Saturday, June 16, 2012

How The Mighty Fall - Jim Collins 2/3


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Bill Gore, founder of W.L. Gore & Associates, articulated a helpful concept for decision making and risk taking, what he called the “waterline” principle. Think of being on a ship, and imaging that any decision gone bad will blow a hole in the side of the ship. If you blow a hole above the waterline (where the ship won’t take on water and possibly sink), you can patch the hole, and learn from the experience, and sail on. But if you blow a hole below the waterline, you can find yourself facing gushers of water pouring in, pulling you toward the ocean floor. And if it’s big enough hole, you might go down really fast, just like some of the financial-company catastrophes in 2008.
To be clear, great enterprises do make big bets, but they avoid big bets that could blow holes below the waterline. When making risky bets and decisions in the face of ambiguous or conflicting data, ask three questions:
1)      What’s the upside, if events turn out well?
2)      What’s the downside, if events go very badly?
3)      Can you live with the downside? Truly?

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The key point here is that they go for a quick, big solution or bold stroke to jump-start a recovery, rather than embark on the more pedestrian, arduous process of rebuilding long-term momentum.

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And when one silver bullet fails, they search for another and then yet another. The signature of mediocrity (the quality of being not very good 平庸) is not an unwillingness to change. The signature of mediocrity is chronic inconsistency.

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Now you might be thinking, “But wouldn’t companies in trouble need to go outside?” Perhaps, but keep in mind, in this analysis of decline, performance generally worsened under saviors from the outside. And in our previous research, over 90 percent of the CEPs that led companies from good to great came from inside; meanwhile, over two0thirds of the comparison companies in that study hired a CEP from the outside yet failed to make a comparable leap.

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When we find ourselves in trouble, when we find ourselves on the cusp of falling, our survival instinct  – and our fear – can evoke lurching, reactive behavior absolutely contrary to survival. The very moment when we need to talk calm, deliberate action, we run the risk of doing the exact opposite and bringing about the very outcomes we most fear.

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They fail to see that, just like Gerstner at IBM, leaders atop companies in the late stages of decline need to get back to a calm, clear-headed, and focused approach. If you want to reverse decline, be rigorous about what not to do.

Breathe. Calm yourself. Think. Focus. Aim. Take one shot at a time.

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When should a company continue to fight, and when does refusal to capitulate (to accept military defeat认输) become just another form of denial. 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. But if you have a clear and inspired purpose built upon solid core values, then the noble course may be to fight on, to reverse decline, and to try to rekindle greatness.

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In fact, our research shows that if you’ve been practicing the principles of greatness all the way along, you should get down your knees and pray for severe turbulence, for that’s when you can pull even further ahead of those who lack your relentless intensity.

If you have fallen into decline, get back to solid management disciplines – now!

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Clutching his notes, for he always feared that without his carefully prepared text he would be at a loss for words, Churchill (1874 – 1965, UK Prime Minister twice 1940–45 and 1951–55) glowered out across the House of Commons and issued his famous words, “We shall never surrender, and even if, which I do not for a moment believe, this Island or a large part of it were subjugate and starving, then our Empire beyond the seas, armed and guarded by the British Fleet, would carry on the struggle, until, in God’s good time, the New World, with all its power and might, steps forth to the rescue and the liberation of the old.”

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In 1941, during England’s sternest days, Churchill returned to his old school Harrow, where he’d received embarrassingly low scores, to give a commencement address. The headmaster cast worried glances at Churchill, who had fallen asleep, slumbering through most of the ceremony. But when introduced, Churchill made his way to the podium, stared out over the assemblage of boys, and gave his commencement message, “This is the lesson: never give in, never give in, never, never, never, never – in nothing, great or small, large or petty – never give in except to convictions of honour and good sense. Never yield to force; never yield to the apparently overwhelming might of the enemy.”

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Failure is not so much a physical state of mind; success is falling down, and getting up one more time, without end.

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Enduring great companies passionately adhere to a set of timeless core values and pursue a core purpose beyond just making money. But there is also a risk to manage: having an almost righteous sense of one’s value and purpose (“We’re the good guys”) can perhaps make a company more vulnerable to Stages 1 to 3. Fannie Mae’s missionary zeal for expanding the Americans Dream of home ownership to as many Americans as possible contributed, in part, to its arrogance, its pursuit of growth, and even its increased risk profile. Whenever people begin to confuse the nobility of their cause with the goodness and wisdom of their actions – “We’re good people in pursuit of a noble cause, and therefore our decisions are good and wise” – they can perhaps more easily lead themselves astray. Bad decisions made with good intentions are still bad decisions.

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

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