The Flywheel and The Doom Loop - 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)

Chapter 8. The Flywheel and The Doom Loop

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Revolution means turning the wheel.

—IGOR STRAVINSKY1

Picture a huge, heavy flywheel—a massive metal disk mounted horizontally on an axle, about 30 feet in diameter, 2 feet thick, and weighing about 5,000 pounds. Now imagine that your task is to get the flywheel rotating on the axle as fast and long as possible.

Pushing with great effort, you get the flywheel to inch forward, moving almost imperceptibly at first. You keep pushing and, after two or three hours of persistent effort, you get the flywheel to complete one entire turn.

You keep pushing, and the flywheel begins to move a bit faster, and with continued great effort, you move it around a second rotation. You keep pushing in a consistent direction. Three turns ... four ... five ... six ... the flywheel builds up speed ... seven ... eight ... you keep pushing ... nine ... ten ... it builds momentum ... eleven ... twelve ... moving faster with each turn ... twenty ... thirty ... fifty ... a hundred.

Then, at some point—breakthrough! The momentum of the thing kicks in in your favor, hurling the flywheel forward, turn after turn ... whoosh! ... its own heavy weight working for you. You’re pushing no harder than during the first rotation, but the flywheel goes faster and faster. Each turn of the flywheel builds upon work done earlier, compounding your investment of effort. A thousand times faster, then ten thousand, then a hundred thousand. The huge heavy disk flies forward, with almost unstoppable momentum.

Now suppose someone came along and asked, “What was the one big push that caused this thing to go so fast?”

You wouldn’t be able to answer; it’s just a nonsensical question. Was it the first push? The second? The fifth? The hundredth? No! It was all of them added together in an overall accumulation of effort applied in a consistent direction. Some pushes may have been bigger than others, but any single heave—no matter how large—reflects a small fraction of the entire cumulative effect upon the flywheel.

BUILD UP AND 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. There was no single defining action, no grand program, no one killer innovation, no solitary lucky break, no wrenching revolution. Good to great comes about by a cumulative process—step by step, action by action, decision by decision, turn by turn of the flywheel—that adds up to sustained and spectacular results.

Yet to read media accounts of the companies, you might draw an entirely different conclusion. Often, the media does not cover a company until the flywheel is already turning at a thousand rotations per minute. This entirely skews our perception of how such transformations happen, making it seem as if they jumped right to breakthrough as some sort of an overnight metamorphosis.

For example, on August 27, 1984, Forbes magazine published an article on Circuit City. It was the first national-level profile ever published on the company. It wasn’t that big of an article, just two pages, and it questioned whether Circuit City’s recent growth could continue.2 Still, there it was, the first public acknowledgment that Circuit City had broken through. The journalist had just identified a hot new company, almost like an overnight success story.

This particular overnight success story, however, had been more than a decade in the making. Alan Wurtzel had inherited CEO responsibility from his father in 1973, with the firm close to bankruptcy. First, he rebuilt his executive team and undertook an objective look at the brutal facts of reality, both internal and external. In 1974, still struggling with a crushing debt load, Wurtzel and his team began to experiment with a warehouse showroom style of retailing (large inventories of name brands, discount pricing, and immediate delivery) and built a prototype of this model in Richmond, Virginia, to sell appliances. In 1976, the company began to experiment with selling consumer electronics in the warehouse showroom format, and in 1977, it transformed the concept into the first-ever Circuit City store.

The concept met with success, and the company began systematically converting its stereo stores into Circuit City stores. In 1982—with nine years of accumulated turns on the flywheel—Wurtzel and his team committed fully to the concept of the Circuit City superstore. Over the next five years, as it shifted entirely to this concept, Circuit City generated the highest total return to shareholders of any company on the New York Stock Exchange.3 From 1982 to 1999, Circuit City generated cumulative stock returns twenty-two times better than the market, handily beating Intel, Wal-Mart, GE, Hewlett-Packard, and Coca-Cola.

Not surprisingly, Circuit City then found itself a prime subject for media attention. Whereas we found no articles of any significance in the decade leading up the transition, we found ninety-seven articles’ worth examining in the decade after the transition, twenty-two of them significant pieces. It’s as if the company hadn’t even existed prior to that, despite having traded on a major stock exchange since 1968, and despite the remarkable progress made by Wurtzel and his team in the decade leading up to the breakthrough point.

The Circuit City experience reflects a common pattern. In case after case, we found fewer articles in the decade leading up to the point of transition than in the decade after, by an average factor of nearly three times.4

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For example, Ken Iverson and Sam Siegel began turning the Nucor flywheel in 1965. For ten years, no one paid any attention, certainly not the financial press or the other steel companies. If you had asked executives at Bethlehem Steel or U.S. Steel about “The Nucor Threat” in 1970, they would have laughed, if they even recognized the company name at all (which is doubtful). By 1975, the year of its transition point on the stock chart, Nucor had already built its third mini-mill, long established its unique culture of productivity, and was well on its way to becoming the most profitable steel company in America.5 Yet the first major article in Business Week did not appear until 1978, thirteen years after the start of the transition, and not in Fortune until sixteen years out. From 1965 through 1975, we found only eleven articles on Nucor, none of them significant. Then from 1976 through 1995, we collected ninety-six articles on Nucor, forty of them being major profiles or nationally prominent features.

Now, you might be thinking, “But we should expect that. Of course these companies would get more coverage after they become wildly successful. What’s so important about that?”

Here’s what’s important. We’ve 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, almost revolutionary breakthroughs. But from the inside, they feel completely different, more like an organic development process.

Picture an egg just sitting there. No one pays it much attention until, one day, the egg cracks open and out jumps a chicken! All the major magazines and newspapers jump on the event, writing feature stories—“The Transformation of Egg to Chicken!” “The Remarkable Revolution of the Egg!” “Stunning Turnaround at Egg!”—as if the egg had undergone some overnight metamorphosis, radically altering itself into a chicken.

But what does it look like from the chicken’s point of view? It’s a completely different story. While the world ignored this dormant-looking egg, the chicken was evolving, growing, developing, incubating. From the chicken’s point of view, cracking the egg is simply one more step in a long chain of steps leading up to that moment—a big step, to be sure, but hardly the radical, single-step transformation it looks like to those watching from outside the egg.

It’s a silly analogy, granted. But I’m using it to highlight a very important finding from our research. We kept thinking that we’d find “the one big thing,” the miracle moment that defined breakthrough. We even pushed for it in our interviews. But the good-to-great executives simply could not pinpoint a single key event or moment in time that exemplified the transition. Frequently, they chafed against the whole idea of allocating points and prioritizing factors. In every good-to-great company, at least one of the interviewees gave an unprompted admonishment, saying something along the lines of, “Look, you can’t dissect this thing into a series of nice little boxes and factors, or identify the moment of ‘Aha!’ or the ‘one big thing.’ It was a whole bunch of interlocking pieces that built one upon another.”

Even in the most dramatic case in our study—Kimberly-Clark selling the mills—the executives described an organic, cumulative process. “Darwin did not change the direction of the company overnight,” said one Kimberly-Clark executive. “He evolved it over time.”6 “The transition wasn’t like night and day,” said another. “It was gradual, and I don’t think it was entirely clear to everybody until a few years into it.”7 Of course, selling the mills was a gigantic push on the flywheel, but it was only one push. After selling the mills, the full transformation into the number one paper-based consumer products company required thousands of additional pushes on the flywheel, big and small, accumulated one on top of another. It took years to gain enough momentum for the press to openly herald Kimberly-Clark’s shift from good to great. Forbes wrote, “When... Kimberly-Clark decided to go head to head against P&G... this magazine predicted disaster. What a dumb idea. As it turns out, it wasn’t a dumb idea. It was a smart idea.”8 The amount of time between the two Forbes articles? Twenty-one years.

While working on the project, we made a habit of asking executives who visited our research laboratory what they would want to know from the research. One CEO asked, “What did they call what they were doing? Did they have a name for it? How did they talk about it at the time?” It’s a great question, and we went back to look. The astounding answer: They didn’t call it anything.

The good-to-great companies had no name for their transformations. There was no launch event, no tag line, no programmatic feel whatsoever. 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.

Then it began to dawn on us: There was no miracle moment. (See the table on page 170.) Although it may have looked like a single-stroke breakthrough to those peering in from the outside, it was anything but that to people experiencing the transformation from within. Rather, it was a quiet, deliberate process of figuring out what needed to be done to create the best future results and then simply taking those steps, one after the other, turn by turn of the flywheel. After pushing on that flywheel in a consistent direction over an extended period of time, they’d inevitably hit a point of breakthrough.

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When teaching this point, I sometimes use an example from outside my research that perfectly illustrates the idea: the UCLA Bruins basketball dynasty of the 1960s and early 1970s. Most basketball fans know that the Bruins won ten NCAA Championships in twelve years, at one point assembling a sixty-one-game winning streak, under the legendary coach John Wooden.21

But do you know how many years Wooden coached the Bruins before his first NCAA Championship? Fifteen. From 1948 to 1963, Wooden worked in relative obscurity before winning his first championship in 1964. Year by year, Coach Wooden built the underlying foundations, developing a recruiting system, implementing a consistent philosophy, and refining the full-court-press style of play. No one paid too much attention to the quiet, soft-spoken coach and his team until—wham!—they hit breakthrough and systematically crushed every serious competitor for more than a decade.

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. At Circuit City, the buildup stage lasted nine years, at Nucor ten years, whereas at Gillette it took only five years, at Fannie Mae only three years, and at Pitney Bowes about two years. But, 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.

NOT JUST A LUXURY OF CIRCUMSTANCE

It’s important to understand that following the buildup-breakthrough flywheel model is not just a luxury of circumstance. People who say, “Hey, but we’ve got constraints that prevent us from taking this longer-term approach,” should keep in mind that the good-to-great companies followed this model no matter how dire the short-term circumstances— deregulation in the case of Wells Fargo, looming bankruptcy in the cases of Nucor and Circuit City, potential takeover threats in the cases of Gillette and Kroger, or million-dollar-a-day losses in the case of Fannie Mae.

This also applies to managing the short-term pressures of Wall Street. “I just don’t agree with those who say you can’t build an enduring great company because Wall Street won’t let you,” said David Maxwell of Fannie Mae. “We communicated with analysts, to educate them on what we were doing and where we were going. At first, a lot of people didn’t buy into that—you just have to accept that. But once we got through the dark days, we responded by doing better every single year. After a few years, because of our actual results, we became a hot stock and never looked back.”22 And a hot stock it was. During Maxwell’s first two years, the stock lagged behind the market, but then it took off. From the end of 1984 to the year 2000, $1 invested in Fannie Mae multiplied sixty-four times, beating the general market—including the wildly inflated NASDAQ of the late 1990s—by nearly six times.

The good-to-great companies were subject to the same short-term pressures from Wall Street as the comparison companies. Yet, unlike the comparison companies, they had the patience and discipline to follow the buildup-breakthrough flywheel model despite these pressures. And in the end, they attained extraordinary results by Wall Street’s own measure of success.

The key, we learned, is to harness the flywheel to manage these short-term pressures. One particularly elegant method for doing so came from Abbott Laboratories, using a mechanism it called the Blue Plans. Each year, Abbott would tell Wall Street analysts that it expected to grow earnings a specified amount—say, 15 percent. At the same time, it would set an internal goal of a much higher growth rate—say, 25 percent, or even 30 percent. Meanwhile, it kept a rank-ordered list of proposed entrepreneurial projects that had not yet been funded—the Blue Plans. Toward the end of the year, Abbott would pick a number that exceeded analyst expectations but that fell short of its actual growth. It would then take the difference between the “make the analysts happy” growth and the actual growth and channel those funds into the Blue Plans. It was a brilliant mechanism for managing short-term pressures while systematically investing in the future.23

We found no evidence of anything like the Blue Plans at Abbott’s comparison company. Instead, Upjohn executives would pump up the stock with a sales job (“Buy into our future”), reverently intoning the phrase “investing for the long-term,” especially when the company failed to deliver current results.24 Upjohn continually threw money after hare-brained projects like its Rogaine baldness cure, attempting to circumvent buildup and jump right to breakthrough with a big hit. Indeed, Upjohn reminded us of a gambler, putting a lot of chips on red at Las Vegas and saying, “See, we’re investing for the future.” Of course, when the future arrived, the promised results rarely appeared.

Not surprisingly, Abbott became a consistent performer and a favorite holding on Wall Street, while Upjohn became a consistent disappointment. From 1959 to Abbott’s point of breakthrough in 1974, the two stocks roughly tracked each other. Then they dramatically diverged, with Upjohn falling more than six times behind Abbott before being acquired in 1995.

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Like Fannie Mae and Abbott, all the good-to-great companies effectively managed Wall Street during their buildup-breakthrough years, and they saw no contradiction between the two. They simply focused on accumulating results, often practicing the time-honored discipline of under-promising and overdelivering. And as the results began to accumulate—as the flywheel built momentum—the investing community came along with great enthusiasm.

THE “FLYWHEEL EFFECT”

The good-to-great companies understood a simple truth: Tremendous power exists in the fact of continued improvement and the delivery of results. Point to tangible accomplishments—however incremental at first— and show how these steps fit into the context of an overall concept that will work. When you do this in such a way that people see and feel the buildup of momentum, they will line up with enthusiasm. We came to call this the flywheel effect, and it applies not only to outside investors but also to internal constituent groups.

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Let me share a story from the research. At a pivotal point in the study, members of the research team nearly revolted. Throwing their interview notes on the table, they asked, “Do we have to keep asking that stupid question?”

“What stupid question?” I asked.

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

“That’s not a stupid question,” I replied. “It’s one of the most important.”

“Well,” said one team member, “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 need to keep asking it,” I said. “We need to be consistent across the interviews. And, besides, it’s even more interesting that they don’t understand the question. So, keep probing. We’ve got to understand how they overcame resistance to change and got people lined up.”

I fully expected to find that getting everyone lined up—“creating alignment,” to use the jargon—would be one of the top challenges faced by executives working to turn good into great. After all, nearly every executive who’d visited the laboratory had asked this question in one form or another. “How do we get the boat turned?” “How do we get people committed to the new vision?” “How do we motivate people to line up?” “How do we get people to embrace change?”

To my great surprise, we did not find the question of alignment to be a key challenge faced by the good-to-great leaders.

Clearly, the good-to-great companies did get incredible commitment and alignment—they artfully managed change—but they never really spent much time thinking about it. It was utterly transparent to them. We learned that under the right conditions, the problems of commitment, alignment, motivation, and change just melt away. They largely take care of themselves.

Consider Kroger. How do you get a company of over 50,000 people— cashiers, baggers, shelf stockers, produce washers, and so forth—to embrace a radical new strategy that will eventually change virtually every aspect of how the company builds and runs grocery stores? The answer is that you don’t. Not in one big event or program, anyway.

Jim Herring, the Level 5 leader who initiated the transformation of Kroger, told us that he avoided any attempts at hoopla and motivation. Instead, he and his team began turning the flywheel, creating tangible evidence that their plans made sense. “We presented what we were doing in such a way that people saw our accomplishments,” said Herring. “We tried to bring our plans to successful conclusion step by step, so that the mass of people would gain confidence from the successes, not just the words.”25 Herring understood that the way to get people lined up behind a bold new vision is to turn the flywheel consistent with that vision—from two turns to four, then four to eight, then eight to sixteen—and then to say, “See what we’re doing, and how well it is working? Extrapolate from that, and that’s where we’re going.”

The good-to-great companies tended not to publicly proclaim big goals at the outset. Rather, they began to spin the flywheel—understanding to action, step after step, turn after turn. After the flywheel built up momentum, they’d look up and say, “Hey, if we just keep pushing on this thing, there’s no reason we can’t accomplish X.”

For example, Nucor began turning the flywheel in 1965, at first just trying to avoid bankruptcy, then later building its first steel mills because it could not find a reliable supplier. Nucor people discovered that they had a knack for making steel better and cheaper than anyone else, so they built two, and then three, additional mini-mills. They gained customers, then more customers, then more customers—whoosh!—the flywheel built momentum, turn by turn, month by month, year by year. Then, around 1975, it dawned on the Nucor people that if they just kept pushing on the flywheel, they could become the number one, most profitable steel company in America. Explained Marvin Pohlman: “I remember talking with Ken Iverson in 1975, and he said, ‘Marv, I think we can become the number one steel company in the U.S.’ 1975! And I said to him, ‘Now, Ken, when are you going to be number one?’ ‘I don’t know,’ he said. ‘But if we just keep doing what we’re doing, there’s no reason why we can’t become number one.’ ”26 It took over two decades, but Nucor kept pushing the fly-wheel, eventually generating greater profits than any other steel company on the Fortune 1000 list.27

When you let the flywheel do the talking, you don’t need to fervently communicate your goals. People can just extrapolate from the momentum of the flywheel for themselves: “Hey, if we just keep doing this, look at where we can go!” As people decide among themselves to turn the fact of potential into the fact of results, the goal almost sets itself.

Stop and think about it for a minute. What do the right people want more than almost anything else? They want to be part of a winning team. They want to contribute to producing visible, tangible results. They want to feel the excitement of being involved in something that just flat-out works. When the right people see a simple plan born of confronting the brutal facts—a plan developed from understanding, not bravado—they are likely to say, “That’ll work. Count me in.” When they see the monolithic unity of the executive team behind the simple plan and the selfless, dedicated qualities of Level 5 leadership, they’ll drop their cynicism. When people begin to feel the magic of momentum—when they begin to see tangible results, when they can feel the flywheel beginning to build speed—that’s when the bulk of people line up to throw their shoulders against the wheel and push.

THE DOOM LOOP

We found a very different pattern at the comparison companies. Instead of a quiet, deliberate process of figuring out what needed to be done and then simply doing it, the comparison companies frequently launched new programs—often with great fanfare and hoopla aimed at “motivating the troops”—only to see the programs fail to produce sustained results. They sought the single defining action, the grand program, the one killer innovation, the miracle moment that would allow them to skip the arduous buildup stage and jump right to breakthrough. They would push the fly-wheel in one direction, then stop, change course, and throw it in a new direction—and then they would stop, change course, and throw it into yet another direction. After years of lurching back and forth, the comparison companies failed to build sustained momentum and fell instead into what we came to call the doom loop.

Consider the case of Warner-Lambert, the direct comparison company to Gillette.

In 1979, Warner-Lambert told Business Week that it aimed to be a leading consumer products company.28

One year later, in 1980, it did an abrupt about-face and turned its sights on health care, saying, “Our flat-out aim is to go after Merck, Lilly, SmithKline—everybody and his brother.”29

In 1981, the company reversed course yet again and returned to diversification and consumer goods.30

Six years later, in 1987, Warner-Lambert did another U-turn, away from consumer goods, to try once again to be like Merck. (At the same time, the company spent three times as much on consumer-goods advertising as on R&D—a somewhat puzzling strategy, for a company trying to beat Merck.)31

In the early 1990s, reacting to Clinton-era health care reform, the company threw itself into reverse yet again and reembraced diversification and consumer brands.32

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Each new Warner-Lambert CEO brought his own new program and halted the momentum of his predecessor. Ward Hagen tried to create a breakthrough with an expensive acquisition in the hospital supply business in 1982. Three years later, his successor, Joe Williams, extracted Warner-Lambert from the hospital supply business and took a $550 million write-off.33 He tried to focus the company on beating Merck, but his successor threw the company back to diversification and consumer goods. And so it went, back and forth, lurch and thrash, with each CEO trying to make a mark with his own program.

From 1979 through 1998, Warner-Lambert underwent three major restructurings—one per CEO—hacking away 20,000 people in search of quick breakthrough results. Time and again, the company would attain a burst of results, then slacken, never attaining the sustained momentum of a buildup-breakthrough flywheel. Stock returns flattened relative to the market and Warner-Lambert disappeared as an independent company, swallowed up by Pfizer.34

The Warner-Lambert case is extreme, but we found some version of the doom loop in every comparison company. (See Appendix 8.A for a summary.) While the specific permutations of the doom loop varied from company to company, there were some highly prevalent patterns, two of which deserve particular note: the misguided use of acquisitions and the selection of leaders who undid the work of previous generations.

The Misguided Use of Acquisitions

Peter Drucker once observed that the drive for mergers and acquisitions comes less from sound reasoning and more from the fact that doing deals is a much more exciting way to spend your day than doing actual work.35 Indeed, the comparison companies would have well understood the popular bumper sticker from the 1980s, “When the going gets tough, we go shopping!”

To understand the role of acquisitions in the process of going from good to great, we undertook a systematic qualitative and quantitative analysis of all acquisitions and divestitures in all the companies in our study, from ten years before the transition date through 1998. While we noticed no particular pattern in the amount or scale of acquisitions, we did note a significant difference in the success rate of the acquisitions in the good-to-great companies versus the comparisons. (See Appendix 8.B.)

Why did the good-to-great companies have a substantially higher success rate with acquisitions, especially major acquisitions? The key to their success was that their big acquisitions generally took place after development of the Hedgehog Concept and after the flywheel had built significant momentum. They used acquisitions as an accelerator of flywheel momentum, not a creator of it.

In contrast, the comparison companies frequently tried to jump right to breakthrough via an acquisition or merger. It never worked. Often with their core business under siege, the comparison companies would dive into a big acquisition as a way to increase growth, diversify away their troubles, or make a CEO look good. Yet they never addressed the fundamental question: “What can we do better than any other company in the world, that fits our economic denominator and that we have passion for?” They never learned the simple truth that, while you can buy your way to growth, you absolutely cannot buy your way to greatness. Two big mediocrities joined together never make one great company.

Leaders Who Stop the Flywheel

The other frequently observed doom loop pattern is that of new leaders who stepped in, stopped an already spinning flywheel, and threw it in an entirely new direction. Consider Harris Corporation, which applied many of the good-to-great concepts in the early 1960s and began a classic buildup process that led to breakthrough results. George Dively and his successor, Richard Tullis, identified a Hedgehog Concept, based on the understanding that Harris could be the best in the world at applying technology to printing and communications. Although it did not adhere to this concept with perfect discipline (Tullis had a penchant for straying a bit outside the three circles), the company did make enough progress to produce significant results. It looked like a promising candidate for a good-to-great transformation, hitting breakthrough in 1975.

Then the flywheel came to a grinding halt.

In 1978, Joseph Boyd became chief executive. Boyd had previously been with Radiation, Inc., a corporation acquired by Harris years earlier. His first key decision as CEO was to move the company headquarters from Cleveland to Melbourne, Florida—Radiation’s hometown, and the location of Boyd’s house and forty-seven-foot powerboat, the Lazy Rascal.36

In 1983, Boyd threw a giant wrench into the flywheel by divesting the printing business. At the time, Harris was the number one producer of printing equipment in the world. The printing business was one of the most profitable parts of the company, generating nearly a third of total operating profits.37 What did Boyd do with the proceeds from selling off this corporate gem? He threw the company headlong into the office automation business.

But could Harris become the best in the world in office automation? Not likely. “Horrendous” software-development problems delayed introduction of Harris’ first workstation as the company stumbled onto the battlefield to confront IBM, DEC, and Wang.38 Then, in an attempt to jump right to a new breakthrough, Harris spent a third of its entire corporate net worth to buy Lanier Business Products, a company in the low-end word processing business.39 Computerworld magazine wrote: “Boyd targeted the automated office as a key .... Unfortunately, for Harris, the company had everything but an office product. The attempt to design and market a word processing system met with dismal failure ... out of tune with the market, and had to be scrapped before introduction.”40

The flywheel, which had been spinning with great momentum after Dively and Tullis, came detached from the axle, wobbled into the air, and then crashed to a grinding halt. From the end of 1973 to the end of 1978, Harris beat the market by more than five times. But from the end of 1978 to the end of 1983, Harris fell 39 percent behind the market, and by 1988 it had fallen over 70 percent behind. The doom loop replaced the fly-wheel.

THE FLY WHEEL AS A WRAPAROUND IDEA

When I look over the good-to-great transformations, the one word that keeps coming to mind is consistency. Another word offered to me by physics professor R. J. Peterson is coherence. “What is one plus one?” he asked, then paused for effect. “Four! In physics, we have been talking about the idea of coherence, the magnifying effect of one factor upon another. In reading about the flywheel, I couldn’t help but think of the principle of coherence.” However you phrase it, the basic idea is the same: Each piece of the system reinforces the other parts of the system to form an integrated whole that is much more powerful than the sum of the parts. It is only through consistency over time, through multiple generations, that you get maximum results.

In a sense, everything in this book is an exploration and description of the pieces of the buildup-to-breakthrough flywheel pattern. (See the table on page 183.) In standing back to survey the overall framework, we see that every factor works together to create this pattern, and each component produces a push on the flywheel.

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It all starts with Level 5 leaders, who naturally gravitate toward the fly-wheel model. They’re less interested in flashy programs that make it look like they are Leading! with a capital L. They’re more interested in the quiet, deliberate process of pushing on the flywheel to produce Results! with a capital R.

Getting the right people on the bus, the wrong people off the bus, and the right people in the right seats—these are all crucial steps in the early stages of buildup, very important pushes on the flywheel. Equally important is to remember the Stockdale Paradox: “We’re not going to hit breakthrough by Christmas, but if we keep pushing in the right direction, we will eventually hit breakthrough.” This process of confronting the brutal facts helps you see the obvious, albeit difficult, steps that must be taken to turn the flywheel. Faith in the endgame helps you live through the months or years of buildup.

Next, when you attain deep understanding about the three circles of your Hedgehog Concept and begin to push in a direction consistent with that understanding, you hit breakthrough momentum and accelerate with key accelerators, chief among them pioneering the application of technology tied directly back to your three circles. Ultimately, to reach breakthrough means having the discipline to make a series of good decisions consistent with your Hedgehog Concept—disciplined action, following from disciplined people who exercise disciplined thought. That’s it. That’s the essence of the breakthrough process.

In short, if you diligently and successfully apply each concept in the framework, and you continue to push in a consistent direction on the fly-wheel, accumulating momentum step by step and turn by turn, you will eventually reach breakthrough. It might not happen today, or tomorrow, or next week. It might not even happen next year. But it will happen.

And when it does, you will face an entirely new set of challenges: how to accelerate momentum in response to ever-rising expectations, and how to ensure that the flywheel continues to turn long into the future. In short, your challenge will no longer be how to go from good to great, but how to go from great to enduring great. And that is the subject of the last chapter.

*Credit for the terms buildup and breakthrough should go to David S. Landes and his book, The Wealth and Poverty of Nations: Why Some Are So Rich and Some So Poor (New York: W. W. Norton & Company, 1998). On page 200, Landes writes: “The question is really twofold. First, why and how did any country break through the crust of habit and conventional knowledge to this new mode of production? Turning to the first, I would stress buildup—the accumulation of knowledge and know-how; and breakthrough—reaching and passing thresholds.” When we read this paragraph, we noted its applicability to our study and decided to adopt these terms in describing the good-to-great companies.

Chapter Summary
The Flywheel And The Doom Loop

KEY POINTS

✵ Good-to-great transformations often look like dramatic, revolutionary events to those observing from the outside, but they feel like organic, cumulative processes to people on the inside. The confusion of end outcomes (dramatic results) with process (organic and cumulative) skews our perception of what really works over the long haul.

✵ No matter how dramatic the end result, the good-to-great transformations never happened in one fell swoop. There was no single defining action, no grand program, no one killer innovation, no solitary lucky break, no miracle moment.

✵ Sustainable transformations follow a predictable pattern of buildup and breakthrough. Like pushing on a giant, heavy flywheel, it takes a lot of effort to get the thing moving at all, but with persistent pushing in a consistent direction over a long period of time, the flywheel builds momentum, eventually hitting a point of breakthrough.

✵ The comparison companies followed a different pattern, the doom loop. Rather than accumulating momentum—turn by turn of the flywheel—they tried to skip buildup and jump immediately to breakthrough. Then, with disappointing results, they’d lurch back and forth, failing to maintain a consistent direction.

✵ The comparison companies frequently tried to create a breakthrough with large, misguided acquisitions. The good-to-great companies, in contrast, principally used large acquisitions after breakthrough, to accelerate momentum in an already fast-spinning flywheel.

UNEXPECTED RESULTS

✵ Those inside the good-to-great companies were often unaware of the magnitude of their transformation at the time; only later, in retrospect, did it become clear. They had no name, tag line, launch event, or program to signify what they were doing at the time.

✵ The good-to-great leaders spent essentially no energy trying to “create alignment,” “motivate the troops,” or “manage change.” Under the right conditions, the problems of commitment, alignment, motivation, and change largely take care of themselves. Alignment principally follows from results and momentum, not the other way around.

✵ The short-term pressures of Wall Street were not inconsistent with following this model. The flywheel effect is not in conflict with these pressures. Indeed, it is the key to managing them.