"How the Mighty Fall" Explains Why Toyota's Floundering
By Michelle Krebs February 10, 2010Stefan Stern's management column in the Financial Times quotes from a book written by 
management guru Jim Collins, How the Mighty Fall, published last year. Collins also wrote the well-known bestseller, Good to Great.
The column and the book are particularly appropo as mighty Toyota flounders.
In the book, as cited by the FT, businesses pass through five key stages of decline or what Collins terms as the "arc of tragedy" -- a process by which "an all-conquering company like Toyota can be brought so low."
Stern simplifies as follows Collins' five stages -- ones other automakers (Ford, Fiat, Volkswagen, come to mind) would do well to note:
1 - Hubris born of success. "People begin to believe that success will continue almost no matter what the organization decides to do, or not do," Collins writes.
2 - Undisciplined pursuit of more. Big gets confused with great and not enough of the right people are sitting in the key seats. Core values get neglected. "This strains people, the culture and systems to the breaking point," Collins writes.
3 - Denial of risk and peril. Bad news is discounted or explained away. "Rather than confront the brutal realities, the enterprise chronically reorganizes."
4 - Grasping for salvation. Panicky moves -- maybe a big acquisition -- are made.
5 - Capitulation to irrelevance or death.
Stern notes that last fall Toyota's new chief executive Akio Toyoda had used words like "irrelevance." "We should have paid closer attention. He was telling us that something really bad had happened at his company," he writes.
In his book, Collins notes that corporate decline is like a disease that develops in small stages -- "harder to detect but easier to cure in the early stages, easier to detect but harder to cure in the later stages."
The lesson, he notes, is never be seduced by the glowing story people may tell about you. (In media terms, don't believe your press clippings.)
A business is neither as brilliant or as awful as people say. Its executives are rarely geniuses or morons, merely something in between. Luck and timing have more to do with companies' success than many realize or will admit.
Success is never guaranteed. Greatness is not indefinite. -- Michelle Krebs, Senior Analyst and Editor at Large
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Even gurus are wrong sometimes. In the book Good to Great, Mr. Collins lauded Circuit City.
That company went bankrupt a year ago.
Sounds like a good book. I may have to pick it up.
As an aside, Jared Diamond's books on anthropology have often been adapted to the business environment. The book Collapse is of particular interest to the subject of business. I've utilized that book countless times in my research.
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