What do Kodak, Nokia, Toys R Us, Motorola, and Yahoo have in common? Though all five brands have entirely different business models, they share a common fate.
They all went obsolete in the 21st century despite their popularity.
Jim Collins defines why this happens in his book ‘How the Mighty Fall: And Why Some Companies Never Give In.’
According to Jim, every business has the tendency to fail. In fact, the companies established in the 1950s are no more. Although they had a business expectancy of 60 years, it has furthered spiraled down for the ones in the modern age.
Now, companies are expected to collapse after mere 17 years.
So, why does this happen?
And can a business detect the signs leading to organizational failure?
We’ll discuss the five stages of decline that can help you get back on track before things take the worst turn.
5 Stages to Avoid Organizational Failure
- Hubris from Success
Hubris – arrogance, uncontrolled pride.
It’s human nature to boast of their success after achieving a milestone. And it’s no different for great companies.
Hubris from success refers to feeling such immense pride that you forget your company’s foundations.
For example, if we look at Nokia, the company was thriving until it continued conducting ground-breaking research and introducing new devices.
Nokia was the first one to introduce a smartphone in 1960. And yet, it failed to innovate, thinking the devices it’s producing are enough. As a result, it led competitors like Apple to get ahead and mark their spot.
- Undisciplined Pursuit of More
Being addicted to success isn’t a bad thing.
Thinking you can do anything, however, can bring the fall sooner than later, as we saw in the case of Yahoo.
A powerful search engine, Yahoo began buying more than 50 startups after 2012. But it did little to improve their revenue.
Add in the fact that they sidestepped the offer to buy Google at $5 Billion in 2002. Microsoft even offered to buy Yahoo at $45 Billion.
Tie in bad management and the feeling that they could do anything, and you get a mighty brand that fell hard. In the end, Yahoo was sold at $4.8 Billion to Verizon.
- Denial of Risk & Peril
This stage is a double-edged sword where most companies sit at their popularity’s peak.
Though many signs point towards danger at this stage, organizations continue seeing the world with tinted glasses, which portray things as a bed of roses.
So, where does it lead to?
To mistakes that could have been avoided in the first place.
For example, Motorola, a big name in the phone world in the 1980s, thought a satellite phone was the ideal solution for places where phones don’t usually work.
And so, they spent good few years developing Iridium. During this time, the existing phone quality continued growing; people could use phones in various locations, and the price was low, too.
And yet, Motorola continued on its blind mission. Ignoring the signs led to a launch that caused Motorola to lose $2 Billion.
- Grasping for Salvation
Stage four is the crossroads most companies become confused with.
One road leads them back to their basics, following which they can reclaim their spot. Taking the other hands, you to the pits of failure.
If a company is already grappling at stage 3, meaning they ignored the warning signs, they’ll likely grasp for salvation.
And what do we do when faced with a disaster?
Our flight and fight mode activates; we grope blindly at corners and try hard for our survival.
HP is a classic example to help understand the workings of this stage. HP decided changing its company culture would improve business growth. But it ended up causing more damage.
They hired a new, media-savvy CEO who implemented a modern-looking HP culture to keep up with the times. Unfortunately, it led to lost drive and unfocused employees.
Once a steady name in the computer and tech industry, it didn’t take long for HP to lose its hold.
- Resignation to Downfall
It all depends on how long a company takes to stay in stage 4, which determines whether it’ll shift to this stage.
Most of the time, mighty leaders have two options:
- To sell the company or
- To continue utilizing resources until they dry up
The key to survival is knowing there isn’t a magic wand or Time-Turner to set things in order.
Instead, it’s all about:
- Sticking to the foundation
- Knowing why you’re here and
- Hanging to the primary purpose of your company.
Most importantly, following the rat race is a sham, and brings a quicker downfall than you can imagine.
Before You Leave
If you want to learn more tips and tricks, business strategies, and life lessons, read more blogs by Videomonks.