What We Can Learn from Failure

Getty Images

What We Can Learn from Failure

By Patricia O'Connell

In contrast to Jim Collins' previous books, Good to Great and Built to Last (co-authored with Jerry Porras), which examined corporate ascent, the newly published How The Mighty Fall focuses on corporate decline. Among the companies that come under the Collins' microscope are recently bankrupt Circuit City and early Xerox rival Addressograph. Data about the 11 "fallen" companies came from the Good to Great and Built to Last archives as well as from updated research.

Collins outlines five stages of decline: Hubris Born of Success, Undisciplined Pursuit of More, Denial of Risk and Peril, Grasping for Salvation, Capitulation to Irrelevance or Death. He makes the point that great companies can fall "even if engaged in energetic and ambitious activity" and notes that such was the case with 10 of the 11 (the exception being A&P). Companies can recover unless they reach the fifth and final stage.

The purpose of examining once-great companies, according to Collins, was to answer the two-part question: "What happened leading up to the point at which decline became visible, and what did the company do once it began to fall?" The other critical question: "What do we learn by studying the contrast between success and failure?" To that end, a set of "success contrasts" was constructed (e.g., Ames Department Store and Wal-Mart).

Read on to see examples of "fallen" behavior and what resulted.
Note: Each example is taken from one stage of decline and represents only one factor leading to the result.