Based on the Verne Harnish’s review of Jim Collins’ new book How the Mighty Fall, I can’t wait to pick it up. Thought you might like to read the review also. So I posted it below. Comments please.

“I just finished How the Mighty Fall last night and following are my highlights from the book.

Need for Change — notes Collins on p.11 “Clearly, the solution to decline lies not in the simple bromide ‘Change of Die’; Bank of America changed a lot and nearly killed itself in the process.” A strong message throughout the book is that complacency was not what caused firms to decline — instead, it was misplaced innovation, acquisitions, activities, and change, in general, that precipitated the decline.

Neglect Primary Flywheel — p. 32 — those familiar with Jim’s flywheel analogy from Good to Great know that it’s important for companies to be clear what they are and/or can be “best at” and then put all energies toward this one focus. Instead, leaders either get bored with their existing focus or get distracted by new adventures which take energy away from their primary flywheel. Jim outlines a 5 step “cycle of arrogant neglect” on p. 32.

Vacuum Peoples’ Brains — p. 39 “Like inquisitive scientists, the best corporate leaders we’ve researched remain students of their work, relentlessly asking questions — why, why, why? — and have an incurable compulsion to vacuum the brains of people they meet.” He differentiates the knowing person who claims to already know everything and why what they do works vs. the learning person. On p. 43 he lists five markers that are the earliest signs you might be in stage 1 of eminent decline, one of which notes the failure of leaders to “maintain a learning curve as steep as when they first began their careers.”

Job vs. Responsibility — p. 57 — this is one of my favorite “how to’s” in the book — notes Collins “One notable distinction between wrong people and right people (in key seats) is that the former see themselves as having ‘jobs,’ while the latter see themselves as having ‘responsibilities. Every person in a key seat should be able to respond to the question “What do you do?” not with a job title, but with a statement of personal responsibility. “I’m the one person ultimately responsible for x and y.” Think columns two and three on our People Accountability worksheet. In fact, Collins, when he’s hosting executive teams at his research lab often challenges executives to introduce themselves not with titles, but by articulating their responsibilities. As he notes “those who have lost (or not yet built) a culture of discipline find this question to be terribly difficult.”

Key Indicators (Metrics) of Pending Decline — p. 76 — Collins describes some of the quantitative metrics that are early indicators of decline, yet seemed to be ignored by management. Notes Collins “For businesses, our analysis suggests that any deterioration in gross margins, current ratio, or debt-to-equity ratio indicates an impending storm.” I personally find companies not watching gross margins enough — one reason is that it’s in the middle of the P&L. Too many execs look at top line and bottom line to assess health while gross margins might be slipping unnoticed. Three to four percent decline (from 52% to 48% for instance) doesn’t seem like much, but can have a dramatic long-term impact on the business. Collins outlines a couple other non financial indicators as well on p. 76.

Weakest Part of the Book — p. 77 — I’ve always felt that Collins’ “Levels of Leadership” was his weakest and less substantiated idea (based on research) i.e. the Level 5 Leader. Similarly, he created a chart on p. 77 of “Leadership-Team Dynamics On The Way Down Versus On The Way Up.” He says in the beginning of the book that he chose NOT to interview any leaders of the fallen companies because of his concern for hindsight bias. Therefore, I don’t know how he was able to reach such specific conclusions about Leadership-Team Dynamics. I suspect it’s his own observations of team dynamics vs. specific research-based analysis — I intend to ask Collins about this.

Solid Management Disciplines — p. 119 (the main part of the book is only 123 pages long) — concludes Collins “If you’ve fallen into decline, get back to solid management disciplines — now!” I couldn’t agree more. And I love this line also on page 119 “In fact, our research shows that if you’ve been practicing the principles of greatness all the way along, you should get down on your knees and pray for severe turbulence, for that’s when you can pull even further ahead of those who lack your relentless intensity.” Again, I couldn’t agree more. I’m seeing what I consider our best students of business remain learners, disciplined, and gaining market share right now.”

What do you think? Need to read this?