JIM COLLINS’ latest book focuses on how companies fail, but it also offers a ray of hope for companies that are looking to rise after a fall. Great institutions, like great individuals, can fall and recover, he says. “As long as you never get completely knocked out of the game, there always remains some hope.”

In this work, Collins introduces a five-stage model to explain how companies fail. While the first two stages talk about the roots of corporate decline, the rest three dwell on management response to internal troubles.

How the Mighty Fall differs from his earlier works Good to Great and Built to Last in that it focuses on companies that fail - his previous two books were about the ascent of companies.

The author examines 11 companies that moved through the five different stages. He also contrasts the failure at these companies with the successes of their rivals, to arrive at a conclusion indicated earlier in the book, aptly summarised by quoting Leo Tolstoy: "All happy families are alike; each unhappy family is unhappy in its own way." Collins says that companies, in the current context, are like families.

In fact, the book draws inspiration from Collins’ mentor and Stanford professor Bill Lazier who used to tell him: “Don't try to come up with the right answers; focus on coming up with good questions.”

The big companies that were studied include Bank of America, Merck, Motorola, Hewlett Packard, Zenith, Texas Instruments, IBM and Circuit City. They were analysed either for their failure or success.   
The stages are classifed as hubris born of success, undisciplined pursuit for more, denial of risk and peril, grasping for salvation and capitulation to irrelevance and death.

In the first stage, companies that grow overestimate their merit and succumb to arrogance. And from there, they try to pursue more scale, more growth and more acclaim - they indulge in overreaching. In the third level, these companies, ignoring internal warnings, discount negative data. As a result, they head to the stage four in which they desperately look for silver bullet solutions.

It is at this stage that companies look for inspiring leaders as saviours or go for massive restructuring. There’s an interesting comparative study in the book of the fall of Hewlett Packard under famboyant Carly Fiorina and IBM’s revival when low-profle Louis V Gerstner, Jr was at the helm.

The author argues that “grasping” can produce a brief improvement, but its results do not last. “Dashed hope follows dashed hope follows dashed hope yet again,” he writes.

The book provides a good read, but at least a few readers may ask why some authors sound like prophets when what they do is write about growth in good times and about decline in bad times. Maybe Collins has an answer.

ULLEKH NP is consulting editor, CFO India. He has earlier worked with news organisations such as Mint, DNA, The Hindustan Times and India Today. Over the years, Ullekh has written on a wide range of subjects including politics, business, advertising, art, travel, culture and people.