How the Mighty Fall by Jim Collins Part 6 of 6: Capitulation (Stage 5)

September 8, 2009 by dr. lam

ar-zenithTV2802 Of course, the final stage for a company on its descent is capitulation either to outright death or into a state of diminished status Collins refers to as irrelevance. In stage 5, companies either just fold or struggle to regain control until all funds are exhausted.

The story of Zenith is quite telling. In the 1950s, Zenith was the bright star in the world as America’s #1 black and white television manufacturer. They continued their ascent into the 1970s until the founder left the hands of the company with a septuagenarian CEO and encountered the rise of the Japanese assault. Zenith entered a phase of denial that the Japanese could really have any serious threat to their preeminent position in the world. As the world knows, they did. Zenith started to enter a stage 2 to 3 expansion and denial phase that included home security systems, video recorders, and a slew of other unrelated products.

In the 1980s, the brilliant Jerry Pearlman, a cum laude graduate from Princeton and 2% top graduate of the Harvard Business School, came in to save the day. He launched an IBM compatible computer that led Zenith to a renaissance. However, with mounting debt the company simply ran out of money. Today, the company is not bankrupt but irrelevant with only 400 employees compared with 36,000 at its, well, zenith, a 98% reduction in size. It is now entirely irrelevant in the market.

The lesson that Collins outlines is how do we as individuals avoid going through stage 2 through 5 in our personal and professional lives. He closes the book with the example of Xerox under the tireless stewardship of Anne Mulcahy who brought the company from the brink of stage 4 back into an exuberant profitability. Collins admonishes that we all must be tireless in our pursuit of our businesses (and our lives) in the good time and in the bad, as Louis Gerstner of IBM espoused in the quote cited in last Friday’s blog: “I have a sense of urgency that never changes, whether we’re doing well or we’re doing poorly…” I hope that this short blog series that may have ostensibly strong business leanings may carry import for anyone even wanting to better himself/herself in his/her personal life as well.

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