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ChangingMinds Blog! > Blog Archive > 04-Aug-13


Sunday 04-August-13

How the Mighty Fall: The Three Ages of the Great Company

There's a guest article published on the site this week, titled What the Worst Companies to Work for in America Have in Common. It includes a list of worst companies as indicated by current and past employees. Very sadly, it includes a once-great company to work for. I should know. I worked there for 17 wonderful years. Yet I am not surprised, as old friends there have for some time been saying how bad things are for them. The company is Hewlett Packard.

So what happened?

I have noticed that great companies often go through three phases. First, there's the founder stage, where the genius who started the company runs the show. For HP this was about 1940 to 1980 when Bill and Dave were still there. To find more about their genius, I recommend one of the best books on leadership out there: Bill and Dave.

Then there's the momentum stage, where the company is run by people who knew the founder and understood something of their genius. For HP, this was about 1980 to 2000, when John Young and then Lew Platt kept the growth going. This period is perhaps not as brilliant as the founder period, but it is still pretty good, although towards the end the cracks may start to show.

Finally, the company reaches banal stage. Here, an outsider comes in as CEO. They don't particularly get the original culture and try to change it, often for the worse. Their legacy is to turn the company from a great company into an average company (or, worse, to kill it). In HP, this task fell to Carly Fiorina. My daughter studied the cultural breakdown across the Fiorina period for her M.Sc. in 2006. Her dissertation is still online (on her now-old website) and makes for apocryphal reading. In this stage there are three possibilities. The company may bump along for many years, it may fade and die, or it may, at some point, rise from the ashes to another period of greatness, typically as a new leader reawakens the sleeping giant.

The book 'How the Mighty Fall' by Jim Collins offers five stages through which many companies collapse from greatness to nothing:

  1. Hubris born of success, where a long period of success leads to the arrogance of assumed endless growth.
  2. Undisciplined pursuit of more, with wild investments even as the ground crumbles un-noticed beneath them.
  3. Denial of risk and peril, as visible issues are denied and poor results are excused.
  4. Grasping for salvation, often through a succession of CEOs (one of who, if they are lucky, may stop the rot).
  5. Capitulation to irrelevance or death, where people give up, the good people leave and the tree-huggers close their eyes and wait for Armageddon.

In this sequence, the three-age banal stage may start in one of the earlier stages or may be a part of grasping for salvation. In HP, the appointment of Carly Fiorina was not a desperate act. HP was doing just fine. It was more a desire as Lew Platt retired to accelerate the company alongside newer firms that were doing well, such as Cisco and Microsoft. However, the damage that Fiorina did to the passionate engineering culture may well have triggered the HP decline as a great place to work. Her purchase of Compaq, with its harsher Texan culture certainly seemed to have taken attention away from creating passion and pushed more into making profits, which is a classic route to failure. Companies, especially those driven by great products and a great culture, do not succeed simply by the boss cracking the whip and saying 'hey you lot -- innovate and sell!'

Since I escaped at the start of the Carly period, there has been the telltale series of CEOs, culminating with Meg Whitman (of eBay fame). She seems to have a lot of respect from employees, which is a good thing and perhaps offers hope and maybe salvation. Yet HP is now struggling with declining PC sales as many turn to tablets for everyday computing. It would be sad to see the old firm disappear, but commercial continuity is never a given.

Your Comments

Another great example of "How the Might Fall" is JCPenney. Only time will tell whether its new CEO will preside over its rebirth or funeral.

FYI, Meg Whitman was CEO of eBay from 1998 to 2008, at which time she made an unsuccessful run in politics. During her phenomenal tenure at eBay, she grew the company from 30 employees and revenues of $4 million to approximately 15,000 employees and $8 billion in annual revenue. Under her leadership, eBay did purchase PayPal in 2002, but it's difficult to say that she was of "PayPal fame."

-- Mike Gamble

Dave replies:
I'll watch JCPenney. Sounds ominous. Thanks for the correction, Mike - I've updated the blog to say 'eBay' rather than 'PayPal'.

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