How the Mighty Fall_And Why Some Companies Never Give In

by Jim Collins

  (The principles in Stages 1 through 3 derive from the research for the book Good to Great by Jim Collins; the principles in Stage 4 derive from the book Built to Last by Jim Collins and Jerry I. Porras.)

  STAGE 1: DISCIPLINED PEOPLE

  LEVEL 5 LEADERSHIP: Level 5 leaders are ambitious first and foremost for the cause, the organization, the work—not themselves—and they have the fierce resolve to do whatever it takes to make good on that ambition. A Level 5 leader displays a paradoxical blend of personal humility and professional will.

  FIRST WHO, THEN WHAT: Those who build great organizations make sure they have the right people on the bus, the wrong people off the bus, and the right people in the key seats before they figure out where to drive the bus. They always think first about “who” and then about what.

  STAGE 2: DISCIPLINED THOUGHT

  CONFRONT THE BRUTAL FACTS—THE STOCKDALE PARADOX: Retain unwavering faith that you can and will prevail in the end, regardless of the difficulties, and at the same time have the discipline to confront the most brutal facts of your current reality, whatever they might be.

  THE HEDGEHOG CONCEPT: Greatness comes about by a series of good decisions consistent with a simple, coherent concept—a “hedgehog concept.” The hedgehog concept is an operating model that reflects understanding of three intersecting circles: what you can be the best in the world at, what you are deeply passionate about, and what best drives your economic or resource engine.

  STAGE 3: DISCIPLINED ACTION

  CULTURE OF DISCIPLINE: Disciplined people who engage in disciplined thought and who take disciplined action—operating with freedom within a framework of responsibilities: this is the cornerstone of a culture that creates greatness. People do not have jobs; they have responsibilities.

  THE FLYWHEEL: There is no single defining action, no grand program, no one killer innovation, no solitary lucky break, no miracle moment. Rather, the process resembles relentlessly pushing a giant heavy flywheel, turn upon turn, building momentum until a point of breakthrough, and beyond.

  STAGE 4: BUILDING GREATNESS TO LAST

  CLOCK BUILDING, NOT TIME TELLING: Truly great organizations prosper through multiple generations of leaders, the exact opposite of being built around a single great leader, great idea, or specific program. Leaders in great organizations build catalytic mechanisms to stimulate progress and do not depend upon having a charismatic personality to get things done; indeed, many have had a “charisma bypass.”

  PRESERVE THE CORE/STIMULATE PROGRESS: Enduring great organizations are characterized by a fundamental duality. On the one hand, they have a set of timeless core values and core reason for being that remain constant over long periods of time. On the other hand, they have a relentless drive for change and progress—a creative compulsion that often manifests in BHAGs (Big Hairy Audacious Goals). Great organizations keep clear the difference between their core values (which never change) and operating strategies and cultural practices (which endlessly adapt to a changing world).

  Notes

  The pagination of this electronic edition does not match the edition from which it was created. To locate a specific passage, please use the search feature of your e-book reader.

  1. Joseph A. Tainter, The Collapse of Complex Societies (New York: Cambridge University Press, 1988), 5, 6, 8–12, 128–152.

  2. Andrew Hill and John Wooden, Be Quick—But Don’t Hurry (New York: Simon & Schuster, 2001), 191.

  3. United States Geological Survey, “The Great 1906 San Francisco Earthquake,” Earthquake Hazards Program, http://earthquake.usgs.gov/regional/nca/1906/18april/index.php; A. W. Clausen, “Bank of America: The Largest Bank Was Once a Plank on the Waterfront,” Nation’s Business, January 1971, 54.

  4. Joseph H. Harper, “Observations of the San Francisco Earthquake” The Virtual Museum of the City of San Francisco (delivered before the Montana Society of Engineers, January 11, 1908), http://www.sfmuseum.org/1906/harper.html; E. E. Schmitz, “Proclamation by the Mayor,” The Virtual Museum of the City of San Francisco (on April 18, 1906), http://www.sfmuseum.org/1906.2/killproc.html; Gary Hector, Breaking the Bank: The Decline of BankAmerica (Boston: Little, Brown & Company, 1988), 25, 36; A. W. Clausen, “Bank of America: The Largest Bank Was Once a Plank on the Waterfront,” Nation’s Business, January 1971, 54.

  5. Gary Hector, Breaking the Bank: The Decline of BankAmerica (Boston: Little, Brown & Company, 1988), 32, 50, 62.

  6. “A. W. Clausen: Banking on Stability at BankAmerica,” Financial World, March 15, 1978, 24; “BankAmerica and Citicorp: The New Banking Forces New Strategies,” BusinessWeek, July 13, 1981, 56.

  7. David W. Ewing and Pamela M. Banks, “Listening and Responding to Employees’ Concerns: An Interview with A. W. Clausen,” Harvard Business Review, January/February 1980, 101.

  8. G. Christian Hill, “BankAmerica Posts a Record Loss of $640 Million for Second Period,” Wall Street Journal, July 17, 1986; Richard B. Schmitt, “BankAmerica Denies Rumors on Health As Speculation Briefly Depresses Dollar,” Wall Street Journal, September 17, 1986; Stock returns source: ©200601 CRSP®, Center for Research in Security Prices. Graduate School of Business, The University of Chicago. Used with permission. All rights reserved. www.crsp.chicagobooth.edu; Richard B. Schmitt, “BankAmerica Denies Rumors on Health As Speculation Briefly Depresses Dollar,” Wall Street Journal, September 17, 1986; G. Christian Hill, “BankAmerica Cuts Quarterly Payout By 47% in Wake of 2nd-Period Loss,” Wall Street Journal, August 6, 1985; Jonathan B. Levine, “Clausen May Be the Safe Choice, But Is He the Right One?” BusinessWeek, October 27, 1986, 108; Victor F. Zonana, “BankAmerica Considers Sale of Headquarters,” Wall Street Journal, November 19, 1984; “BankAmerica Completes San Francisco Offices’ Sale,” Wall Street Journal, October 2, 1985; G. David Wallace and Jonathan B. Levine, “BofA Is Becoming The Incredible Shrinking Bank,” BusinessWeek, January 27, 1986, 78; Gary Hector, Breaking the Bank: The Decline of BankAmerica (Boston: Little, Brown & Company, 1988), 219–223; “Founder’s Daughter Quits BankAmerica Post,” Wall Street Journal, March 8, 1985; G. Christian Hill and Richard B. Schmitt, “Salvage Operation: Autocrat Tom Clausen Faces Formidable Task To Save BankAmerica, Wall Street Journal, October 17, 1986; Robert M. Bleiberg, “What Price BankAmerica? Better Stewards (Corporate or Otherwise) Went Down on the Titanic,” Barron’s, July 21, 1986, 9.

  9. Michael Kolbenschlag, “No Time For A Gentleman,” Forbes, December 22, 1980, 33.

  10. Victor F. Zonana and Kathryn Christensen, “Budging the Giant,” Wall Street Journal, May 20, 1982; “BankAmerica Plans to Acquire Charles Schwab,” Wall Street Journal, November 25, 1981; Victor F. Zonana, “The Porches and Saabs at Schwab Aggravate Some at BankAmerica,” Wall Street Journal, January 20, 1983; “BankAmerica Corp.’s Takeover of Seafirst Took Effect Today,” Wall Street Journal, July 1, 1983, 2; Victor F. Zonana, “Seafirst Holders Clear BankAmerica Bid For Largest Interstate Banking Takeover,” Wall Street Journal, June 29, 1983; Gary Hector, “More than Mortgages Ails BankAmerica,” Fortune, April 1, 1985, 50; “BofA’s Brash Fight to Build Deposits,” BusinessWeek, January 17, 1983, 98.

  11. Victor F. Zonana, “Budging the Giant,” Wall Street Journal, May 20, 1982, 1; Victor F. Zonana, “Stirring Giant: BankAmerica Corp., Seeking a Turnaround, Seems to Gain Ground,” Wall Street Journal, January 27, 1984.

  12. Victor F. Zonana, “The Porches and Saabs at Schwab Aggravate Some at BankAmerica,” Wall Street Journal, January 20, 1983.

  13. “BofA’s Brash Fight to Build Deposits,” BusinessWeek, January 17, 1983, 98; G. Christian Hill and Mike Tharp, “Stumbling Giant: Big Quarterly Deficit Stuns BankAmerica, Adds Pressure on Chief,” Wall Street Journal, July 18, 1985; Gary Hector, “More than Mortgages Ails BankAmerica,” Fortune, April 1, 1985, 50.

  14. G. Christian Hill and Mike Tharp, “Stumbling Giant: Big Quarterly Deficit Stuns BankAmerica, Adds Pressure on Chief,” Wall Street Journal, July 18, 1985.

  15. George E. P. Box, J. Stuart Hunter, and
William G. Hunter, Statistics for Experimenters: Design, Innovation, and Discovery, 2nd Edition (Hoboken: John Wiley, 2005), 440.

  16. Jill Bettner, “ ‘Underpromise, Overperform,’” Forbes, January 30, 1984, 88; Robert W. Galvin, The Idea of Ideas (Schaumburg, IL: Motorola University Press, 1991), 165.

  17. Roger O. Crockett and Peter Elstrom, “How Motorola Lost Its Way,” BusinessWeek, May 4, 1998, 140.

  18. Roger O. Crockett, “A New Company Called Motorola,” BusinessWeek, April 17, 2000, 86; Rajiv Chandrasekaran, “Motorola’s Next Page,” Washington Post, September 29, 1996; Peter Elstrom, “Motorola Goes for the Hard Cell,” BusinessWeek, September 23, 1996, 39; “Gartner Dataquest Says Worldwide Mobile Phone Sales in 2001 Declined for First Time in Industry’s History,” Gartner Press Release, March 11, 2002, http://www.gartner.com/5_about/press_releases/2002_03/pr20020311a.jsp; Peter Coy and Ron Stodghill, “Is Motorola a Bit Too Patient?” BusinessWeek, February 5, 1996, 150.

  19. J. Rufus Fears, Books That Have Made History: Books That Can Change Your Life (Chantilly, VA: The Teaching Company Limited Partnership, 2005), audiotapes of lectures by J. Rufus Fears, Part 1, Lecture 2.

  20. Motorola, Inc., “Financial Highlights,” 2001 Summary Annual Report (Schaumburg, IL: Motorola, Inc., 2002), 3; Motorola, Inc., “Financial Highlights,” 2003 Annual Report (Schaumburg, IL: Motorola, Inc., 2004), 3.

  21. Source: ©200601 CRSP®, Center for Research in Security Prices. Graduate School of Business, The University of Chicago. Used with permission. All rights reserved. www.crsp.chicagobooth.edu.

  22. Howard Rudnitsky, “Would You Buy A Used Car From This Man?” Forbes, October 23, 1995, 52; Tim W. Ferguson, “Sofa With Your Stereo, Sir?” Forbes, July 7, 1997, 46.

  23. John R. Wells, “Circuit City Stores, Inc.: Strategic Dilemmas,” Harvard Business School, case study #9-706-419 (Boston: Harvard Business School Publishing, 2005), 7; Rob Landley, “DIVX Post Mortem,” Motley Fool, June 21, 1999, http://www.fool.com/portfolios/rulemaker/1999/RuleMaker990621.htm.

  24. “Richard L. Sharp—Circuit City Stores, Inc.—CEO Interview,” The Wall Street Transcript, November 2, 1998, 1.

  25. Peter Spiegel, “Car Crash,” Forbes, May 17, 1999, 130.

  26. De’Ann Weimer, “The Houdini of Consumer Electronics,” BusinessWeek, June 22, 1998, 88; Dorothy Leonard and Brian DeLacey, “Best Buy Co. Inc. (A): An Innovator’s Journey,” Harvard Business School, case study #9-604-043 (Boston: Harvard Business School Publishing, 2005).

  27. John R. Wells and Travis Haglock, “Best Buy Co., Inc.: Competing on the Edge,” Harvard Business School, case study #9-706-417 (Boston: Harvard Business School Publishing, 2007).

  28. Best Buy Co., Inc., Fiscal 2003 Annual Report (Richfield, MN: Best Buy Co., Inc., 2003); Best Buy Co., Inc., Fiscal 2001 Annual Report (Minneapolis: Best Buy Co., Inc., 2001); John R. Wells and Travis Haglock, “Best Buy Co., Inc.: Competing on the Edge,” Harvard Business School, case study #9-706-417 (Boston: Harvard Business School Publishing, 2007); Balaji Chakravarthy and V. Kasturi Rangan, “Best Buy,” Harvard Business School, case study #9-598-016 (Boston: Harvard Business School Publishing, 1997); Best Buy Co., Inc., 1996 Annual Report (Minneapolis: Best Buy Co., Inc., 1996); Dorothy Leonard and Brian DeLacey, “Best Buy Co. Inc. (A): An Innovator’s Journey,” Harvard Business School, case study #9-604-043 (Boston: Harvard Business School Publishing, 2005); Dale Kurschner, “Best Buy Harder,” CRM, August 1997, 67; Best Buy Co., Inc., 1999 Annual Report (Minneapolis: Best Buy Co., Inc., 1999); Best Buy Co., Inc., 2003 Annual Report (Richfield, MN: Best Buy Co., Inc., 2003); Best Buy Co., Inc., 2006 Annual Report (Richfield, MN: Best Buy Co., Inc., 2006).

  29. Calculation based on 1997 and 2006 revenues of Best Buy and Circuit City, taking half of the increase in revenues Best Buy achieved from 1997 to 2006 and adding that amount to Circuit City’s 2006 revenues.

  30. Balaji Chakravarthy and V. Kasturi Rangan, “Best Buy,” Harvard Business School, case study #9-598-016 (Boston: Harvard Business School Publishing, 1997); Source: ©200601 CRSP®, Center for Research in Security Prices. Graduate School of Business, The University of Chicago. Used with permission. All rights reserved. www.crsp.chicagobooth.edu.

  31. “Pinching 500 Billion Pennies,” Fortune, March 1963, 105.

  32. William I. Walsh, The Rise and Decline of the Great Atlantic & Pacific Tea Company (Secaucus, NJ: Lyle Stuart, Inc., 1986), 78–81.

  33. William I. Walsh, The Rise and Decline of the Great Atlantic & Pacific Tea Company (Secaucus, NJ: Lyle Stuart, Inc., 1986), 78; Eleanor Johnson Tracy, “How A&P Got Creamed,” Fortune, January 1973, 103.

  34. Peter Z. Grossman, “A&P: Should You Invest Along with the Germans?” Financial World, February 15, 1979, 16.

  35. Ames Department Stores Inc., “Letter to Shareholders,” 1987 Annual Report to Stockholders (Rocky Hill, CT: Ames Department Stores, Inc., 1988).

  36. Elizabeth Rourke (updated by David E. Salamie), “Ames Department Stores, Inc.” International Directory of Company Histories 30 (New York: St. James Press, 2000), 54.

  37. William Mehlman, “Ames Strikes Discounting Gold in Exurban America,” The Insiders’ Chronicle 6, no. 46 (November 16, 1981): 1; Peter Hisey, “Herb Gilman: ‘The Concept Is So Simple’,” Discount Store News 27, no. 11 (May 23, 1988): 49; “Ames: Small-Town Discount Giant Trading Up, Not Away From Roots,” Chain Store Age, February 1982, 25; Jeff Malester, “Ames Aims at Growth by Changing Image,” Retailing Home Furnishings 57 (August 22, 1983): 6; Al Heller, “Gilman’s Informality Spurs Creativity, Growth at Ames,” Discount Store News 24 (August 19, 1985): 1.

  38. Source: ©200601 CRSP®, Center for Research in Security Prices. Graduate School of Business, The University of Chicago. Used with permission. All rights reserved. www.crsp.chicagobooth.edu.

  39. Elizabeth Rourke (updated by David E. Salamie), “Ames Department Stores, Inc.,” International Directory of Company Histories 30 (New York: St. James Press, 2000), 54; Wal-Mart Stores, Inc., “History Timeline,” Wal-Mart: History, http://walmartstores.com/AboutUs/297.aspx.

  40. Source: ©200601 CRSP®, Center for Research in Security Prices. Graduate School of Business, The University of Chicago. Used with permission. All rights reserved. www.crsp.chicagobooth.edu.

  41. Personal conversation with author.

  42. Steven Jacober, “Ames Redefines Itself at $2 Billion,” Discount Merchandiser, August 1988, 22; Peter Hisey, “Herb Gilman: ‘The Concept Is So Simple,’” Discount Store News 27, no. 11 (May 23, 1988): 49.

  43. Ames Department Stores, Inc., “Letter to Shareholders,” 1988 Annual Report to Stockholders (Rocky Hill, CT: Ames Department Stores, Inc., 1989); Eric N. Berg, “Ames’s Rocky Retailing Marriage,” New York Times, April 11, 1990.

  44. Source: ©200601 CRSP®, Center for Research in Security Prices. Graduate School of Business, The University of Chicago. Used with permission. All rights reserved. www.crsp.chicagobooth.edu.

  45. Mike Duff, “Discount Veteran Ames to Liquidate After 44 Years,” DSN Retailing Today 41, no. 16 (August 26, 2002): 1.

  46. Ames Department Stores, Inc., “Letter to Shareholders,” 1988 Annual Report to Stockholders (Rocky Hill, CT: Ames Department Stores, Inc., 1989); Joseph Pereira, “Digesting Zayre Gives Ames Heartburn,” Wall Street Journal, December 28, 1989; Eric N. Berg, “Ames’s Rocky Retailing Marriage,” New York Times, April 11, 1990; Pete Hisey, “What Went Wrong at Ames?” Discount Store News 29, no. 9 (May 7, 1990): 1.

  47. Motorola, Inc., 1995 Summary Annual Report (Schaumburg, IL: Motorola, Inc., 1996).

  48. John Simons, “Will R&D Make Merck Hot Again?” Fortune, July 8, 2002, 89.

  49. “HP Files 5,000 Patent Applications Worldwide in 2001,” HP Press Release (Palo Alto: Hewlett-Packard Company), February 6, 2002.

  50. Alan Farnham, “America’s Most Admired Company,” Fortune, February 7, 1994, 50; Marshall Loeb, “How To Grow A New Product Every Day,” Fortune, November 14, 1994, 269.

  51. “Where Do They
Get All Those Ideas?” Machine Design, January 26, 1995, 40; Lornet Turnbull, “Ohio-Based Rubbermaid Inc. Heeds Findings from Consumer Focus Groups,” Akron Beacon Journal, February 18, 1996.

  52. Wolfgang R. Schmitt, “A Growth Strategy,” Executive Excellence, August 1994, 17; Tricia Welsh, “Best and Worst Corporate Reputations,” Fortune, February 7, 1994, 58; Alan Farnham, “America’s Most Admired Company,” Fortune, February 7, 1994, 50; Marshall Loeb, “How To Grow A New Product Every Day,” Fortune, November 14, 1994, 269; Lornet Turnbull, “Ohio-Based Rubbermaid Inc. Heeds Findings from Consumer Focus Groups,” Akron Beacon Journal, February 18, 1996.

  53. Lee Smith, “Rubbermaid Goes Thump,” Fortune, October 2, 1995, 90; Geoffrey Colvin, “From the Most Admired to Just Acquired: How Rubbermaid Managed to Fail,” Fortune, November 23, 1998, 32.

  54. Glen Gamboa, “Rubbermaid Corp. Is Proposing a Nice, Neat Solution,” Akron Beacon Journal, October 22, 1998; Glen Gamboa, “Rubbermaid Seeks Boost Through ‘Solutions’ Marketing,” Akron Beacon Journal, July 28, 1997; Raju Narisetti, “Rubbermaid’s Plan to Buy Graco Is Eclipsed by Poor Profit Forecast,” Wall Street Journal, September 5, 1996; “Rubbermaid Completes Acquisition,” Discount Store News 35, no. 21 (November 4, 1996): 43; Claudia H. Deutsch, “A Giant Awakens, To Yawns: Is Rubbermaid Reacting Too Late?” New York Times, December 22, 1996; Matt Murray, “Rubbermaid Tries to Regain Lost Stature,” Wall Street Journal, December 6, 1995; Susan Sowa, “Restructuring May Salvage Rubbermaid,” Rubber & Plastics News 25, no. 10 (December 18, 1995): 7; Lornet Turnbull, “Ohio-Based Rubbermaid Inc. Heeds Findings from Consumer Focus Groups,” Akron Beacon Journal, February 18, 1996.

  55. Geoffrey Colvin, “From the Most Admired to Just Acquired: How Rubbermaid Managed to Fail,” Fortune, November 23, 1998, 32; Glenn Gamboa, “Rubbermaid Corp. Is Proposing a Nice, Neat Solution,” Akron Beacon Journal, August 6, 1997; “Buy Merges Rubbermaid’s Products, Newell’s Management,” Akron Beacon Journal, October 22, 1998; Claudia H. Deutsch, “Newell Buying Rubbermaid in $5.8 Billion Deal,” New York Times, October 22, 1998.