How the Mighty Fall – Part 5

This post wraps up the series on the five stages of decline from Jim Collins’ latest book, How the Mighty Fall. The first four stages include:

The fifth stage of decline is “Capitulation to irrelevance or Death.” In this stage, Collins emphasizes an increasing spiral downward. “Each cycle–grasping followed by disappointment followed by more grasping–erodes resources. Cash tightens. Hope fades. Options narrow.” Because of this unrelenting cycle, the organization’s cash is depleted. Collins makes a basic yet very insightful observation: “Leaders in successful companies worry more about earnings. But organizations do not die from lack of earnings. They die from lack of cash.”

Collins notes that there are two versions of stage 5 decline: First, leaders entertain capitulation as a better solution rather than continuing to fight, or second, leaders continue to struggle but as they run out of options, the organization dies or “shrinks into utter irrelevance compared to its previous grandeur.” During this struggle, leaders have to face a sobering reality–does our organization deserve to last? “If you cannot marshal a compelling answer to the question, ‘What would be lost, and how would the world be worse off, if we ceased to exist?’ then perhaps capitulation is the wise path.”

Ultimately recovery from stage 5 will be extraordinarily difficult. And for recovery to have any kind of chance, leaders must understand that “The path to recovery lies first and foremost in returning to sound management practices and rigorous strategic thinking.” Collins sites IBM, Nucor, and Nordstrom as three companies that fell and then recovered (you’ll have to buy the book to see the observations Collins makes on these companies against the back drop of his Good to Great framework).

I close this post with one statement from Collins: “…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.”

Question: Are you anywhere in the five stages of decline? How do you know your answer is correct? (this is a tough question when the signs are not obvious).