I read a very interesting Business Week article as it was passing around at work. It is titled “How the Mighty Fall: A Primer on the Warning Signs”, as excerpted from the book by Jim Collins, How the Mighty Fall and Why Some Companies Never Give In.

In the book (and the Business Week article), Collins outlines five stages of decline of companies and he asks a question: “Why do some great companies fall, and how far can a company fall and still come back?”

Our principal effort focused on a two-part question: What happened leading up to the point at which decline became visible, and what did the company do once it began to fall?

Our comparative and historical analysis yielded a descriptive model of how the mighty fall that consists of five stages that proceed in sequence. And here’s the really scary part: You do not visibly fall until Stage 4! Companies can be well into Stage 3 decline and still look and feel great, yet be right on the cusp of a huge fall. Decline can sneak up on you, and–seemingly all of a sudden–you’re in big trouble.

His five stages of decline are more than I want to list here, but stage four hit me hard when I read it.

The cumulative peril and/or risks gone bad of Stage 3 assert themselves, throwing the enterprise into a sharp decline visible to all. The critical question is: How does its leadership respond? By lurching for a quick salvation or by getting back to the disciplines that brought about greatness in the first place? Those who grasp for salvation have fallen into Stage 4. Common “saviors” include a charismatic visionary leader, a bold but untested strategy, a radical transformation, a dramatic cultural revolution, a hoped-for blockbuster product, a “game-changing” acquisition, or any number of other silver-bullet solutions. Initial results from taking dramatic action may appear positive, but they do not last.

When we find ourselves in trouble, when we find ourselves on the cusp of falling, our survival instinct and our fear can prompt lurching—reactive behavior absolutely contrary to survival. The very moment when we need to take calm, deliberate action, we run the risk of doing the exact opposite and bringing about the very outcomes we most fear. By grasping about in fearful, frantic reaction, late Stage 4 companies accelerate their own demise. Of course, their leaders can later claim: “But look at everything we did. We changed everything. We tried everything we could think of. We fired every shot we had, and we still fell. You can’t blame us for not trying.” They fail to see that leaders atop companies in the late stages of decline need to get back to a calm, clear-headed, and focused approach. If you want to reverse decline, be rigorous about what not to do. [emphasis mine - CM]

When I read this, I recognized that the United States is firmly in stage four having elected a charismatic savior in President Obama. He has vowed to rebuild America, but rather than taking “calm, deliberate action” he has told us that we have to bail out the banks, the auto companies, and spend, spend, spend right now without waiting or thinking about it. In just his first 100 days, Obama generated a deficit that is four times what Bush produced in eight years, and that’s with Bush fighting a war on two fronts. If Obama continues to spend at this pace during his four years in office, he would produce a deficit 54 times greater than Pres. Bush produced in twice the time. This level of spending is impossible to maintain for either a faltering company or nation.

What we need is calm and deliberate action. But what we are getting is the wild flailing of “do something, do something NOW!” that comes from not knowing what to do. It’s what we get as a nation for electing an inexperienced leader.

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