Wednesday, August 12, 2009

Clawing way back to top

When General Motors filed for bankruptcy American humorist P J O’Rourke cried his heart out in the Wall Street Journal. “The phrase ‘bankrupt General Motors’, leaves Americans my age in economic shock. The words are as melodramatic as ‘Mom’s nude photos’.” For the hardened souls (read sceptics), incontrovertible proof of the battered state of the auto industry was available on that week’s cover of The Economist, which had a stripped-down dinosaur with all auto parts attached and a headline screaming “Detroitosaurus”. In the wake of such tumultous times comes Jim Collins’ small book titled How the Mighty Fall. Before the title puts you off with its the-great-depression-is-upon-us undertones, the sub-title should be encouraging — “And Why Some Companies Never Give In”.

Collins tries to create a cocktail of optimism and pessimism through five steps, which are self-explanatory, that encapsulates any company’s decline. In the exact order it is: Hubris born of success, undisciplined pursuit of more, denial of risk and peril, grasping for salvation, and capitulation to irrelevance or death. Whether the cocktail is potent or toxic is something that depends on the reader’s taste.

Collins’ research is impeccable and that’s apparent in the fact that one-eighth of the book is dedicated to notes and sources. His case studies are hard to better, be it the one on Motorola or Zenith or Circuit City. Collins provides perspective that is not run-of-the-mill. According to his hypothesis, a company can go through the four stages and still rebound to the top, like Xerox did. But if it reaches stage five, its further route would only be southwards. Case in point: Zenith.

Collins, who has authored bestsellers like Good to Great and Built to Last starts from where he left in Built to Last. That is irritating, to say the least. Every now and then, he invokes the two books, only to confound the reader. His entire methodology of choosing the companies has been borrowed from his earlier works. Collins, of course, paid interest with generous references to the books.

He falters, however, maybe due to the millstone of previous works around his neck. He gives simplistic differences between a company that made it big after reaching stage 4 and one that didn’t. Everything is binary, either one or zero, nothing in between. And that’s the major flaw. Collins’ examples are the companies that were already chronicled in his previous books. Instead, he could have taken a look at the demise of Long Term Capital Management in 1998 and spoken about the lessons to learn. It’s apparent that the current recession is a vast reprise of LTCM, although this time the banks played the lead roles instead of a hedge fund.

Perhaps Collins should have steered clear of the recession, as he mentions at the beginning. But he was just too busy making the book as relevant as possible to the current times by putting the fall of Bear Stearns, Fannie Mae and Lehman Brothers into context. An energy that he could easily have expended on writing about CEOs who make for fascinating case studies in the book. At a time when CEOs are asked to follow the Japanese example and “either resign or go commit suicide”, reading about Anne Mulcahy who achieved an amazing turnaround by reviving a an on-the-brink Xerox to a profit-making company, is awe-inspiring. One wonders why these days so few think that “a crisis is a terrible thing to waste”.

Maybe the answers lie in Collins’ previous works.