How the Mighty Fall by Jim Collins Part 4 of 6: Denial of Risk and Peril (Stage 3)
September 3, 2009 by dr. lam
With hubris, comes unstoppable expansion, which then leads to big gambles that jeopardize the company in stage 3. The difference between a measured company making reasonable judgment and one that is gambling oftentimes is a product of whether that company went through a stage 2 situation.
Motorola in 1985 thought that the Iridium project, which would use low arcing satellites to allow cellular phone calls in remote places, to be a worthy gamble. After all, there were no real cellular networks to speak of in the 1980s. By 1996, the company bet big on this technology despite the mounting evidence that cellular networks had already made the Iridium project obsolete. In order to use an Iridium phone, you would have to travel with a brick-sized phone, only use it outdoors where you would have direct satellite access, and pay $3,000 for the handset plus $3 to 7 per minute for air time. That may have made sense in the 1980s but with burgeoning cellular networks and rapidly dropping rates, the Iridium project was doomed before it really started. However, it was not that Motorola came up with the idea but that it bet the house in 1996 and a year after the project officially launched the company defaulted on 1.5 billion in loans and closed the project. Over the 1990s, Motorola had grown from 5 to 27 billion per year in revenue and was focused on doubling their continued expansion. However, they blindly did not see the obvious due to their hubris.
Texas Instruments (TI) on the other hand developed DSP technology in the 1970s in their Speak & Spell model that facilitated changing voice, etc. from analog over to a digital stream. The continued to work that technology as a small offshoot of their larger company until in the late 1990s, they saw the true potential for their technology and the concomitant profitability of expanding that sector of the company. The CEO actually shrunk major microchip sectors of the company to focus on expansion of the DSP market and were able to capture a lucrative Nokia bid so that today they own half of the $8 billion market share of DSP. TI only made the gamble after 15 years of plying this technology and seeing the worthiness of expanding it rather than creating a blind gamble in the face of mounting evidence to the contrary.
Collins talks about two types of gambles: those that sink the ship and those that do not. When a ship has a hole blown through it above the water line, things are okay and reparable. When the hole is blown below the waterline, the ship will rapidly sink. When we make professional and personal choices in our life, are we making those choices above the waterline or below it? Interesting ideas.
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3 Responses to “How the Mighty Fall by Jim Collins Part 4 of 6: Denial of Risk and Peril (Stage 3)”
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Interesting stuff, Dr. Lam! Thanks!
thanks heather!
Anyone who can give me a link that will bring me to the whole chapter of this book. The stage 3, denial of risks and peril?
I will have to speak and discuss this chapter in our foundation.