Back in January (I can’t believe this year is already almost half over!) I read and reported on a book entitled Good to Great, which offered case studies on firms that rose to the top in their field, including Circuit City and Fannie Mae. Of course, we all know what happened to those two entities. Circuit City liquidated itself, and Fannie Mae likely would’ve been forced into bankruptcy as well had it not been for a government bailout (ongoing, by the way).
At the time I read the book, I e-mailed the author to see if he had an explanation for why those two entities went bust. I heard nothing for months, so I figured author Jim Collins was busy with more important pursuits than answering my half-scornful e-mail. Then a couple of weeks ago, I received an e-mail from Collins, who used a nutritional metaphor to explain what happened to Circuit City and Fannie Mae. He said a person could be in perfect health while watching his diet, but if he started making poorer food choices, his health could go south. In other words, those two firms changed what they were doing and lost their way.
Collins also offered to send me a gratis copy of his new book entitled, in a most timely way, How the Mighty Fall, in which he discusses Circuit City’s fall in more detail. Overall, he describes how companies “fall” by using a five-step process: First comes hubris and arrogance (“we can do no wrong”), which is followed by loss of discipline and lust for more (wealth, power); then denial of risk or peril; then grasping for salvation; and finally, capitulation to irrelevance or outright demise.
The book is a quick read, and I highly recommend it. (The author doesn’t extend the five-step death trot to individuals, but I certainly see how it applies to our daily lives and choices as well.)
What really struck me, what with the ongoing General Motors reorganization into government/union hands and the Obamaniacal thrust to put health care under government control, was a passage on page 56.
Collins first describes what he calls Packard’s Law (named after David Packard, one of the founders of Hewlett-Packard), which is that companies can grow only as fast as they are able to find and retain good employees.
Then, this section describes why both the GM reorganization and the taking over of health care are doomed to fail:
But a Stage 2 company [the second step, loss of discipline and lust for more] can fall into a vicious spiral. You break Packard’s Law and begin to fill seats with the wrong people; to compensate for the wrong people’s inadequacies, you institute bureaucratic procedures; this, in turn, drives away the right people (because they chafe under the bureaucracy or cannot tolerate working with less competent people or both); this then invites more bureaucracy to compensate for having more of the wrong people, which then drives away more of the right people and a culture of bureaucratic mediocrity gradually replaces a culture of disciplined excellence. When bureaucratic rules erode an ethic of freedom and responsibility within a framework of core values and demanding standards, you’ve become infected with the disease of mediocrity.
Actually, poor management in the face of union-imposed mediocrity and bureaucracy long ago doomed GM, but Team Obama has just permanently glued the company to that mediocrity. GM will be smaller but just as mediocre under government-cum-union tutelage. As for health care, well, fill in the blanks–it will become bureaucratic and mediocre in no time flat. Good doctors will decide to retire early or go into business for themselves. Lines will form; what’s left will be rationed; and everywhere there will be mediocrity–and bureaucratic rules to die by, which is what many people will literally do in the face of unavailable services.
Is this really change you can believe in?