How The Mighty Fall - Jim Collins 1/3

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Joanne suggested I look at the first line of Talstoy’s novel Anna Karenina. It reads, “All happy families are alike; each unhappy family is unhappy in its own way.” In finishing this piece, I kept coming back to the Anna Karenina quote. Having studied both sides of the coin, how companies become great and how companies fall, I concluded that there are more ways to fall than to become great. Assembling a data-driven framework of decline proved harder than constructing a data-driven framework of ascent.

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Stage 1 kicks in when people become arrogant, regarding success virtually as an entitlement, and they lose sight of the true underlying factors that created success in the first place. When the rhetoric of success (We are successful because we do these specific things) replaces penetrating understanding and insight (We are successful because we understand why we do these specific things and under what conditions they would no longer work), decline will very likely follow.

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From 1982 to 1988, Best Buy opened forty superstores (what it called its Concept I stores) in the Midwest. In 1989, after systematically asking customers what would make for a better experience, Best Buy created its Concept II store model, which replaced a commission-driven sales culture with a consultative help-the-customer-find-the-best-answer culture. IN 1995, Best Buy created Concept III superstores chock-full of snazzy ways to learn about products – touchscreen information kiosks, simulated car interiors for checking out sound systems, CD listening ports to sample music, “fun & games areas for testing video games -  and then in 1999 moved on to Concept IV stores, designed to help customers navigate the confusing myriad of new electronics products flooding the market. Then it evolved yet again in 2002, and in 2003 added Geek Squads to help customers baffled by technology.

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It’s like being an artist. Picasso didn’t renew himself by abandoning painting and sculpture to become a novelist or a banker; he painted his entire life yet progressed through distinct creative phases – from his Blue Period to cubism to surrealism – within his primary activity. Beethoven didn’t “reinvent” himself by abandoning music for poetry or painting; he remained first and foremost a composer. But neither did he just write the Third Symphony nine times.

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Like an artist who pursues both enduring excellence and shocking creativity, great companies foster a productive tension between continuity and change. On the one hand, they adhere to the principles that produced success in the first place, yet on the other hand, they continually evolve, modifying their approach with creative improvements and intelligent adaptation. Best Buy understood this idea better than Circuit City, when it kept morphing its superstores yet did so in a manner consistent with the primary insight that produced success in the first place (customers really like having lots of name-brand stuff in an easy-to-navigate, low-price, and friendly environment). When institutions fail to distinguish between current practices and the enduring principles of their success, and mistakenly fossilize around their practice, they’ve set themselves up for decline.

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What happened? What distinguished Wal-Mart from Ames?

A big part of the answer lies in Walton’s deep humility and learning orientation. In the late 1980s, a group of Brazilian investors bought a discount retail chain in South America. After purchasing the company, they figured they’d better learn more about discount retailing, so they sent off letters to about ten CEOs of American retailing companies, asking for a meeting to learn about how to run the new company better. All the CEOs either declined or neglected to respond, except one: Sam Walton.

When the Brazilians deplaned at Bentonville, Arkansas, a kindly, white-haired gentleman approached them, inquiring, “Can I help you?”

“Yes, we’re looking for Sam Walton.”

“That’s me,” said the man. He led them to this pickup truck, and the Brazilians piled in alongside Sam’s dog, Ol’ Roy.

Over the next few days, Walton barraged the Brazilians with question after question about their country, retailing in Latin America, and so on, often while standing at the kitchen sink washing and drying dishes after dinner. Finally, the Brazilians realized, Walton - the founder of what may well become the world’s first trillion-dollar-per-year corporation sought first and foremost to learn from them, not the other way around.

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Bill Hewlett and David Packard believed that HP existed to make technical contributions, with profit serving as only a means and measure o f achieving that purpose. George Merck II, Paul Galvin, Bill Hewlett and David Packard – they viewed expanding and increasing scaled not as the end goal, but as a residual result, an inevitable outcome, of pursuing their purpose.

The greatest leaders do seek growth – growth in performance, growth in distinctive impact, growth in creativity, growth in people – but they do not succumb to growth that undermines long-term value. And they certainly do not confuse growth with excellence. Big does not equal great, and great does not equal big.

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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. Every person in a key seat should be able to respond to the question “What do you do?” not with a job title, but with a statement of personal responsibility. “I’m the one person ultimately responsible for x and y. When I look to the left, to the right, in front, in back, there is no one ultimately responsible but me. And I accept laboratory, I accept that responsibility.” When executive teams visit our research laboratory, I sometimes begin by challenging them to introduce themselves not by using their titles, but by articulating their responsibilities. Some find this to be easy, but those who have lost (or not yet built) a culture of discipline find this question to be terribly difficult.

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Convince anyone of what exactly? That’s the crux of the matter. Somehow, in all the dialogue, the decision frame turned 180 degrees. Instead of framing the question, “Can you prove that it’s safe to launch?”  -  as had traditionally guided launch decisions – the frame inverted to “Can you prove that it’s unsafe to lunch?”

Source: How The Mighty Fall & Why Some Companies Never Give In - Jim Collins (2009)