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by
Jim Collins
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June 11 - July 30, 2019
don’t try to come up with the right answers; focus on coming up with good questions.
I’ve come to see institutional decline like a staged disease: harder to detect but easier to cure in the early stages, easier to detect but harder to cure in the later stages. An institution can look strong on the outside but already be sick on the inside, dangerously on the cusp of a precipitous fall.
When the rhetoric of success (“We’re successful because we do these specific things”) replaces penetrating understanding and insight (“We’re successful because we understand why we do these specific things and under what conditions they would no longer work”), decline will very likely follow.
When an organization grows beyond its ability to fill its key seats with the right people, it has set itself up for a fall.
In Stage 3, leaders discount negative data, amplify positive data, and put a positive spin on ambiguous data. Those in power start to blame external factors for setbacks rather than accept responsibility.
We will see hubris in a company’s pursuit of growth beyond what it can deliver with excellence.
in 60 percent of our matched pairs, the success-contrast company paid greater attention to improving and evolving its core business than the fallen company during the relevant era of comparison.
To disrespect the potential remaining in your primary flywheel—or worse, to neglect that flywheel out of boredom while you turn your attention to The Next Big Thing in the arrogant belief that its success will continue almost automatically—is hubris. And even if you face the impending demise of a core business, that’s still no excuse to let it just run on autopilot. Exit definitively or renew obsessively, but do not ever neglect a primary flywheel.
There’s nothing inherently wrong with adhering to specific practices and strategies (indeed, we see tremendous consistency over time in great companies), but only if you comprehend the underlying why behind those practices, and thereby see when to keep them and when to change them.
Like inquisitive scientists, the best corporate leaders we’ve researched remain students of their work, relentlessly asking questions—why, why, why?—and have an incurable compulsion to vacuum the brains of people they meet.
We’re successful because we understand why we do these specific things and under what conditions they would no longer work”).
innovation can fuel growth, but frenetic innovation—growth that erodes consistent tactical excellence—can just as easily send a company cascading through the stages of decline.
Packard’s Law states that no company can consistently grow revenues faster than its ability to get enough of the right people to implement that growth and still become a great company.
Any exceptional enterprise depends first and foremost upon having self-managed and self-motivated people—the #1 ingredient for a culture of discipline.
One notable distinction between wrong people and right people is that the former see themselves as having “jobs,” while the latter see themselves as having responsibilities.
The best leaders we’ve studied had a peculiar genius for seeing themselves as not all that important, recognizing the need to build an executive team and to craft a culture based on core values that do not depend upon a single heroic leader. But in cases of decline, we find a more pronounced role for the powerful individual, and not for the better.
while no leader can single-handedly build an enduring great company, the wrong leader vested with power can almost single-handedly bring a company down. Choose well.
the greatest danger comes not in ignoring clear and unassailable facts, but in misinterpreting ambiguous data in situations when you face severe or catastrophic consequences if the ambiguity resolves itself in a way that’s not in your favor.
When facing irreversible decisions that have significant, negative consequences if they go awry—what we might call “launch decisions”—the case for launch should require a preponderance of empirical evidence that it’s safe to do so.
When making risky bets and decisions in the face of ambiguous or conflicting data, ask three questions: 1. What’s the upside, if events turn out well? 2. What’s the downside, if events go very badly? 3. Can you live with the downside? Truly?
For businesses, our analysis suggests that any deterioration in gross margins, current ratio, or debt-to-equity ratio indicates an impending storm.
Stage 4 begins when an organization reacts to a downturn by lurching for a silver bullet.
The signature of mediocrity is not an unwillingness to change. The signature of mediocrity is chronic inconsistency.
In the entrepreneurial phase, leaders struggle just to get enough cash to become self-sustaining, but as an organization becomes big and successful, cash consciousness atrophies.
The point of the struggle is not just to survive, but to build an enterprise that makes such a distinctive impact on the world it touches, and does so with such superior performance, that it would leave a gaping hole—a hole that could not be easily filled by any other institution—if it ceased to exist.
To manufacture a crisis when none exists, to shriek that we’re all standing on a “burning platform” soon to collapse in a spectacular conflagration, creates cynicism. The right people will drive improvement, whether standing on a burning platform or not, and they never take well to manipulation.
The path to recovery lies first and foremost in returning to sound management practices and rigorous strategic thinking.
If you seek a refresher course on management discipline, it never hurts to review the classics, including Drucker, Porter, Deming, and Peters/Waterman. Of course, you have to stop the bleeding first and make sure you don’t run out of cash, but that’s simply emergency surgery, not full recovery.
lack of management discipline correlates with decline, and passionate adherence to management discipline correlates with recovery and ascent.
Our research shows that it is possible to build a great institution that sustains exceptional performance for multiple decades, perhaps longer, even in the face of chaos, disruption, uncertainty, and violent change. In fact, our research shows that if you’ve been practicing 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.
If you’ve fallen into decline, get back to solid management disciplines—now! And if you’re still strong, be vigilant for early markers of decline. But above all, do not ever capitulate to the idea that an era of success must inevitably be followed by decline and demise brought on by forces outside your control.
the main message of our work remains: we are not imprisoned by our circumstances, our setbacks, our history, our mistakes, or even staggering defeats along the way. We are freed by our choices.
Failure is not so much a physical state as a state of mind; success is falling down, and getting up one more time, without end.
Financial institutions have a peculiar relationship relative to Stages 3, 4, and 5. Because of the high levels of leverage that financial enterprises often use, a relatively small set of losses can create a potentially catastrophic loss. Financial institutions caught in a risk-gone-bad downward spiral can crash downward from Stage 3 right into Stage 5, sinking so fast that there remains little time to grasp for salvation.
enduring great companies passionately adhere to a set of timeless core values and pursue a core purpose beyond just making money. But there is also a risk to manage: having an almost righteous sense of one’s values and purpose (“We’re the good guys”) can perhaps make a company more vulnerable to Stages 1 to 3.
Whenever people begin to confuse the nobility of their cause with the goodness and wisdom of their actions—“We’re good people in pursuit of a noble cause, and therefore our decisions are good and wise”—they can perhaps more easily lead themselves astray.
Bad decisions made with good intentions are still bad decisions.
The moment you feel the need to tightly manage
someone, you might have made a hiring mistake.
THE RIGHT PEOPLE UNDERSTAND THAT THEY DO NOT HAVE “JOBS”; THEY HAVE RESPONSIBILITIES.
