admits, several of the firms praised in his bestsellers, “Built to Last” and “Good to Great”, have since fallen from grace. These include Circuit City, a now-bankrupt electronics retailer, and Fannie Mae, a giant mortgage lender that was taken over by the American government last September to stop it going bust and taking the global financial system with it. Oops.
In his new book Mr Collins examines 11 of the 60 “great companies” studied in his two earlier books that have since deteriorated to “mediocrity or worse”. Mr Collins says that when he charted the factors that led these firms to greatness, he had never claimed that they were certain to remain great. By comparing each one, where possible, with similar firms that had fared better, Mr Collins identifies five stages in the process of decline. Stage one is hubris born of success (possibly brought on by reading the case study of the firm in one of Mr Collins’s earlier books). Firms start to attribute their success to their own superior qualities. They become dogmatic about their specific practices and fail to question their relevance when conditions change.
Stage two is the undisciplined pursuit of more: firms overreach, moving into industries or growing to a scale where the factors behind their original success no longer apply. Stage three is denial of risk and peril. Warning signs mount, but the firm’s headline performance remains strong enough for bosses to convince themselves that all remains fine. Problems are invariably blamed on external causes.
In stage four the problems are clear enough that firms start grasping for salvation. Rather than returning to the fundamentals that made them great (which Mr Collins regards as the most promising route back to greatness), they gamble on a new, charismatic saviour-boss, dramatically change strategy, make a supposedly transformational acquisition or fire some other supposedly silver bullet. The longer a company remains in stage four, the more likely it will spiral downward into stage five: irrelevance or death. However, inspired (at times, perhaps too much) by the Churchillian belief in never giving up, Mr Collins points out that many still-great firms have bounced back even after getting to stage four, including IBM, Nucor and Nordstrom.
At the very least, “How the Mighty Fall” is worth buying as a gift for the hubristic boss in your life, to remind him of the need for humility. Show the recipient the striking chart comparing Wal-Mart and Ames, two retailers with identical strategies, the share prices of which grew in tandem for decades before diverging forever in the mid-1980s. A disastrous acquisition by Ames in 1988, designed to double the size of the firm overnight, was a classic case of overreach. In two years it was bankrupt; in 2002 it was liquidated. Wal-Mart, meanwhile, stuck to its original strategy, and despite a few wobbles, became the world’s largest and most profitable retailer.
The book was finished just as the financial markets crashed last year, so Mr Collins does not explore the implications of this shock as deeply as he might. However, he points out that financial firms can move through the five stages of decline—and particularly the final three stages—much faster than other sorts of company. And companies already in decline, as Fannie Mae was by last year, are extremely vulnerable to turbulence. Without the financial storm of last year, he speculates, “perhaps Fannie Mae would have had an opportunity to reverse its own decline and return to greatness by its own efforts.”
Moreover, what happened to the world’s once-mighty financial firms last year illustrates that the five stages of decline can apply to an entire industry as well as individual firms. Even so, says Mr Collins, companies need not be imprisoned by their industries. “Not every financial company toppled during the 2008 crisis, and some seized the opportunity to take advantage of weaker competitors in the midst of the tumult.”
He has a point. Before the crisis most people regarded JPMorgan as the strongest universal bank and Goldman Sachs the strongest investment bank. Though both came close to disaster during the crisis, both look even more dominant now that things are getting back to normal. Perhaps last summer they got an early look at Mr Collins’s book and followed his advice: “Our research shows that if you’ve been practising the principles of greatness all the way along, you should get down on your knees and pray for severe turbulence, for that’s when you can pull even further ahead of those who lack your relentless intensity.” Amen.
4. Are you really an inventor, rather than an entrepreneur?
5. Can you accept that your company may outgrow you?
6. When you look in the mirror, does an entrepreneur look back?
We don't mean personal characteristics -- or not just personal characteristics, anyway. Do you believe you have all the skills, energy, money, people, and knowledge to start a business? Founders who carefully identify and evaluate their resources in pursuit of a well-defined goal display "entrepreneurial self-efficacy," a trait many academics believe to be the best predictor of success.
2. Are you able to let other people down?
3. How do you handle setbacks?
4. Are you really an inventor, rather than an entrepreneur?
5. Can you accept that your company may outgrow you?
6. When you look in the mirror, does an entrepreneur look back?
We don't mean personal characteristics -- or not just personal characteristics, anyway. Do you believe you have all the skills, energy, money, people, and knowledge to start a business? Founders who carefully identify and evaluate their resources in pursuit of a well-defined goal display "entrepreneurial self-efficacy," a trait many academics believe to be the best predictor of success.
A founder may set out in a rowboat, but pretty soon, he is piloting a cabin cruiser with investors and employees on board and their families huddled belowdecks. Risking your own fortunes is easy compared with risking the fortunes of those who believe in you. "These people may not completely understand the business," says J. Robert Baum, an associate professor of entrepreneurship at the University of Maryland. "They may not understand the level of risk. But they think they'll be OK because you are so smart. Breaking their dreams is very painful."
3. How do you handle setbacks?
4. Are you really an inventor, rather than an entrepreneur?
5. Can you accept that your company may outgrow you?
6. When you look in the mirror, does an entrepreneur look back?
We don't mean personal characteristics -- or not just personal characteristics, anyway. Do you believe you have all the skills, energy, money, people, and knowledge to start a business? Founders who carefully identify and evaluate their resources in pursuit of a well-defined goal display "entrepreneurial self-efficacy," a trait many academics believe to be the best predictor of success.
A founder may set out in a rowboat, but pretty soon, he is piloting a cabin cruiser with investors and employees on board and their families huddled belowdecks. Risking your own fortunes is easy compared with risking the fortunes of those who believe in you. "These people may not completely understand the business," says J. Robert Baum, an associate professor of entrepreneurship at the University of Maryland. "They may not understand the level of risk. But they think they'll be OK because you are so smart. Breaking their dreams is very painful."
When you are smiling, the whole company smiles with you. In their book Resonant Leadership: Renewing Yourself and Connecting With Others Through Mindfulness, Hope, and Compassion, Richard Boyatzis and Annie McKee explain that emotions are contagious: Morale rises and falls with the mood of the leader. Consequently, people who succumb to black moods or depression can fatally infect their own companies.
Because some people have an inflated idea of their resilience, Mayer suggests performing a kind of reference check on yourself -- ask people who know you well how you handle adversity.
4. Are you really an inventor, rather than an entrepreneur?
5. Can you accept that your company may outgrow you?
6. When you look in the mirror, does an entrepreneur look back?
We don't mean personal characteristics -- or not just personal characteristics, anyway. Do you believe you have all the skills, energy, money, people, and knowledge to start a business? Founders who carefully identify and evaluate their resources in pursuit of a well-defined goal display "entrepreneurial self-efficacy," a trait many academics believe to be the best predictor of success.
A founder may set out in a rowboat, but pretty soon, he is piloting a cabin cruiser with investors and employees on board and their families huddled belowdecks. Risking your own fortunes is easy compared with risking the fortunes of those who believe in you. "These people may not completely understand the business," says J. Robert Baum, an associate professor of entrepreneurship at the University of Maryland. "They may not understand the level of risk. But they think they'll be OK because you are so smart. Breaking their dreams is very painful."
When you are smiling, the whole company smiles with you. In their book Resonant Leadership: Renewing Yourself and Connecting With Others Through Mindfulness, Hope, and Compassion, Richard Boyatzis and Annie McKee explain that emotions are contagious: Morale rises and falls with the mood of the leader. Consequently, people who succumb to black moods or depression can fatally infect their own companies.
Because some people have an inflated idea of their resilience, Mayer suggests performing a kind of reference check on yourself -- ask people who know you well how you handle adversity.
Raising a child is generally more challenging than creating a child, and the same is true of new products. Some people mistake the act of invention for the tough part. "Too many times, these inventor types spend an inordinate amount of time on the patent and making the prototype just so," says Mike Drummond, editor in chief and co-owner of Inventors Digest. "They think once they've done that, the world will beat a path to their doorstep. My take is that product development is a team sport. Inventors don't get that. Entrepreneurs do."
5. Can you accept that your company may outgrow you?
6. When you look in the mirror, does an entrepreneur look back?
We don't mean personal characteristics -- or not just personal characteristics, anyway. Do you believe you have all the skills, energy, money, people, and knowledge to start a business? Founders who carefully identify and evaluate their resources in pursuit of a well-defined goal display "entrepreneurial self-efficacy," a trait many academics believe to be the best predictor of success.
A founder may set out in a rowboat, but pretty soon, he is piloting a cabin cruiser with investors and employees on board and their families huddled belowdecks. Risking your own fortunes is easy compared with risking the fortunes of those who believe in you. "These people may not completely understand the business," says J. Robert Baum, an associate professor of entrepreneurship at the University of Maryland. "They may not understand the level of risk. But they think they'll be OK because you are so smart. Breaking their dreams is very painful."
When you are smiling, the whole company smiles with you. In their book Resonant Leadership: Renewing Yourself and Connecting With Others Through Mindfulness, Hope, and Compassion, Richard Boyatzis and Annie McKee explain that emotions are contagious: Morale rises and falls with the mood of the leader. Consequently, people who succumb to black moods or depression can fatally infect their own companies.
Because some people have an inflated idea of their resilience, Mayer suggests performing a kind of reference check on yourself -- ask people who know you well how you handle adversity.
Raising a child is generally more challenging than creating a child, and the same is true of new products. Some people mistake the act of invention for the tough part. "Too many times, these inventor types spend an inordinate amount of time on the patent and making the prototype just so," says Mike Drummond, editor in chief and co-owner of Inventors Digest. "They think once they've done that, the world will beat a path to their doorstep. My take is that product development is a team sport. Inventors don't get that. Entrepreneurs do."
Some entrepreneurs love to brag that they don't need an exit strategy, because they are not going anywhere. But at some point, your business may need you less than you need it. That's particularly true at fast-growth companies, at which entrepreneurs may not have enough time to develop the necessary leadership and business skills. Mayer has seen founders bring in presidents or senior executives from the outside, only to sabotage them. "They do it by not giving them the necessary information," says Mayer. "They do it by not stepping back and by involving themselves with managers in a way that is inappropriate in the chain of command. They can be disruptive during meetings."
If so, and if that's the reason you are starting a company, beware. Many traits -- persistence, creativity, and risk tolerance among them -- are commonly ascribed to entrepreneurs. But having those traits doesn't much improve the odds that you will succeed. "Research into entrepreneurs' personal traits says things like persistence and need for achievement explain only about 5 percent to 10 percent" of the difference between people who start companies and those who don't, according to Baum. "They are less important than external predictors like the spirit of the times, the economy, and changes within an industry.
6. When you look in the mirror, does an entrepreneur look back?
We don't mean personal characteristics -- or not just personal characteristics, anyway. Do you believe you have all the skills, energy, money, people, and knowledge to start a business? Founders who carefully identify and evaluate their resources in pursuit of a well-defined goal display "entrepreneurial self-efficacy," a trait many academics believe to be the best predictor of success.
A founder may set out in a rowboat, but pretty soon, he is piloting a cabin cruiser with investors and employees on board and their families huddled belowdecks. Risking your own fortunes is easy compared with risking the fortunes of those who believe in you. "These people may not completely understand the business," says J. Robert Baum, an associate professor of entrepreneurship at the University of Maryland. "They may not understand the level of risk. But they think they'll be OK because you are so smart. Breaking their dreams is very painful."
When you are smiling, the whole company smiles with you. In their book Resonant Leadership: Renewing Yourself and Connecting With Others Through Mindfulness, Hope, and Compassion, Richard Boyatzis and Annie McKee explain that emotions are contagious: Morale rises and falls with the mood of the leader. Consequently, people who succumb to black moods or depression can fatally infect their own companies.
Because some people have an inflated idea of their resilience, Mayer suggests performing a kind of reference check on yourself -- ask people who know you well how you handle adversity.
Raising a child is generally more challenging than creating a child, and the same is true of new products. Some people mistake the act of invention for the tough part. "Too many times, these inventor types spend an inordinate amount of time on the patent and making the prototype just so," says Mike Drummond, editor in chief and co-owner of Inventors Digest. "They think once they've done that, the world will beat a path to their doorstep. My take is that product development is a team sport. Inventors don't get that. Entrepreneurs do."
Some entrepreneurs love to brag that they don't need an exit strategy, because they are not going anywhere. But at some point, your business may need you less than you need it. That's particularly true at fast-growth companies, at which entrepreneurs may not have enough time to develop the necessary leadership and business skills. Mayer has seen founders bring in presidents or senior executives from the outside, only to sabotage them. "They do it by not giving them the necessary information," says Mayer. "They do it by not stepping back and by involving themselves with managers in a way that is inappropriate in the chain of command. They can be disruptive during meetings."
If so, and if that's the reason you are starting a company, beware. Many traits -- persistence, creativity, and risk tolerance among them -- are commonly ascribed to entrepreneurs. But having those traits doesn't much improve the odds that you will succeed. "Research into entrepreneurs' personal traits says things like persistence and need for achievement explain only about 5 percent to 10 percent" of the difference between people who start companies and those who don't, according to Baum. "They are less important than external predictors like the spirit of the times, the economy, and changes within an industry.
Leaders from Austria to Turkey signed a breakthrough political agreement to transit natural gas through their countries in the European Union's planned Nabucco pipeline project aimed at reducing the EU's dependence on Russia.
Diplomats and energy-company officials involved with the project said Monday's agreement, signed in the Turkish capital Ankara, had brought Nabucco out of deep freeze, overcoming a long-running dispute over transit terms through Turkey and showing the political will to build it.
European Commission President Jose Manuel Barroso, right, Turkish Prime Minister Recep Tayyip Erdogan, and Georgia's President Mikheil Saakasvili leave the Nabucco Gas Pipeline signing ceremony in Ankara.
"We have started to confound the skeptics, the unbelievers," said European Commission President José Manuel Barroso. "Now that we have an agreement, I believe that this pipeline is inevitable rather than just probable."
But large question marks remain over where the gas will come from to fill the pipe, energy analysts say. Nabucco is scheduled to start delivering eight billion cubic meters of gas a year in 2014, and a maximum of 31 billion cubic meters, or 5% of EU consumption, thereafter. The pipeline would pass through Turkey, Bulgaria, Romania, Hungary and Austria.
Recent problems including disruptions of Russian gas supplies to the EU via Ukraine and last August's war in Georgia, a key transit country for Caspian oil and gas, have created more political will in the EU to build the pipeline first and then find the gas, said Jonathan Stern, director of gas research at the Oxford Institute for Energy Studies. But it isn't clear how this can be done.
"When will we have contracts that say: Yes, the gas will come from these fields and will go to these buyers and will start on this date?" he said. Without those certainties, financing the project will prove difficult if not impossible, he said.
Russia, which was invited to Monday's ceremony but didn't attend, remains opposed to Nabucco, favoring its own new pipelines. Russian President Dmitry Medvedev on Monday visited the Georgian separatist territory of South Ossetia. The tiny province was the starting point for a massive Russian military intervention last summer that left bomb craters around a major Western oil pipeline that passes through Georgia. President Medvedev's visit came in the wake of huge Russian military maneuvers just north of the Russian-Georgian border this month.
Companies involved in the Nabucco consortium say there has been real progress in financing and developing gas sources over the past year. Earlier this year, the EU committed €200 million ($279 million) in seed money for the €7.9 billion pipeline project. Development banks such as the European Bank for Reconstruction and Development are also getting involved.
"We are intending under the right circumstances to play a senior role," said Riccardo Puliti, EBRD business-group energy director.
Also present at Monday's signing were representatives from Iraq, Syria and Egypt, who said they are willing to supply Nabucco with gas. Azerbaijan and Turkmenistan made similar pledges Friday. "Iraq can provide around 15 billion cubic meters for EU countries via Turkish territory," said Iraq's Prime Minister Nouri al-Maliki, the Associated Press reported.
But Nabucco's consortium has been wrestling with the problem of how to find reliable supplies for the project for years. There is currently no means to deliver gas to Nabucco from Turkmenistan. Iran, a natural supplier, is politically problematic. Egypt has trouble supplying its domestic market.
"I think it will take the best part of 10 years to get pipeline connections and contracts to feed Nabucco," said Mr. Stern. You can read this article on WSJ:
http://online.wsj.com/article/SB124751200781234221.html
