At the most straightforward (superficial?) level, the “undisciplined pursuit of more”—Collins’s stage 2 in his framework of decline—would seem to follow logically and almost inevitably from stage 1, “hubris born of success.” The logic is nearly syllogistic: “If we’re successful, and we’re great, who wouldn’t want more of this? Let’s go for it.”

Collins, I’m happy to report, thinks more subtly than that, and has the evidence to back it up. He begins by trying to disabuse us of a near-universal assumption: That most companies fall from greatness because they become complacent, failing to stimulate innovation, to ignite internal change, and whose mindset moves from one of bold action-orientation to laziness and self-satisfaction. His take on that?

It’s a plausible theory, with a problem: it doesn’t square with our data.

To be sure, complacency can be death. But according to Collins, that’s not very often the source of the mortal threat. Far more prevalent is the sin of overreaching. Three of the fallen stars of Built to Last were Motorola, HP, and Merck. Complacency scarcely seems to describe their frenzied activity as decline set in:

  • From 1991 to 1995, Motorola nearly doubled its patent production, from 613 to over 1,000, “ranked No. 3 in the US,” according to the company.
  • In 1999, HP launched its “Invent” campaign and also nearly doubled its patent applications.
  • Merck patented 1,933 new compounds from 1996 to 2002, the best performance in the industry, and one-third higher than the runner-up.

Yet all went into severe decline:

  • Motorola was broken up and essentially sold for parts.
  • HP is still trying to recover its totemic Silicon Valley mojo after years of head-scratching acquisitions at enormous expense, boardroom infighting, backstabbing, and lawsuits, hasty and diamond-encrusted executive departures, and mystifying reorganizations.
  • And Merck stock hit its all-time high at the end of 2000 and a decade later was down over 75%.

Merck Stock Price 2000./2010 (courtesy Dow Jones)

So why this widespread belief in the theory that complacency is the common downfall of leading organizations? Collins attributes it, plausibly I believe, to psychology; we are victims, not for the first time, of what we want to believe, and he punctuates it with an example from our near-past that turns the theory on its head (emphasis Collins’):

Perhaps people want to attribute the fall of others to a character flaw they don’t see in themselves rather than face the frightening possibility that they might be just as vulnerable. “They fell because they became lazy and self-satisfied, but since I work incredibly hard and I’m willing to change and innovate and lead with passion, well, then I don’t have that character flaw. I’m immune. It can’t happen to me.!” But of course, catastrophic decline can be brought about by driven, intense, hard-working, and creative people. It’s hard to argue that the primary cause of the Wall Street meltdowns of 2008 lay in a lack of drive or ambition.

Why did these companies go astray and exactly how did it happen? I would nominate the same culprit Collins fingers: Losing sight of the noble purposes of the founders. George Merck II sought to improve human life. Paul Galvin obsessed over unleashing human creativity. Bill Hewlett and David Packard believed first and only in technical progress—profit would follow. For all these founders, following the vision was the goal and if the scale of the enterprise happened to grow, that was a residual result.

Recur to the name for this stage in the framework: the undisciplined pursuit of more. Here are some symptoms:

  • discontinuous leaps into arenas where your firm has no expertise;
  • anything inconsistent with founding and core values;
  • entering new arenas where you have no realistic or credible expectation of attaining distinctive expertise;
  • growth for growth’s sake;
  • and on top of all else, doing any or all of these at the expense of taking your eye off your core business.

Law firms are in the talent business. So did David Packard believe of the technology business. (Need I point out he was resoundingly right?)

Here, then, is Packard’s advice on when you know you’re growing too fast:

If I were to pick one marker above all others to use as a warning sign, it would be a declining proportion of key seats filled with the right people. 24 hours/day, 365 days/year, you should be able to answer the following questions: What are the key seats in your organization? What percentage of those seats can you say with confidence are filled with the right people? What are your plans for increasing that percentage? What are your backup plans in the event a right person leaves a key seat?

I see law firms expanding without detailed, deeply informed and precise attention to who will be sitting in the key seats. I choose my words carefully—”detailed, deeply informed and precise”—because this imperative is, as a managing partner recently described it to me, “house to house.” Why don’t firm leaders do this? Often the cause is hubris (see Part I) and even more often the cause is inattention, distraction, and the triumph of the urgent over the important. In no case is it excusable.

Let’s conclude this installment with Collins’s recap of the “markers for stage 2:”

  • Unsustainable quest for growth, confusing big with great.
  • Undisciplined discontinuous leaps.
  • Declining proportion of the right peole in key seats.
  • Easy cash erodes cost discipline.
  • Bureaucracy subverts discipline.
  • Problematic succession of power or no succession planning.
  • Personal interests placed above organizational interest.
Food Emporium Store Bankruptcy (Upper Broadway, New York, Autumn 2015) (part of the A&P empire)

Food Emporium Store Bankruptcy (Upper Broadway, New York, Autumn 2015) (part of the A&P empire)


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