Chapter 8, G2G : “The Flywheel and the Doom Loop”

1. Chapter 8, G2G:“The Flywheel and the Doom Loop” Team II Josh Pavlik, Jennifer Rogas, Logan Reynolds, Corbin Ray, Marlee Armstrong, Amy Drake

2. “Revolution means turning the wheel.” -Igor Stravinsky

3. Buildup and Breakthrough • “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.

4. Apple • 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

5. Media Accounts • 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

6. Circuit City • 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

7. Nucor • 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

8. What’s Important • 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

9. NO Miracle Moment • 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

10. Circuit City • “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

11. UCLA Bruins Basketball Dynasty • 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

12. Not Just a Luxury of Circumstance • 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

13. Short Term Pressures 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

14. The “Flywheel Effect” • 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

15. The Flywheel Effect

16. Near Revolt • “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.”

17. 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

18. 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

19. People • 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

20. The Doom Loop • 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

22. 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

23. The Misguided Use of Acquisitions • 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

24. Leaders Who stop the Flywheel • 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

25. 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

26. 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

27. The Flywheel as a Wraparound Idea • 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

28. Flywheel or Doom Loop? • 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.

29. 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.

30. Flywheel as a Wraparound Idea • 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

31. Brief Summary • 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