Doom Loop Behavior in the Comparison Companies - Good to Great: Why Some Companies Make the Leap... and Others Don't - Jim Collins

Good to Great: Why Some Companies Make the Leap... and Others Don't, 1st Edition Hardcover - Jim Collins (2001)

Appendix 8.A. Doom Loop Behavior in the Comparison Companies



A&P vacillated, shifting from one strategy to another, always looking for a single stroke to quickly solve its problems. Held pep rallies, launched programs, grabbed fads, fired CEOs, hired CEOs, and fired them yet again. Article headlines for A&P during the years of decline read, “Heralding the Trumpet of Change,” “Awakening the Giant,” “Renewing A&P,” and “Great Expectations.” The expectations were never realized.1


Went into a Chicken Little “The Sky Is Falling” panic about the decline of its core business. Tried a quixotic “total corporate rejuvenation,” throwing itself into the office automation field against IBM, Xerox, and Kodak. When this failed, the next CEO engineered a “strategic flip-flop” away from office automation. Then, “like a brain surgeon vanishing from the operating room in the middle of an operation,” that CEO resigned after less than a year. The next CEO does another “180-degree turn” and buys his way into offset printing. It fails; the company takes a write-off. Four CEOs in six years, leading up to 1984. Later, not one, but two bankruptcies.2

Bank of America

Went into a reactionary revolution mode in response to deregulation. Fell behind in ATMs and technology, then threw itself into an expensive catch-wup program. Fell behind in California, then launched a crash program to catch-up. Tried to “pull off its own version of Mao’s Cultural Revolution” by hiring corporate change consultants who led “corporate encounter groups” and tried to institute a “rah-rah approach to management.” Lurched after Charles Schwab; culture clash erupted, and later sold it back. Lurched after Security Pacific, trying to emulate Wells Fargo’s Crocker merger; acquisition failed, creating a multibillion-dollar write-off.3

Bethlehem Steel

Vacillated back and forth: diversification, then focus on steel, then back to diversification, then back to steel. Fell behind in technology and modernization, then launched a crash program to catch up. Management reacted to the unions, then unions reacted to management, then management reacted to unions, then unions reacted to management, and so on. Meanwhile, foreign competitors and Nucor snuck in from below to devour market share.4


Fell into doom loop by making unrelated acquisitions, in search of growth, but without any guiding Hedgehog Concept. Bought a candy company, a chain of department stores, a security service, and a food-service supplier. In the biggest disaster, it bought American Home Video; lost $31 million, then sold it off to Tandy at $72 million below book value. Eckerd never fully recovered, got bought in a leveraged buyout, and later sold out to J. C. Penney.5

Great Western Financial

Inconsistency of program. Would zig one way (trying to look more like a bank), then zag another way (trying to become a diversified firm). Into insurance, then later out of insurance. Into leasing and manufactured housing, then back to focus on finance and banking. “Don’t worry about what you call us—a bank, an S&L or a Zebra.” Held together by the personal vision of the CEO, but when he retired, Great Western stumbled under its unwieldy, incoherent model, fell into reactionary restructuring, and sold out to Washington Mutual.6

R. J. Reynolds

As RJR began to slip and found itself under siege from antitobacco forces, it reacted by throwing itself into ill-considered acquisitions, such as Sea-Land. It bought Sea-Land and poured over $2 billion into trying to make it work (all the while, its tobacco factories were falling apart from underinvestment), then sold it at a loss five years later. With each new CEO, it got a new strategy. Later, after losing its number one spot to Philip Morris, RJR threw itself into a leveraged buyout, designed primarily to enrich management rather than build the company.7

Scott Paper

Fell into reactionary diversification as its core business came under attack from Procter & Gamble and Kimberly-Clark. With each new CEO, Scott got a new road, a new direction, a new vision. With fanfare, Scott undertook radical change efforts in the late 1980s, but never answered the question, What can we be the best in the world at? Fell into restructuring mode. Hired Al Dunlap, known as Chainsaw Al, who cut 41 percent of the workforce in one fell swoop and then sold the company.8


Vacuum left after death of Sidney Cooper. Next generation pursued growth for growth’s sake. Whereas Circuit City would go into a region, build a distribution center, and fill every surrounding town with a store, Silo irrationally jumped from city to city, one store here, another store there, creating a totally unsystematic hodgepodge agglomeration of stores, with no regional economies of scale. Did not stick with a consistent concept or layout. Silo acquired by Cyclops, then Cyclops acquired by Dixons. Management fired by new owners.9


Fell into a pattern of selling the future (“The future never looked brighter”) and hyping the potential of new products. But results failed to match the hype. Upjohn stock became volatile and speculative—up and down, up and down again—as it sold the sizzle, but never delivered the steak. Later, like a gambler at Las Vegas, it threw its chips on “savior products,” such as Rogaine baldness cure. Persistent product problems, with Halcion and others, exacerbated the swings. Eventually succumbed to restructuring disease and merged with Pharmacia.10


Lurched back and forth, from consumer products to pharmaceuticals and health care, then back again, then both at the same time, then back to one, then back to the other. Each new CEO had a new vision, and new restructuring, stopping the momentum of his predecessor and starting the flywheel back in another direction. Tried to ignite breakthrough with bold acquisitions, but failed and took hundreds of millions in write-offs. In the end, after years of inconsistent programs, it lurched into the arms of Pfizer, ending its turbulent existence as an independent company.11



During its rise, Burroughs’ CEO, “a brilliant but abusive man,” led a sweeping total reengineering. Cost cutting led to morale problems, which led to losing good people. Picked a weak successor. He failed and was replaced by a “brilliant, brash, overly aggressive” CEO who set a new direction, blaming the prior generation. Another massive reorganization, 400 executives leave in one purge. Posters adorned the walls, touting new programs. The company restructured again. Got yet another CEO who tried yet another restructuring, another new direction. More decline, and then another CEO.12


Five years of stellar performance, then decline back into crisis. “Like so many patients with a heart condition, we’d survived emergency surgery several years before only to revert to our old unhealthy lifestyle,” wrote an insider. Diverted attention into Italian sports cars, corporate jet business, and defense. Revived in second turnaround in 1990s, but eventually sold out to Daimler.13


Rose with a CEO who had a Hedgehog Concept in his head, and who produced an initial flywheel effect. But he did not instill this concept into his executive team. Later, when he retired, executives replaced the Hedgehog Concept with a growth mantra. Harris lurched off into office automation, which proved to be a disaster, and then into a series of unrelated acquisitions. Fell into the “sell the sizzle, but never deliver the steak” syndrome. The flywheel came to a grinding halt.14


Hasbro is the one comparison company that nearly got it all right. It built spectacular results by consistently pursuing the Hedgehog Concept of revitalizing classic toy brands, like G.I. Joe. Unfortunately, the architect of the initial transformation died unexpectedly at a young age.His successor appeared to be more a Level 3 (competent manager) than a Level 5 leader. The fly-wheel slowed. The CEO reacted with restructuring and eventually hired an outsider to rebuild momentum.15


If there ever was a company that skipped the buildup stage, it’s Rubbermaid. Its transition CEO launched “a complete restructuring of the company, a very dramatic and traumatic undertaking.” Growth became the mantra, growth even at the expense of long-term momentum in the flywheel. When the CEO retired, it became clear that he was the primary force in the flywheel, not a strong team guided by a systematic Hedgehog Concept. The flywheel slowed; the company succumbed to restructuring disease and selling the future without delivering results. Rubbermaid fell from Fortune’s number one most admired to being acquired by Newell, in just five years.16


Teledyne rose and fell with the genius of one man, Henry Singleton, known as the Sphinx. The company’s Hedgehog Concept was, in essence: Follow Henry’s brain. Singleton engineered over a hundred acquisitions, in fields from electronics to exotic metals. The problems arose when Henry retired and took his brain with him. Teledyne fell into a downward spiral, eventually merging with Allegheny.17