Why Companies Stumble

Failure is more likely to result from corporate overreaching than from complacency.

In his best-selling chronicles of business excellence, Built to Last (1994) and Good to Great (2001), author and business consultant Jim Collins explained how successful companies get that way and what they do to stay on top. As you might expect, the passage of time hasn't been kind to all the companies on which Collins heaped well-deserved (at least at the time) praise. Motorola and Ford, for example, weren't quite as "built to last" as expected. Fannie Mae and Circuit City went from paragons to disasters. Now Collins has published another thoroughly engaging book, How the Mighty Fall ($24), turning his attention this time to why once-great companies decline.

Big isn't always great. Investors can gain a lot of insight from Collins's new book. He finds, for example, that failure is much more likely to result from corporate overreaching than from complacency. In confusing "big" with "great," companies put themselves on the road to ruin by overdiversifying, moving into businesses in which they cannot be leaders and growing beyond their management's capacity to execute effectively.

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Whitney Tilson
Contributing Editor, Kiplinger's Personal Finance