Five Stages of Decline Incorporated by Jim Collins

declining organization is divided in to five stages by Jim Collins. By referring to each stage an organization gets an insight about the degree and relative stages of decline it has encountered. Planning to rectify the problems by referring to the decline stage can catalyze the process of rehabilitation and reestablishment of the organization. The following paper discusses the case of Enron Company that failed on account of its myopic business judgments and decision making.

How the Mighty Fall: And Why Some Companies Never Give In

How the mighty fall is an episodic research by Jim Collins that jots together the consideration of the huge organization through there making. Contemporary organizations as a matter of fact operate on an ongoing assumption. They cede into a market precisely to operate forever and operate profitably. But yet many a times mature organizations tend to take decisions that ultimately devastate them and push them through the phase of decline. Jim Collin has adapted the model of five stages to depict the decline of an organization in the contemporary settings are augmented by the following paper (Talbot & Jakeman 2007)

Five Stages of Decline Incorporated by Jim Collins

Rather than considering decline as the ultimate step where an organization dissolves, Jim Collins attempts to stratify the stages of decline. The beneficial outcome of this stratification is that the organizations can locate themselves along the penal of changes and deformation going through in the change process, the following graphs presents a visual implication of the five stages of decline:

The stages are namely

Stage 1: Hubris Born of Success

Stage 2: Undisciplined Pursuit of More

Stage 3: Denial of Risk and Peril

Stage 4: Grasping for Salvation

Stage 5: Capitulation to Irrelevance or Death

Introduction to the Specimen Organization

Enron Company

Eron’s company originated on competitive landscape of USA back in the year 1985, as inter-state pipeline company incepted as a consequence of merger operation among Houston Natural Gas Omaha-based InterNorth. Kenneth Lay, the former chief executive officer of Houston Natural Gas, took the responsibilities as a CEO, and in the preceding years captured the designation of the chairman.

The product and service portfolio of Eron Company diversified with the passage of time and the company soon moved to new fields of operation. In the year 1999 the Eron Company initiated its “Broadband Service Unit” in addition to Eron Online, as the company’s official website. The Eron Online service was soon pronounced to be the largest business and e-commerce site across the globe. Eventually it was noted that about 90% of the total profits of the Eron Company were through trades over Eron Online (Hiles 2011).

The organization experienced rapid growth by the year 2000, when -the annual revenues of the company reached $100 Billion U.S.. The Fortune 500 ranked to asset it the seventh largest company of U.S. And subsequently sixth largest company of the world. Through the duration of enormous growth and success the Company’s Stock price peaked at $90 U.S..

The Key Business Considerations

The major agents’ Eron Online Trading

The following key players are certainly important in the facilitation of the online transactions made on Amazon. In order to understand the need of government intervention in the ecommerce activities of Amazon of the private online entrepreneurs, the basic agents of the online transaction are needed to be discussed (Hamilton 2001)

The customer

The customer is an individual who purchases online and as per the statistics about 85% people across the globe use credit cards to make online purchases, whereas 95% people of USA use credit cards for making online sales.

The merchant

The UCC ensures that the merchant has a valid merchant account based on their credit history, related personal loans, market standing and goodwill. Small and mediocre businesses as a matter of fact are unable to get their independent merchant accounts owing to the restriction of UCC on the banks to grant the merchant accounts without considering the credit score and history of a merchant.

Payment gateway

The payment gateway proceeds the credit card information entered by the customer, abiding by the requirements as imposed by the UCC. The payment gateway processes the encrypted rather coded and secure consumer information to the payment authorization to the acquiring bank.

Acquiring bank

It is the bank of the payment gateway. It decodes the encrypted consumers’ details and approaches the exact issuing authority of the cash payment (Wallace & Webber 2004).

Customer bank

The last resort for payment acquisition is the customer bank that gives the final signal that whether a payment can be executed or not. As this bank is the bank of the consumer so it gives the information about the available funds

Overview of Rise and Fall at Enron Company

The organizational wide decline was finally pronounced in the year 2001. It was when in August 2001 Jeffrey Skilling, who was considered to be the driving force behind the reengineering and the profitability of the organization and the Chief Executive Officer for 6 months announced this endeavor from the position of Chief executive Officer. In October Similar year Eron Company met up with a loss of $618 million, assumingly the company’s first ever quarterly loss in four years.

Andrew Fastow the Chief Financial Officer was substituted and subsequently the U.S. Securities and Exchange Commission initiated an investigation, pertaining to the investment partnership led by Fastow. The investigation put through the alarming realities about the complex web partnership that was nominated to conceal the Eron Company’s debt. Investors that were fluttered by the glowing success of the Eron Company faced huge losses as the stock price of Eron Company was collapsed from $90 U.S. To $1 U.S. (Broder 2006).

Finally December 2001 Eron filed the case for protection from bankruptcy, the case supposedly the biggest case of bankruptcy in the United States. With the failure of the organization about 5600 U.S. nationals lost their jobs.

In the following month the Justice Department in U.S. launched its ruthless investigation to get a track of company’s dealings and consequences of Ken Lay’s resignation as the chairman and the Chief Executive Officer

Consequently in January 2004, Fastow agreed to appeal bargain and ten-year sentence. He appealed the guilt over the court for his actions of conspiracy in the commitment of wire fraud and the other role as a conspirer as to commit securities fraud. Subsequently he agreed to cooperate with the federal prosecutors. The case further unfolded in February when Skilling entered the appeal of not being guilty of 40 charges including those of wire fraud, securities fraud, conspiracy, insider trading and making false statements on financial reports .

Associating Enron’s Decline to Jim Collins Perspective

Stage 1: Hubris Born of Success

Market Size and Trends?

The PESTEL Analysis of the industry includes the Political Factors

The political factors are important to shape the decisions made by the industry because the political issue and polices of trading across the international borders are directly linked to it.

Environmental Factors

The environmental factors contributes to the share the industry is contributing in the well being of the environment. This factor is also translated as the internal and the external environmental analysis and the nature of competition the industry face. As the industry relies heftily on the production of FMCG and other gadgets so the fact remains the point of contention that weather the industry is paying due attention on the ecological standards and if the methods of production are well enough to save the environment from all hazardous consequences (Maina 2012).

Social Factors

The social factors are denoted by the Corporate Social Responsibility of the industry. A portion of the firms revenues are invested for the betterment of the society and its dwellers at large.

Technological factors

The decision making and the nature of competitiveness in the industry is closely associated with the technological factors. As the industry is an active manufacture and deals in pure innovation, technology up gradation is certainly important and necessary for the industry to survive profitably

Economical Factors

The economic factors include the economy as well as the exchange rates. Since the recession hit most of the countries, the import and export of cars decreased. Also since most of the companies are exporting their cars the increase and decrease in dollar has a major impact on revenues of the company and eventually of the industry.

Legal Factors

The legal factors are still important in this era of globalization because the technical expertise and the finished goods of the industry are usually exported to the other parts of the world. So compliance to the legal standards of the host country remains the key factor of shaping the decision making in the industry.

Stage 2: Undisciplined Pursuit of More

Operational Requirements

Cost Leadership

Ensure economies of scale as Eron Company Sector capitalizes on the fact that it offers value for money to its clients


Eron Company Sector should ensure that the product they offer has its own USP and is very significant to face up with the exceeding completion in the market place


The focus of operational requirements revolves around cost cutting and efficiency and effectiveness in their operations.

Competitor Behavior

Cost Leadership

With the market becoming ever saturated, the product offered should be of top quality again capitalizing on the customer experiences


The unique product should be price competitive and quality which surpasses all. For that quality control should make sure of continuous improvement and innovation.


The focus of the competition is on grabbing as much a market share hence, it is impossible to do so without ensuring the best quality and price. The 5 P’s again needed to be maintained.

Financial Requirements

Cost Leadership

Eron Company Sector is in the maturity phase. It has enough finances but need to manage them smartly for efficiency in allocation of resources.


Proper planning in terms of allocation of resources should be done to ensure growth and effective measures to catering to the needs of the end consumer and satisfy them fully.


Minimum input but maximizing output is the need of the time. All processes should ensure efficient run and lack delay and red tapas in the plan implemented

Functional Specifications


Cost Leadership

To produce new products again cost effectiveness is important. Hence maintenance of economies of scale


Focus should be made on customer demands. Only what they require shall be considered and then products introduced


Have to carefully decide on which lines to diversify. What are the popular products and which ones can be complemented with an add on.


Cost Leadership

Target marketing or mass marketing depending on the product type should be done


To maximize awareness and availability of the desired product


Eron Company has to realize the target market to basically maintain the focus of the product demanded by which customers


Cost Leadership

Budgeting should be done for the product introduced


Balance the cost with the demand and production


Trial runs should be done before mass production to give a better idea

Human Resources

Cost Leadership

Foster and cooperate with customers in assisting the food they require


Efficient and trained personnel to maintain the customer experience.


Trained employees should be introduced to cater to the new product development and introduction

Information Technology

Cost Leadership

Internet marketing and other free mediums like word of mouth should be used along with the expensive ones


Inculcation of Information technology in the processes to foster the speed and access in catering to customer demands.


Order in and online transactions should be motivated to again improve the comfort and customer experience

Stage 3: Denial of Risk and Peril

Analysis of the internal environment

The internal environment of the Eron Company is assessed by the strengths and weaknesses of the firm (Galbraith 2009):


The brand equity enjoyed by has no parallels

The Eron Company offers innovation and sufficient customization to its customers

It has a wide scale popularity and acknowledgement in the local interstate markets

The Eron Company is a customer centered firm that check on regularly with the demands of the target market has a well defined and properly captured target markets produces environment friendly and ecologically sound products

The Eron Company enjoys a good supplier relationship that makes it a rapid innovator


The Eron Company fails to capitalize on its versatility, and is letting go the opportunity to produce well researched products

The product portfolio of the is limited to interstate location only, whereas a large target market is being ignored that can be prove to be profitable

Analysis of the external environment


Needs to try and gain more popularity in Asian countries by targeting on medium class segments. Technology can play an important role in targeting those segments.

Sales of the products even when there is recession in market to keep its revenues high


The inflation is reducing the purchasing power of loyal customers

Stage 4: Grasping for Salvation

Strategic Risks

1. Could damage the overall image of the chain

2. Create confusion among the customers of the product offered

3. Have to deal with a bit of hesitance of the customers for trials

4. Need to find the right balance to ensure the risks could be avoided with proper marketing and analysis of the trends.

Compliance Risks

1. Governance standards and quality standards may reject the proposed

2. Quality control might add improvements

3. May offer suggestions which need to be implemented before product introduction by the government

4. Eron Company to strike the right balance and keep the government of the county and quality checks happy with the product introduced

Operational Risks

1. The product may fail to fulfill the planned standards

2. The product may need changes which cannot be practical in operations

3. Some product requirements may not be practically fulfilled by the operations

4. Proper capabilities and a prototype product should be produced along with the test run and analysis to ensure compliance of planning with the operations

Financial Risks

1. It may prove practically unfeasible cause of high investment

2. It may prove unwise for the value for money may not be achieved

3. Some customers may not invest in healthy deals and continue using the known products

4. Ensure the budgeting done in compliance with the value provided in the new product so that customers could be made to ease to try the new product without thinking of it as risky and uncertain.

Stage 5: Capitulation to Irrelevance or Death

Potential Obstacles and Risks

The first objective the company needs to seek is to maintain a balance between its production and sales. There is apparently no advantage in producing more than the sales of the product. Particularly in the sector that involves huge cash inflows. Rather than just producing for the sake of producing the Eron Company needs to maintain a balance between the availability of the product and the demand of the product. For the accomplishment of this objective it needs to acknowledge that the production and the demand is aligned appropriately and at the same time the company launches a set of affordable luxury Eron Company to sustain profitably in the market.

Secondly Eron Company can maximize their share in the regions where there products are proving profitable. Keeping in view the validity of the fact that market condition are prone to frequent and abrupt fluctuations, like all the successful firms the Eron Company also needs to adapt and establish an effective decision making criteria to identify and cater fight and flight situations.

The second important ingredient for adapting the effective decision making is to design the course of action in a way that the limitation of information does not impact the action plan. Although for functional organizations of the industry needs to be well informed with the market place and the influential actors but yet at times the firms may not wait for acting in a particular manner until they get the complete information. Eron Company should assign an effective team of researchers who may conduct exploratory researches in order to determine the changing trends of the market so that the company can better cater the changing wants of the market

Alternative Courses of Action

Just by determining the goals and devising an action plan cannot ensure the attainment of those goals. But an effective check and balance can do the favor of attaining the goals. This is the phase of monitoring the progress. In order to align the inputs with the appropriate and required outputs monitoring plays a vital role. Monitoring is the surveillance of the company objectives in a way that if the action plan needs alteration the keeping in view the market place than the action plan is amended for effective attainment of organizational goals.

The target of achieving a workable plan for a large business like the coffee house, company is not an easy task. The company runs at the stake of its brand name and product positioning. The researchers anyhow enlist numerous steps of attaining the workable plans for business operating at large scale.

Defining the business idea clearly is the basic step for developing a workable plan. Explaining purpose of the business, mission and vision statement and the specialty is included in this step. The reason why these questions are particularly important to cater is that these provide a clear vision of the company and its reason of existence. For example the Eron Company is of the vision that they intend to manufacture luxury Eron Company for the masses the vision is anyhow modified but yet the competency of the firm is measured on the similar criterion.

The second important step in making up a workable business plan is a competitive market analysis. The step is particularly important because by conducting appropriate and timely researches the company is likely to identify some threats in the market place for the survival and retrieval of their products. Likewise it may also seek potential opportunities for the new products and marketing campaigns that may enhance the existing market line.

The third important step in making up a workable business plan is to allow flexibility with the implementation of the action plan. This step is often regarded as the step of self-architecting the business. The best course of action for Eron Company in my opinion is to align its production with the sales and focus on the markets that are receptive for Eron Company.

Destructive Conflict

Conflicts that arise are sustains among two or more parties and backed by negative, avoidant and competitive approach is classified as a destructive conflict. A destructive conflict has a negative connotation in the complex settings of contemporary organizations. The gains and interests of the parties involved are personal and the nature of conflict remains competitive. Seeking a resolution for a destructive conflict is essential in contemporary organizations, primarily because such conflicts end up in verbal and nonverbal coercions.

In the case considered for the paper, the nature of conflict between accounts and production department is a destructive one, because the conflict even though initially considered as constructive is now competitive and interpersonal interests are now surfaced owing to payments and promotions of the accounts and production department. The production department has taken the negative notion of long delays in work, wages and diluted responsibilities. On the other hand the accounts department does not understand the importance of paying the wages and clearing the dues in time.

Constructive Conflict

The other type of conflict that is widely discussed in academic and organizational context is the constructive conflict. Constructive conflicts when resolved brings out the best possible solution and the parties involved are usually found collaborating and accommodation to maintain the power equilibrium and a win-win situation. Contemporary organizations promote constructive conflict by encouraging a democratic system rather than an autocratic one. Constructive conflicts are viewed by critiques as the catalyst of progression and strategic empowerment in the organization. Constructive conflicts are usually maintained and delegated so that more and more democratically neutral opinions can be generated.

The contemporary organizations urge to sustain constructive conflicts and underwrite the destructive ones.

Interpersonal conflict

Interpersonal conflicts are destructive in nature. In the given case the cause of the conflict is an interpersonal one because the two departments now are competitive for their personal gains rather the organizational gains and production quality. The prime cause why the managerial level is unable to settle up with the conflict is because the quality standards that are needed to be abided by are necessary to check before dispatching the products to the customers.

Task conflict

The task allocation and dilution is also an important element that has caused the upheaval of the task. The tasks that were previously supervised by the production department were now delegated to the accounts and audit department.

Procedural conflict

The procedural analysis of the case signifies that the organization has revamped its procedures pertaining to the quality standards and auditing protocols. The accounts department was involved in the episode for the allocation of payments and auditing the procedural cost before apportioning the budgets for next production cycle.

The factors that have driven the conflict to due progression includes

Lack of negation of management with the production department

Lack of training of accounts department for the task delegation

Lack of management support

Over utilization of the human resource in the production department

Lack of trust among the two departments

The Role of Justice

It is evident from the preceding paragraphs that a conflict of interest can result in deviant workplace behavior which can either be minor or serious. In addition to focusing on deviant workplace behaviors, organizations have also aimed to discover the factors behind employee motivation and what makes employees committed to the organization. Motivation was inherently thought of as an internally induced phenomenon but in the recent years various factors such as organizational culture, compensation and organizational environment have contributed to employee motivation. Employees who are content with their compensation package and satisfied with the workplace environment are usually the most productive. This brings us to an important point, that of organizational equity. Often employees do not base their work attitudes on the compensation packages and workplace environment in isolation; it is usually a result of various interlinked factors dominated by perceived equity. There are four types of equity in a workplace namely external, internal, procedural and personal.

Although all four kinds of equity need to be taken into consideration often the most debated one is procedural and personal equity. Procedural equity is equity in the system as perceived by the employee and personal equity is equity in benefits received by co-workers, as perceived by employees. Often, employees tend to feel de-motivated when they perceive inequity in the system or benefits received by their co-workers. This de-motivation results in counterproductive a behavior that often makes an employee stressful and drained. In order to induce ethical behavior it is important that the system throughout the organization is just and that employees are rewarded for job related efforts as opposed to non-relevant job characteristics. This can often result in discrimination, which is one of the reasons of deviant workplace behaviors in the workplace and is often a result of organizational characteristics.


Broder, J.F., 2006, Risk analysis and the security survey, 3rd Edition, London: Elsevier Publications

Galbraith, Jay, R., 2009, Designing Matrix Organizations That Actually Work. Jossey-Bass

Hiles, A., 2011, The definitive handbook of business continuity management, 3rd Edition, West Sussex, U.K: John Wiley & Sons

Hamilton, Richard A. “The New Paradigm of Direct Marketing Research: Not the Old or the New, but a Merging of the Two.” Academy of Marketing Studies Journal 5.1 (2001): 35+. Questia. Web. 28 Nov. 2012.

Maina, F. 2012, How To Use Business Intelligence To Build Business Resilience Available at
Talbot, J., & Jakeman, M.G., 2009, Security risk management body of knowledge.Hoboken, N.J: John Wiley & Sons

Wallace, M., & Webber, L., 2004, The disaster recovery handbook: a step-by-step to ensure business continuity and protect vital operations, facilities and assets, N.Y: American Management Association

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