This stage is a difficult one to fathom, at least at first. Conventional wisdom in the business press usually lays the blame on failure at the feet of complacency. That is the business leader took things for granted and stopped innovating.

Instead think of David Packard’s (of Hewlett Packard) insight that a great company is more likely to die from indigestion from too much opportunity than starvation from too little.

Collins’ research in How the Mighty Fall(HTMF) clearly backs up Packard’s observation. In only one case (A&P) was the the failing company complacent with their existing business model. In all the others, the companies “over innovated”, in a variety of different ways. Obsessed with growth for growth’s sake, they jumped into new business models and products unrelated to the skills, expertise, and methodologies that made them great in the first place. The hubris developed in Stage 1, led them to believe that they could be great at anything. In pursuing the new endeavors, they diluted their “flywheels” and “hedgehog concepts”

Questions to consider to determine if you are succumbing to Stage 2?

–Do you confuse big with great?
–Are you jumping into opportunities that fail to do one of the following 1. Ignite passion, 2. Become the “best in the world” 3. Help drive your economic engine (your hedgehog)?
–Is your percentage of the right people in the right seats declining (filling slots)
–In response to cost pressures do you simply raise prices without being disciplined about costs?
–Are you building a bureaucracy?
–Having succession problems?
–Are personal interests ahead of organizational ones?

How many of these questions are difficult for you to answer?