Good to Bad and Back to Good (“How The Mighty Fall and How To Stay On Top”)
July 19, 2009
July 19, 2009
Back in 2001, Jim Collins wrote one of the most popular business books of all time, Good to Great – – why some companies make the leap and others don’t. Mr. Collins has written a new book that is sure to be another top seller entitled “How The Mighty Fall and Why Some Companies Never Give In.”
Since this is such a difficult time for so many trucking companies, and companies in other industries, I thought it would be interesting to look at some of themes that are highlighted in the book and relate them to examples that I have witnessed in the trucking industry. In the book, Mr. Collins outlines the “Five Stages of Decline.” One of the important messages is that a company “can be well into Stage 3 decline and still look and feel great, yet be on the cusp of a huge fall. Decline can sneak up on you and – – seemingly all of a sudden – – you can be in big trouble.”
However, “with a road map to decline in hand . . . (trucking companies) . . . heading . . . downhill might be able to apply the brakes early and reverse course.” Some companies in his study came “back even stronger – – after having crashed into the depths of Stage 4”. . . . Mr. Collins’ research indicates “that organizational decline is largely self-inflicted, and recovery largely within our own control. So long as you never fall all the way to Stage 5, you can rebuild.”
Very briefly here are the 5 Stages of Decline.
Stage 1: Hubris Born of Success
In stage 1, Mr. Collins asserts that some companies become arrogant and lose sight of the underlying factors that created success in the first place. Since luck and timing can often play a role in success, some companies tend to overestimate their own merit and capabilities and succumb to hubris. He expresses the view that strong leaders maintain their fear of failure and their discipline, even as their companies achieve success.
Stage 2: Undisciplined Pursuit of More
Hubris leads to an undisciplined pursuit of more – – more scale, more growth, more of whatever those in powers see as “success.” This has been quite evident in the trucking industry. There have been numerous examples of LTL service expansion in areas where the carrier had limited freight density. Both LTL and truckload carriers have been guilty of growth through aggressive pricing while drifting away from the pricing discipline that was a key to profits and growth through expansion into services and markets (e.g. flatbed, reefer) for which the company has no core competence.
Overreaching, making discontinuous leaps into areas that are inconsistent with core values is undisciplined. Addiction to scale is undisciplined. Leaping into new areas without one’s core competence is neglected in undisciplined.
Stage 3: Denial of Risk and Failure
In Stage 3, leaders begin receiving warning signs but discount them as “temporary,” “cyclic,” or “not that bad.” They discount the negative news while blaming external sources for their setbacks. “When those in power begin to imperil the enterprise by taking outsize risks and acting in a way that denies the consequences of those risks, they are headed straight for Stage 4.”
Stage 4: Grasping for Salvation
The consequences of drifting from Stages 1 through 3 are a sharp decline that is visible to all. Declining margins, customer erosion, employee defections can all be signs of a company in turmoil. Leaders who find themselves in these situations have two fundamental choices. They can lurch for a quick salvation or they can go back to the disciplined approach that brought about greatness in the first place. By grasping about in fearful, frantic reaction, late Stage 4 companies accelerate their own demise.
Stage 5: Capitulation to Irrelevance or Death
In Stage 5, the accumulated setbacks and misguided false starts erode financial strength and individual spirit to such an extent that leaders abandon all hope of building a great future. Mr. Collins argues that good leaders keep the faith and focus on a cause larger than survival and larger than themselves. They maintain the determination and discipline to take those actions, no matter how “excruciating”, to preserve the viability of the enterprise.
It is all about Leadership
The book looks at leadership and team behaviour on the way down and on the way up. In essence the message to business leaders is to remain humble, disciplined and fact-based. Leaders should challenge their team members to come forward with ideas and to engage in a constructive debate on the key drivers of the company. Every member of the team should accept some responsibility for poor results rather than engage in extensive finger-pointing. Clearly there are some valuable lessons in this very timely book that can help business leaders keep their companies on top and prevent them descending into a downward spiral.
Dan Goodwill, President, Dan Goodwill & Associates Inc. has over 30 years of experience in the logistics and transportation industries in both Canada and the United States. Dan has held executive level positions in the industry including President of Yellow Transportation’s Canada division, President of Clarke Logistics (Canada’s largest Intermodal Marketing Company), General Manager of the Railfast division of TNT and Vice President, Sales & Marketing, TNT Overland Express.
Goodwill is currently a consultant to manufacturers and distributors, helping them improve their transportation processes and save millions of dollars in freight spend. Mr. Goodwill also provides consulting services to transportation and logistics organizations to help them improve their profitability. All posts by Dan Goodwill