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Book Talk : How The Mighty Fall (and why some companies never give in) Authored by Jim Collins

By Dr T.H.Chowdary *Director, Center for Telecom Management & Studies * Chairman, Pragna Bharati (Intellect India) , AP *Fellow, Tata Consultancy Services Formerly: Chairman & Managing Director Videsh Sanchar Nigam Limited, Bombay T: +91(40) 6667-1191(O)2784-3121® F: +91(40) 6667-1111(O)

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Book Talk : How The Mighty Fall (and why some companies never give in) Authored by Jim Collins

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  1. By Dr T.H.Chowdary *Director, Center for Telecom Management & Studies * Chairman, Pragna Bharati (Intellect India) , AP *Fellow, Tata Consultancy Services Formerly: Chairman & Managing Director Videsh Sanchar Nigam Limited, Bombay T: +91(40) 6667-1191(O)2784-3121® F: +91(40) 6667-1111(O) hanuman.chowdary@tcs.com Talk @ TCS, Hyd: 22 Jan 2010 Book Talk:How The Mighty Fall(and why some companies never give in)Authored by Jim Collins

  2. S436_Jan2010 Companies that are History • Arbuthnot & Co - Tulip Bubble • AT&T; Siemens, RCA, Zenith, Hindustan Teleprinters, Hindustan Cables, Hindustan Antibiotics *General Motors – Pan Am Airways • Jayanthi Shipping * Mundhras British India • Enron Fannies Nay * Bank of America; AMES... • Citicorp *Gen Motors * Pan Am • Krishi & Prudential, Palai Central Bank vs Charminar; Global Trust Bank • AT&T, WorldCom (Data Com) • Maddoff -SE non-Ex Executive Chairman • Satyam (Tech Mahindra)

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  6. S436_Jan2010 Stage #1Hubris Born of Success • Success Entitlement Arrogance • Neglect of a primary fly-wheel • What replaces why • Decline in learning orientationDiscounting the role of luck ( P.43)

  7. S436_Jan2010 Hubris • Hubris= Excessive Pride that brings down a hero or outrageous arrogance that inflicts suffering upon the innocent • Motorola bean Y2001 with 147,000 employees. End Y 2003- dropped to 88,000 stock prices came down by 50% • Decline in learning orientation

  8. S436_Jan2010 Stage#2Undisciplined Pursuit of More • Unsustainable Quest for Growth,confusing big with great • Undisciplined discontinuous leaps • Declining proportion of right people in key Seats • Easy cash erodes cost discipline • Bureaucracy subverts discipline • Problematic succession of power • Personal interest placed above organisation's interest (P.63)

  9. S436_Jan2010 Why Turmoil seizes a Company • A domineering leader fails to develop strong successors (or drives strong successors away), and thereby creates a leadership vacuum when he or she steps away. • An able executive dies or departs unexpectedly, with no strong replacement to step smoothly into the role • Strong successor candidates turn down the opportunity to become CEO • Strong successor candidates unexpectedly leave the company • The board of directors is acrimoniously divided on the designation of a leader, creating an adversarial “we” and “they dynamic at the top.

  10. S436_Jan2010 Why Turmoil seizes a Company ...contd • Leaders stay in power as long as they can and then pass the company to leaders who are late in their careers and assume a caretaker role • Monarchy-style family dynamics favor family members over non-family members, regardless of who would be the best leader • The board brings in a leader from the outside who doesn't fit the core values, and the leader is rejected by the culture like a virus • The company chronically fails at getting CEO selection right

  11. S436_Jan2010 Stage#3Denial of Risk & Peril • Amplify the positive discount the negation • Big bets and bold goals w/o empirical validation (Merck vioxx, Iridium Satphone) • Incurring huge downside risk based on ambiguous data • Externalisign blame • Obsessive reorganisations (AT&T) • Imperious detachment (D P 77/78 & P.81)

  12. Stage#3: Denial of Risk & PerilImperious detachment ...contd S436_Jan2010

  13. Stage#3: Denial of Risk & PerilImperious detachment ...contd S436_Jan2010

  14. S436_Jan2010 Stage#4Gasping for Salvation • A series of silver bullets • Grasping for a leader as a saviour (HPs July 19,1999 Carly Fiorina from Lucent) P-85 • Panic& haste • Radical change & Revolution with fanfare • Hype precedes results • Initial upswing followed by disappointments • Confusion & cynicism • Chronic Restructuring &Erosion of financial strength (P.100)

  15. S436_Jan2010 Circuit City (used car business) • Grew >20% p.a; grew to 10 times in a decade • 1998 Wall Street Journal praised the CEO • 10-11-2008 filed for Bankruptcy • Best Corporate leaders relently ask questions Why, Why, Why & have an incurable compulsion to vaccum the brains of people they meet . • To be a knowing person is fundamentally different from

  16. S436_Jan2010 Ames & Wall Mart • Ames began in 1958 • Wall Mart in 1962 ( Sam Walton) • Ames grew in the NE Wall Mart in mid South • 1973-'86 both grew alike, generating returns over NINE times the market • Y2008 – Ame dead & gone Wall Mart; No#1 on Fortune 500; $ 379 billion (Rs. 19 lakh crores) • Walton: Humility & learning Orientation (story on P. 40/41) • Motto: to enable people of average means to buy more of the same

  17. S436_Jan2010 Motorola • Motorola increased its patents from 613 to 1016 from 1991 to 1995 • It said, “We rank no# 3 in patent productivity in the US . • Merck patented 1933 new compounds during 1996-2002, yet declined • In 1999 HP launched its “Invent” campaign & nearly doubted its patent applications in two years; just as it spiraled into stage 4 decline (gasping for salvation)

  18. S436_Jan2010 Motorola…contd • Motorola bought Gen Inst Corpn for $17 bln • Jumped into Internet & broadband frenzy • Built a global cost structure for revenues of $ 45 bln but 2001 Revs. Crashed to $ 30 bln • Y 2003 got Sun Microsystems Ed Zander as CEO, hounded by share holders, stepped down 4Y later in 2007. (P. 92/93)

  19. S436_Jan2010 Fall of Iridium(Motorola's child) • 1985 Idea of a Motorola engineer's wife's idea while on vacation in Bahamas cellphone did not work; so satellite phone • Seed capital 1980s * 1991 Iridium spun out • By 1996 – invested $ 537 mln ; debt $ 750 mln • Handset brick – size cost $ 3000; Charge $ 3 to 7 /mnt. While cell phone size and cost and charge continued to fall • 1998 went live with customers • 1999 file for bankruptcy, defaulting on loans of $ 1.5 bln • Motorola took a hit of $ 2 bln!

  20. S436_Jan2010 Rubber Maid • Rubber Maid (Story P 47 to 49) • Early 1990 British Museum visit • In 1994 decided to introduce at least one new product a day, seven days a week, 365 days per year • Fortune said: No # 1 most admired co in the US, more innovative than 3M, Apple, Intel • Introduced 1000 new products in 3 Y • During 1994-'98 lost control of costs, failed to deliver orders on time • Eliminated 6000 products variations. Closed nine plants, wiped out 1170 jobs. • 21 Oct 1988 sold out to Newell corpn.

  21. S436_Jan2010 Rubber Maid ...contd • Catastrophic decline can be brought even by driven, intense, hard-working & creative people. • 2008 Wall Street melt down people went too far ( every family must own a house), too much risk, too much leverage, too much financial innovation, too much aggressive opportunism too much growth.

  22. S436_Jan2010 Merck • 1995 CE Ray Gilmartin – defined Business Objective – Top Tier Growth Company launched Vioxx our biggest, fastest, ad best launch ever” • Probability of a new molecule creating a profitable return is about 1 in 15,000! • 1999 VIOXX (Rheumatoid arthritis) X Naproxm • By 2002 generated $2.5 bln & by 2004 - 100 mln prescriptions • Mid Sept 2004 found that 18m after treatment, heart attack & stroke propensity increased. • Vioxx – removed from market.Stock dropped from $ 45 to 33 chopped $ 25 bln of market cam in 1 day ; & $ 40 bln in 6 weeks

  23. S436_Jan2010 Hewlett Packard • The Packard Law : • No company can consistently grow revenues faster than its ability to get enough of the right people to implement that growth and still become a great company. • Difference between wrong and Right people is the former see themselves as having jobs while the latter see themselves as having responsibilities. • Bank of America – lost a lot of good young people because “we weren't a meritocracy”

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  25. S436_Jan2010 IBM • Watson father & son led for 57 years ( 1914-1971) • $ 1000 investment in 1926 returned $ 5 mln by 1972 • Lost $ 15 bln from 1991-'93 • Hired LOU Gerstner a CEO ( who Says Elephants can't Dance?) • Had to cut $ 7 bln in costs • Realised their OS/2 failed & Windows won • Customer Focus

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  27. S436_Jan2010 Nordstrom's Rebound • Known for extra ordinary customer service in retailing. • Led by 4th Gen Blake Nordstrom • Hired nice people and taught them to sell “we can't hire sales people & teach them to be nice” • Improved inventory discovered that returns were driven by margin dollars divided by average inventory.

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  29. S436_Jan2010 The Satyam Scam • Taking action inconsistent with your core values is undisciplined. Investing heavily in new arenas where you cannot attain distinctive capability, better than your competitors, is undisciplined. Launching headlong into activities that do not fit with your economic or resource engine is undisciplined. Addiction to scale is undisciplined. To neglect your core business while you leap after exciting new adventures is undisciplined. To use the organization primarily as a vehicle to increase your own personal success- more wealth, more fame, more power – at the expense of its long-term success is undisciplined. To compromise your values or lose sight of your core purpose in pursuit of growth and expansion is undisciplined.

  30. S436_Jan2010 Share -Holder X FlipperValue X Price • Share value & share price share holders & share flippers Maximise share holder value NOT share flipper price • Greatest leaders seek • Growth -in performance • in distinction impact • Creativity • People Don't confuse growth with excellence • Big does not equal Great Great does not equal Big

  31. S436_Jan2010 An Young Historic Leader • March 15, 44BC Gaius Julius Caesar bled to death in Pompei's Theater of Rome punctured by 23 slab wounds • In his will he named his grand nephew, Octavian. At 18, as successor • In 42, BC he demolished Caesar's enemies • Then eliminated Antony & Cleopatra ( the mother of Caesar's biological son) • Octavian Augustus Caesar transformed himself as the First Emperor of Rome • Bud did not establish a mechanism for transfer of power to generations of outstanding Leadership

  32. S436_Jan2010 Civilisations That Rose and fell into history • Mesopotamia, Egypt, Persian, Greek,Rome, INCAS, MAYAS, AZTEC • Civilizations that rose, declined and are recovering - Indian, Chinese • Civilisation that rose declined and is in the throws of death-Arab

  33. S436_Jan2010 Try a Little Virtue • Instead of greed, how about generosity • Instead of envy, try a little charity • Instead of pride, show some humility • Instead of wrath, let us see composure • - Lee Iacocca • The Book, Where have all the Leaders gone?

  34. S436_Jan2010 Dhanyawad: Thank You

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