The Sanford Berenberg Experience: Message of the Day - Diagnosis for a Pending Collapse

Good Morning,

My current read is “How the Mighty Fall and why some companies Never Give In” by Jim Collins (http://www.amazon.com/dp/0977326411/?tag=mh0b-20&hvadid=152062265&ref=pd_sl_47fluezm68_e). This book focuses on how great organizations collapse into irrelevance or nothingness, the warning signs and what can be done to address it before it is too late. I have also found these same principles apply to people like Jim Collin’s other books: “Good to Great” and “Built to Last” which he co-authored with Jerry Porras.

Jim Collins talks about five steps in the fall of great organizations. I understand that failure can come in many different forms and patters, but it is interesting to see there is a pattern which contains these many different forms of failure. Also, these steps do not include plain old stupidity or ignorance. Organizations who fall often are working very hard for what they feel is the best for their department or organization. That is, they think they are doing something smart. Knowingly doing something stupid seems to be outside the purview of this research (like cooking the books, or trying to game the system).

Stage 1: Hubris Born of Success. Here organizations are celebrating their successes and planning on building on them without necessarily understanding how they got there. They may think that they have the best management team or the best workers, but in reality, they succeeded through hard dedicated work with discipline and sticking to a plan. If they go forward without using what helped them get there, they could head down this path to stage 2.

Stage 2: Undisciplined Pursuit of More. Organizations start building. Empire builders get caught up in this one often. ‘Hey if one system works, let’s get three, or five’. ‘This location is doing great, let’s open up 100 more’. Expansion is good, but it must be planned and use the same discipline that helped us to get to where we now. Too much too fast is like mounting credit card debt.

Stage 3: Denial of Risk and Peril. In the first two stages, the organization is actually doing extremely well, but it is a false or unsustainable growth. That is where stage 3 comes in. It when the warning signs of going forward too far and too fast are purposefully ignored. ‘Everything is going so well, how could there be anything wrong?’ This is when the research into those signs needs to be taken seriously, or we find ourselves in stage 3.

Stage 4: Grasping for Salvation. This stage is like dynamic death throws or a drowning person grabbing at anything and everything for help. Here an organization is willing to do anything or try anything to help itself out of the rut it is in. The solution is again to plan and take defined and disciplined actions, often replicating what worked in the past.

Stage 5: Capitulation to Irrelevance or Death. The final stage is when the organization gives up the ghost and either closes its doors, or sells itself to someone else or continues on as a shell of its former self.

As mentioned above, not only do I see these stages working in organizations, I see them working in people’s lives. When we succeed at something or achieve a goal that we have wanted for some time, we can easily lose site of how we achieved the goal. We may thing that we are great and just did it. Like someone who plays at Carnegie Hall, to get there they practiced, practiced, practiced. When they finally got to Carnegie Hall they present themselves as a natural or prodigy. As a prodigy they try doing other things simply because they succeeded rather then by practicing a whole lot.

What I like most of about this book is that it shows there is hope for organizations and individuals who find themselves deep into Stage 3 and Stage 4.

It is like a diagnosis of a pending collapse.

Enjoy!

Sanford Berenberg

Sanford@berenberg.net

http://www.berenberg.net