THE FLYWHEEL AND THE DOOM LOOP Good to Great

Introduction Momentum of the flywheel eventually kicks in after a lot of persistent pushing.

Buildup and Breakthrough The good-to-great transformation never happened in one fell swoop (although due to the media it may seem so)  Found fewer articles in the decade leading up to the point of transition than in the decade after  Google example We have allowed the way transitions look from the outside to drive our perception of what they must feel like to those on the inside  They look dramatic and revolutionary from the outside, but inside they feel like a slop development process.

Quick Changes? Good-to-great managers said they could not pinpoint a single key event or moment in which the transition happened. There is no “aha” moment where everything is realized. The most successful companies evolve over time, and do not dramatically change.

Quick Changes? The good-to-great companies had no name for their transformation, with no launch events or big tag lines. Some executives were not even aware that major transformation was under way. After pushing the flywheel in a consistent direction a breakthrough would happen. “The transition to focus on the superstore didn’t happen overnight.” – Circuit City rep “There was no magical event…” – Fannie Mae rep “It wasn’t a single switch that was thrown at one time.” – Wells Fargo rep

Example Legendary UCLA basketball coach John Wooden won 10 NCAA championships. BUT it took him 15 years before he won his first championship. It takes time to build a foundation. This is a good example of the flywheel model because slowly gaining momentum and not expecting changes to happen over night is a good strategy.

Not Just a Luxury of Circumstance Good-to-great companies followed the flywheel model regardless of the short-term consequences. The Fannie Mae stocks fell before it eventually took off. Unlike comparison companies, good-to-great companies had the patience and discipline to let the model progress.

Blue Plans Used at Abbott Laboratories Abbot would tell Wall Street analysts that it expected to grow for an amount (15 percent), while at the same time the internal goal is (25 percent). This way, the analysts would think Abbott did extremely well, when in reality they simply met their internal goals. The difference between the analysts numbers and their internal numbers were used to invest in the future. A comparison group, Upjohn, had their people “investing in the long term” which the company was unable to achieve. Under-promising and over delivering is the key of blue plans.

Steps forward consistent with hedgehog concept Flywheel builds momentum Accumulation of viable results People line up The Flywheel Effect

Companies understand the simple truth that power exists in the fact of continued improvement and the delivery of results When people see and feel the buildup of momentum, they will line up with enthusiasm Applies to the company internally, and to outside investors.

Alignment Not one of the key challenges faced by managers of good to great companies. Good to great companies did have tremendous commitment from employees and effective alignment, but it was not something they thought about or spent much time on. Under the right conditions the problems of commitment, motivation and alignment melt away and take care of themselves.

Letting the Flywheel Do the Work Good to great companies did not publicly proclaim huge goals they kept chipping away until they eventually reached their goals. They were patient and kept doing the things that made them successful. People want to be part of a winning team, they want to contribute and see their contribution.

Flywheel Effect When you let the flywheel do the talking you do not have to keep communicating your goals. People extrapolate from the momentum of the flywheel themselves. They realize that if they can keep doing what their doing they can reach their goals from start to finish.

The Doom Loop Pushing the flywheel in one direction, gaining momentum, then stopping and changing course then throwing it in a new direction, and repeating this cycle over and over. o Comparison Companies

Acquisitions & Stopping the Flywheel The Misguided Use of Acquisitions o Significant difference in the success rate of the acquisitions in the good-to-great companies versus the comparison companies. o Good-to-great companies used acquisitions as an accelerator of flywheel momentum, not a creator of it. o The comparisons often tried to jump straight to a breakthrough via an acquisition or merger.  Never worked Leaders who Stop the Flywheel o New leaders who step in, stop an already spinning flywheel, and throw it in an entirely new direction.  Ex. Harris Corporation

The Flywheel as a Wraparound Idea Every factor is important and works together to create a pattern, and each component produces a push on the flywheel. o It all starts with Level 5 leaders who naturally gravitate toward the flywheel model. o Getting the right people on the bus, the wrong people off the bus, and the right people in the right seats. o Remembering the Stockdale Paradox o Next, when you attain deep understanding about the 3 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. In short, your challenge will no longer be how to go from good to great, but how to go from great to enduring great.

Takeaways #1-The good-to-great transformation may look dramatic and revolutionary from the outside, but inside they feel like a slow, constant development process. #2-Good-to-great managers said they could not pinpoint a single key event or moment in which the transition happened. #3-People want to be part of a winning team. they want to contribute and see their impact on the company. they want to be involved in something that works and works well

Takeaways cont. #4- The doom loop was demonstrated by all comparison companies by swaying back and forth, failing to maintain a consistent direction while the good-to-great companies demonstrated the flywheel. #5-The comparison companies frequently tried to create a breakthrough with large misguided acquisitions and leadership inconsistencies while the good-to-great companies used acquisitions to accelerate momentum in an already fast-spinning flywheel.