Chapter 8, G2G:“The Flywheel and the

Doom Loop”Team II

Josh Pavlik, Jennifer Rogas, Logan Reynolds, Corbin Ray, Marlee Armstrong, Amy Drake

“Revolution means turning the wheel.” -Igor Stravinsky

“Flywheel” example: heavy flywheel, takes a lot of effort and momentum to get it going; once it gets going and builds momentum, you eventually get a breakthrough.

The “flywheel” image captures the overall feel of what it was like inside the companies as they went from good to great. No matter how dramatic the end result, the good-to-great transformations never happened in one fell swoop.

Buildup and Breakthrough

1976-Apple I 1977-Apple II 1984-Macintosh 1989-Macintosh SE/30 1991-PowerBook 100 1994-Quicktake camera 1995-Power Macintosh 9500 1998-iMac

◦ At this point, Apple wasn’t doing so hot because Steve Jobs had been ousted back in 1985, so they brought Jobs back; after the release of this product, brought Apple back to their “all-in-one basics.” This product set Apple back onto a profitable track and could be

considered the first of Apple’s many “breakthroughs” in the computer industry

Apple

The media gives a completely different account of what happens during the good-to-great transformations◦ Often, the media will not cover a company until

the flywheel is already turning at a thousand rotations/minute

This skews our perception of how such transformations happen, making it seem as if they jumped right to the breakthrough overnight

Media Accounts

August 27th, 1984: Forbes magazine published the first national-level profile ever published on the company.◦ Talked about Circuit City’s growth and made it seem like

an overnight success story◦ From 1973-1982, Alan Wurtzel rebuilt his executive team

and experimented with a warehouse showroom style of retailing and transformed the concept into the first-ever Circuit City store; began transforming its stereo stores into Circuit City stores

◦ From 1982-1999, Circuit City generated cumulative stock returns 22 times better than the market, and this is when Circuit City found itself a prime subject for media attention

Circuit City

Steel company; 1965-1975, no media attention

1975: transition point for the company◦ Had already built its third mini-mill, well on its way to

becoming the most profitable steel company in America

First Business Week article didn’t come out until 1978, thirteen years later

1976-1995: 96 articles on Nucor, with 40 of them being major profiles or nationally prominent features

Nucor

Allowed the way transitions look from the outside to drive our perception of what they must feel like to those going through them on the inside.

From the outside, they look like dramatic and revolutionary transformations

From the inside, they feel completely different, more like an organic development process

What’s Important

Good-to-great companies had no name for their transformations

No launch event, no tag line; some executives said that they weren’t even aware that a major transformation was under way until they were well into it

It was often more obvious to them after the fact than at the time

NO Miracle Moment

“The transition to focus on the superstore didn’t happen overnight. We first considered the concept in 1974, but we didn’t convert fully to Circuit City superstores until about ten years later, after we’d redefined the concept and built enough momentum to bet our whole future on it.” -Circuit City

Circuit City

John Wooden coached the Bruins for fifteen years before his first NCAA Championship in 1964◦ Bruins then went on to win ten NCAA Championships in twelve

years, at one point assembling a sixty-one-game winning streak

Like the Wooden Dynasty, lasting transformations from good to great follow a general pattern of buildup followed by breakthrough◦ In some cases, the buildup-to-breakthrough stage takes a long

time, in other cases, a shorter time◦ No matter how short or long it took, every good-to-great

transformation followed the same basic pattern-accumulating momentum, turn by turn of the flywheel- until buildup transformed into breakthrough

UCLA Bruins Basketball Dynasty

The buildup-breakthrough flywheel model is not just a luxury of circumstance

Companies may believe their current circumstances or constraints prevent them from taking this long term approach

However, the good-to-great companies followed the flywheel model no matter how serious or urgent the short term circumstances

Not Just a Luxury of Circumstance

FANNIE MAE & ABBOTT LABORATORIES

Effectively managed Wall Street during their buildup-breakthrough years

Communicated with analysts by educating them on what they were doing and where they were going

Focused on accumulating results, often by underpromising and overdelivering

Results began to accumulate, flywheel built momentum, and investors became supporters

Short Term Pressures

Simple Truth-◦ Tremendous power exists in the fact of continued

improvement and the delivery of results.

Tangible Accomplishments◦ Show how steps fit into context of overall goal

People see and feel the buildup of momentum◦ Line up enthusiastically to join

The “Flywheel Effect”

The Flywheel Effect

“Do we really have to keep asking that stupid question?”

“The one about commitment, alignment, and how they managed change.”

“a lot of the executives who made the transition-well, they think it’s a stupid question. Some don’t even understand the question!”

“Yes we have to keep asking…besides, its even more interesting that they don’t understand the question.”

Near Revolt

Commitment Good to Great Companies have incredible

commitment and alignment◦ Spend minimal time thinking about it

Transparent to the Companies◦ Commitment takes care of itself

Keep Pushing Let momentum do the talking “Hey if we just keep doing this, look at

where we can go!” People turn potential into the fact of results

◦ The goal sets itself

Kroger 50,000 employees

◦ Cant change through one big event or program Jim Herring initiated the transformation

◦ Created tangible evidence that the plan made sense To get people lined up turn the flywheel consistent

with the vision “See what we’re doing and how well its working?

Extrapolate from that, and that’s where we’re going.”

Nucor Initiated Flywheel to avoid bankruptcy Built first steel mill to avoid unreliable suppliers

◦ Knack for creating steel better and cheaper Flywheel built momentum and Nucor kept pushing 2 decades later generated more profits than all

other steel mills on Fortune 1000 list

A winning team◦ Involved in something “that just flat out works”◦ Apple Culture…people want to be there

Plans developed from understanding not bravado◦ “That’ll work, count me in.”

Unity of Executives◦ Simple plan◦ Dedicated level 5 leadership◦ Steve Jobs makes people believe as a level 4 leader

Employees stand behind the leaders and company

People

The comparison companies did not follow the “flywheel effect” like the good to great companies, but instead fell into the doom loop◦ Comparison companies continuously launched new

programs to motivate workers towards the company’s goal, and the programs would fail

◦ Companies would push the flywheel in one direction the stop and change directions multiple times

◦ Comparison companies were not able to buildup the sustained momentum the the flywheel requires

The Doom Loop

Some version of the doom loop was found in every comparison company

Two prevalent patterns were found in the doom loops of the companies:◦ 1)The misguided use of acquisitions◦ 2)Leaders who stopped the flywheel

The good to great companies had a higher success rate with acquisitions than the comparison companies

This occurred because good to great companies used acquisitions and mergers as a way to accelerate flywheel momentum, and comparison companies used acquisitions to create flywheel momentum◦ Comparison companies made acquisitions to

increase growth, diversify away problems, or make a CEO look good

The Misguided Use of Acquisitions

Leaders coming into the organization, must focus on the already spinning flywheel, rather than throwing it in an entirely new direction

Do not turn from your “Hedgehog” concept- focus and do not deviate from what you can be the best in the world at

Just because you are seeing fast growth does not mean that you will achieve sustained growth

Leaders Who stop the Flywheel

Leaders stepping into an organization should first recognize what is working and what makes them the best in the world◦ Harris company revolted with new leadership- and

by deviating from their Hedgehog concept (applying technology to printing and communications and entering into the office automation market), the flywheel came to a halt

◦ Tim Cook, Apple’s CEO describes their hedgehog concept as being able to say no to good ideas- its unlike any other company

Leaders who stop the Flywheel

Avoiding the Doom Loop◦ To avoid the Doom Loop, leaders should stay

consistent with the process that is working◦ Apple has designed the process behind their

products to focus on their consumers, in summary they focus on the user experience being easy and in turn the EXPERIENCE of their customers is what drives their flywheel

When looking over the good-to-great transformation what words should come to mind?

◦ Consistency Going through the Flywheel continually

◦ Coherence The magnifying effect of one factor upon another

The Flywheel as a Wraparound Idea

Signs of the Flywheel◦ Follow a pattern of buildup leading to

breakthrough◦ Reach breakthrough◦ Confront the brutal facts of the company◦ Attain consistency with a clear Hedgehog concept◦ Follow pattern of disciplined people, disciplined

thought, and disciplined action.◦ Harness appropriate technologies. ◦ Make minor acquisitions to accelerate

momentum.◦ Little energy spent to motivate or align people.

Flywheel or Doom Loop?

Signs of the Doom Loop◦ Skip buildup and jump right to breakthrough.◦ Implement big radical change programs.◦ Embrace fads and management hoopla instead of

confronting brutal facts. ◦ Jump right into action◦ Run around crazy because of the technology.◦ Spending a lot of time and effort trying to

motivate people.

Flywheel or Doom Loop?

Everything starts with Level 5 leaders, who naturally gravitate toward the flywheel model. ◦ Less interested in flashy programs that make

them look good. ◦ More interested in quiet, deliberate process of

pushing the flywheel to produce “Results”◦ Right people on the bus in the correct seats◦ Wrong people off the bus◦ All of these are crucial steps in the early buildup

Flywheel as a Wraparound Idea

Buildup and Breakthrough “No Miracle Moment” Not just a Luxury of Circumstance The “Flywheel Effect” The Doom Loop The Misguided use of Acquisitions Leaders of Stop the Flywheel The Flywheel as a Wraparound Idea

Brief Summary