Excerpt from Jim Collins’ “How the Mighty Fall”

Management guru Jim Collins (“Good to Great,” “Built to Last“) has published a new book “How the Mighty Fall,” which is featured as the cover story in the current issue of BusinessWeek. Unlike a lot of management pundits, Collins’ work is based on extensive research and analysis over many years. BusinessWeek excerpts a section of the book that highlights the warning signs that, left unchecked, indicate the possibility of failure.

And we’re not talking about a failed quarter or a failed product, but collossal corporate failure, on the scale of Motorola or Fannie Mae. As Collins eloquantly puts it, the signs of failure are hard to detect early on when it is easy to fix, and easy to detect in the late stages when its almost impossible to fix. Although many weak leaders blame the environment or competition, failure is really a corporate cancer that, left unchecked, progresses through five stages: hubris, undisciplined growth, denial of risk, grasping for salvation, and ultimately irrelevance or death.

As companies move into Stage 3, internal warning signs begin to mount, yet external results remain strong enough to “explain away” disturbing data or to suggest that the difficulties are “temporary” or “cyclic” or “not that bad,” and “nothing is fundamentally wrong.” In Stage 3, leaders discount negative data, amplify positive data, and put a positive spin on ambiguous data. Those in power start to blame external factors for setbacks rather than accept responsibility. The vigorous, fact-based dialogue that characterizes high-performance teams dwindles or disappears altogether.

Collins contrasts characteristics of leadership team behavior in healthy and unhealthy organizations. Having worked in both high-performance and highly dysfunctional organizations, I know that the differences in the style and approach of a management team can be striking. It’s as if you pass through the looking glass to some Bizarro world where the values are upside-down and everything becomes internally focused.

Teams on the way down:

• People shield those in power from unpleasant facts, fearful of penalties and criticism for shining light on the rough realities
• People assert strong opinions without providing data, evidence, or a solid argument
• The team leader has a very low questions-to-statements ratio, avoiding critical input and/or allowing sloppy reasoning and unsupported opinions
• Team members acquiesce to a decision but don’t unify to make the decision successful—or worse, undermine it after the fact
• Team members seek as much credit as possible for themselves, yet do not enjoy the confidence and admiration of their peers
• Team members argue to look smart or to further their own interests rather than argue to find the best answers to support the overall cause
• The team conducts “autopsies with blame,” seeking culprits rather than wisdom
• Team members often fail to deliver exceptional results and blame other people or outside factors for setbacks, mistakes, and failures

You may not see all of these behaviors in an organization, but if you see more than a few, you might be in an environment where it is increasingly difficult to prevent massive failure. In an unhealthty company, all of the warning systems are turned off and behavior is focused not on improving the situation but improving “the optics” of how things look. If your company has a pattern of repeated failure (inability to ship competitive products, declining revenues, steady quarterly losses, annual layoffs, declining market share, management turnover), it probably has more than a few of these behaviors baked into the management culture.

Collins also discusses what it takes to get the right people on board: those who are passionate and transparent and who deliver on their commitments. Not surprisingly, as a manager you spend a lot less time dealing with performance problems and politics when you have a good team. And even in late stages of decline, a company can reverse course for a powerful comeback. As Collins points out, most of the issues are self-inflicted. All it takes is the willingness to change. But sometimes you need to replace the CEO and management in order to make the change happen.