Book Talk: How The Mighty Fall (and why some companies never give in) Authored by Jim Collins By Dr T.H.Chowdary *Director, Center for Telecom Management

Book Talk: How The Mighty Fall

(and why some companies never give in) Authored by Jim Collins

ByDr T.H.Chowdary

*Director, Center for Telecom Management & Studies* Chairman, Pragna Bharati (Intellect India) , AP

*Fellow, Tata Consultancy ServicesFormerly: Chairman & Managing DirectorVidesh Sanchar Nigam Limited, Bombay

T: +91(40) 6667-1191(O)2784-3121®F: +91(40) 6667-1111(O)

[email protected]

Talk @ TCS, Hyd: 22 Jan 2010

S436_Jan2010 2THC_CTMS

Companies that are History

Arbuthnot & Co - Tulip Bubble

AT&T; Siemens, RCA, Zenith, Hindustan Teleprinters, Hindustan Cables, Hindustan Antibiotics *General Motors – Pan Am Airways

Jayanthi Shipping * Mundhras British India

Enron Fannies Nay * Bank of America; AMES...

Citicorp *Gen Motors * Pan Am

Krishi & Prudential, Palai Central Bank vs Charminar; Global Trust Bank

AT&T, WorldCom (Data Com)

Maddoff -SE non-Ex Executive Chairman

Satyam (Tech Mahindra)





Stage #1Hubris Born of Success

• Success Entitlement Arrogance

• Neglect of a primary fly-wheel

• What replaces why

• Decline in learning orientationDiscounting the role of luck ( P.43)


Hubris Hubris= Excessive Pride that brings down a

hero or outrageous arrogance that inflicts suffering upon the innocent

Motorola bean Y2001 with 147,000 employees. End Y 2003- dropped to 88,000 stock prices came down by 50%

Decline in learning orientation


Stage#2Undisciplined Pursuit of More

• Unsustainable Quest for Growth,confusing big with great

• Undisciplined discontinuous leaps

• Declining proportion of right people in key Seats

• Easy cash erodes cost discipline

• Bureaucracy subverts discipline

• Problematic succession of power

• Personal interest placed above organisation's interest (P.63)


Why Turmoil seizes a Company

• A domineering leader fails to develop strong successors (or drives strong successors away), and thereby creates a leadership vacuum when he or she steps away.

• An able executive dies or departs unexpectedly, with no strong replacement to step smoothly into the role

• Strong successor candidates turn down the opportunity to become CEO

• Strong successor candidates unexpectedly leave the company

• The board of directors is acrimoniously divided on the designation of a leader, creating an adversarial “we” and “they dynamic at the top.


Why Turmoil seizes a Company ...contd

• Leaders stay in power as long as they can and then pass the company to leaders who are late in their careers and assume a caretaker role

• Monarchy-style family dynamics favor family members over non-family members, regardless of who would be the best leader

• The board brings in a leader from the outside who doesn't fit the core values, and the leader is rejected by the culture like a virus

• The company chronically fails at getting CEO selection right


Stage#3Denial of Risk & Peril

• Amplify the positive discount the negation

• Big bets and bold goals w/o empirical validation (Merck vioxx, Iridium Satphone)

• Incurring huge downside risk based on ambiguous data

• Externalisign blame

• Obsessive reorganisations (AT&T)

• Imperious detachment

(D P 77/78 & P.81)


Stage#3: Denial of Risk & PerilImperious detachment

...contdTeams on the Way Down Teams on the Way Up

People shield those in power from grim facts, fearful of penalty and criticism for shining light on the harsh realities

People bring forth unpleasant facts – 'Come here, look, man, this is ugly” - to be discussed; leaders never criticize those who bring forth harsh realities

People assert strong opinions without providing data, evidence, or a solid argument.

People bring data, evidence, logic and solid arguments to the discussion.

The team leader has a very low questions-to-statements ratio, avoiding critical input and/or allowing sloppy reasoning and unsupported opinions.

The team leader employs a Socratic style, using a high questions-to-statements ratio, challenging people, and pushing for penetrating insight.

Team members acquiesce to a decision yet do not unify to make the decision successful, or worse, undermine the decision after the fact.

Team members unify behind a decision once made and work to make the decision succeed, even if they vigorously disagreed withteh decision.


Stage#3: Denial of Risk & PerilImperious detachment

...contdTeams on the Way Down Teams on the Way Up

Team members seek as much credit as possible for themselves yet do not enjoy the confidence and admiration of their peers

Each team member credits other people for success yet enjoys the confidence and admiration of his or her peers

Team members argue to look smart or to improve their own interests rather than argue to find the best answers to support the overall cause.

Team members argue and debate, not to improve their personal position, but to find the best answers to support the overall cause.

To team conducts “autopsies with blame,” seeking culprits rather than wisdom.

The team conducts 'autopsies with out blame,” mining wisdom from painful experiences

Team members often fail to deliver exceptional results, and blame other people or outside factors for setbacks, mistake, and failures.

Each team member delivers exceptional results, yet in the event of a setback, each accepts full responsibility and learns from mistakes.


Stage#4Gasping for Salvation

• A series of silver bullets

• Grasping for a leader as a saviour (HPs July 19,1999 Carly Fiorina from Lucent) P-85

• Panic& haste

• Radical change & Revolution with fanfare

• Hype precedes results

• Initial upswing followed by disappointments

• Confusion & cynicism

• Chronic Restructuring &Erosion of financial strength (P.100)


Circuit City (used car business)

• Grew >20% p.a; grew to 10 times in a decade 1998 Wall Street Journal praised the CEO 10-11-2008 filed for Bankruptcy Best Corporate leaders relently ask questions

Why, Why, Why & have an incurable compulsion to vaccum the brains of people they meet .

To be a knowing person is fundamentally different from


Ames & Wall Mart

Ames began in 1958 Wall Mart in 1962 ( Sam Walton) Ames grew in the NE Wall Mart in mid South 1973-'86 both grew alike, generating returns over

NINE times the market Y2008 – Ame dead & gone Wall Mart; No#1 on

Fortune 500; $ 379 billion (Rs. 19 lakh crores) Walton: Humility & learning Orientation (story on P.

40/41) Motto: to enable people of average means to buy

more of the same


Motorola

Motorola increased its patents from 613 to 1016 from 1991 to 1995

It said, “We rank no# 3 in patent productivity in the US .

Merck patented 1933 new compounds during 1996-2002, yet declined

In 1999 HP launched its “Invent” campaign & nearly doubted its patent applications in two years; just as it spiraled into stage 4 decline (gasping for salvation)


Motorola…contd

• Motorola bought Gen Inst Corpn for $17 bln

• Jumped into Internet & broadband frenzy

• Built a global cost structure for revenues of $ 45 bln but 2001 Revs. Crashed to $ 30 bln

• Y 2003 got Sun Microsystems Ed Zander as CEO, hounded by share holders, stepped down 4Y later in 2007. (P. 92/93)


Fall of Iridium(Motorola's child)

• 1985 Idea of a Motorola engineer's wife's idea while on vacation in Bahamas cellphone did not work; so satellite phone

• Seed capital 1980s * 1991 Iridium spun out

• By 1996 – invested $ 537 mln ; debt $ 750 mln

• Handset brick – size cost $ 3000; Charge $ 3 to 7 /mnt. While cell phone size and cost and charge continued to fall

• 1998 went live with customers

• 1999 file for bankruptcy, defaulting on loans of $ 1.5 bln

• Motorola took a hit of $ 2 bln!


Rubber Maid Rubber Maid (Story P 47 to 49) Early 1990 British Museum visit In 1994 decided to introduce at least one new product a

day, seven days a week, 365 days per year Fortune said: No # 1 most admired co in the US, more

innovative than 3M, Apple, Intel Introduced 1000 new products in 3 Y During 1994-'98 lost control of costs, failed to deliver orders

on time Eliminated 6000 products variations. Closed nine plants,

wiped out 1170 jobs. 21 Oct 1988 sold out to Newell corpn.


Rubber Maid ...contd

• Catastrophic decline can be brought even by driven, intense, hard-working & creative people.

• 2008 Wall Street melt down people went too far ( every family must own a house), too much risk, too much leverage, too much financial innovation, too much aggressive opportunism too much growth.


Merck• 1995 CE Ray Gilmartin – defined Business Objective –

Top Tier Growth Company launched Vioxx our biggest, fastest, ad best launch ever”

• Probability of a new molecule creating a profitable return is about 1 in 15,000!

• 1999 VIOXX (Rheumatoid arthritis) X Naproxm

• By 2002 generated $2.5 bln & by 2004 - 100 mln prescriptions

• Mid Sept 2004 found that 18m after treatment, heart attack & stroke propensity increased.

• Vioxx – removed from market.Stock dropped from $ 45 to 33 chopped $ 25 bln of market cam in 1 day ; & $ 40 bln in 6 weeks


Hewlett Packard

• The Packard Law :

• No company can consistently grow revenues faster than its ability to get enough of the right people to implement that growth and still become a great company.

• Difference between wrong and Right people is the former see themselves as having jobs while the latter see themselves as having responsibilities.

• Bank of America – lost a lot of good young people because “we weren't a meritocracy”



IBM

• Watson father & son led for 57 years ( 1914-1971)

• $ 1000 investment in 1926 returned $ 5 mln by 1972

• Lost $ 15 bln from 1991-'93

• Hired LOU Gerstner a CEO ( who Says Elephants can't Dance?)

• Had to cut $ 7 bln in costs

• Realised their OS/2 failed & Windows won

• Customer Focus



Nordstrom's Rebound

• Known for extra ordinary customer service in retailing.

• Led by 4th Gen Blake Nordstrom

• Hired nice people and taught them to sell

“we can't hire sales people & teach them to be nice”

• Improved inventory discovered that returns were driven by margin dollars divided by average inventory.



The Satyam Scam

• Taking action inconsistent with your core values is undisciplined. Investing heavily in new arenas where you cannot attain distinctive capability, better than your competitors, is undisciplined. Launching headlong into activities that do not fit with your economic or resource engine is undisciplined. Addiction to scale is undisciplined. To neglect your core business while you leap after exciting new adventures is undisciplined. To use the organization primarily as a vehicle to increase your own personal success- more wealth, more fame, more power – at the expense of its long-term success is undisciplined. To compromise your values or lose sight of your core purpose in pursuit of growth and expansion is undisciplined.


Share -Holder X Flipper

Value X Price• Share value & share price share holders & share flippers

Maximise share holder value NOT share flipper price

• Greatest leaders seek

• Growth -in performance

– in distinction impact

– Creativity

– People

Don't confuse growth with excellence

• Big does not equal Great

Great does not equal Big


An Young Historic Leader

• March 15, 44BC Gaius Julius Caesar bled to death in Pompei's Theater of Rome punctured by 23 slab wounds

• In his will he named his grand nephew, Octavian. At 18, as successor

• In 42, BC he demolished Caesar's enemies

• Then eliminated Antony & Cleopatra ( the mother of Caesar's biological son)

• Octavian Augustus Caesar transformed himself as the First Emperor of Rome

• Bud did not establish a mechanism for transfer of power to generations of outstanding Leadership


Civilisations That Rose and fell into history

• Mesopotamia, Egypt, Persian, Greek,Rome, INCAS, MAYAS, AZTEC

• Civilizations that rose, declined and are recovering - Indian, Chinese

• Civilisation that rose declined and is in the throws of death-Arab


Try a Little Virtue

Instead of greed, how about generosity

Instead of envy, try a little charity

Instead of pride, show some humility

Instead of wrath, let us see composure

- Lee Iacocca

The Book, Where have all the Leaders gone?


Dhanyawad:

Thank You

Documents

Book Talk: How The Mighty Fall (and why some companies never give in) Authored by Jim Collins By Dr T.H.Chowdary *Director, Center for Telecom Management