They are picked up by Jim Collins in his book entitled ‘Companies that fall’ where he collects 5 phases that warn you that your company is threatening the decline. Not all companies necessarily pass through all the phases or the duration is the same. However, the author picks up 5 factors that are often repeated in many large companies that have ended up falling. Are these:


The arrogance born of success


The momentum and success accumulated by a company can lead it to move forward in an ambition of growth without measuring too much steps. Remember that in addition to doing things with a deep knowledge of where the company wants to go and the ability to do it; the luck factor can also be a determining factor in success and is not always on our side. Overvaluing the merits and thinking that you can with everything supposed to fall into arrogance and this is always a risk. 


Undisciplined pursuit of growth


It could be linked with the previous cause. The risk here is to venture into areas where excellence can not be achieved. “Self-complacency and resistance to change are dangerous for any prosperous company, but wanting to do too much, better explains the fall of the powerful,” says the author. The fall in this phase rather than the growth has to be related to the undisciplined search; which is what takes us away from the essential values of the company, losing sight of the core business.


Denial of risk and danger


He says that in this phase the internal signals increase; although the external data may indicate that things are doing well. So the tendency is to attribute the signals to transient or circumstantial changes. According to the author; those responsible for the company entering this phase tend to minimize the negative data and amplify the positive ones. The deterioration of the gross margins, the indebtedness or the ratio of the circulating one should be three variables very taken into account to anticipate what is coming.


The desperate search for salvation


Here we no longer talk about signs. The ignorance of which they warned us in phase 3 already demonstrates the decline, both inside and outside the company. The key at this point is, how the leaders respond, twitching or returning to the discipline that led to excellence. In the first case, the company usually starts looking for a magical solution, even if improvised, such as betting on a new ‘best-selling’ product, a drastic cultural revolution or a ‘revolutionary acquisition’. According to Collins, it would be wise to return to solid management disciplines as soon as possible.


Capitulation: being insignificant or dying


According to Collins; the longer a company stays in phase 4, the more likely it is to fall “in a downward spiral”. Also, the accumulation of setbacks and the expensive “zero outflows” worsen the financial and moral capacity of the company; to the point of abandoning the hope of recovering past times. Some manage to sell, other times “the company atrophies” to the point of complete insignificance, and in the most extreme cases, the company simply dies.