TEAM 2
CAITLIN CLARK
STEPHEN MASSIMI
WILL MAYRATH
KATIE TREVINO
MATT VATANKHAH
 Picture
a huge, heavy flywheel
 Then, at some point—
breakthrough!
 There is no single action that
creates the breakthrough
 It is an accumulation of events
Buildup and Breakthrough
The flywheel image captures the overall
feel of what it was like inside the
companies that went from good to great
 Example: Circuit City
 Since it’s a gradual transition, some
people do not realize what is happening
until a few years into it

Buildup and Breakthrough,
continued
We allow 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
 There is no single miracle

 To the people on the inside, it was a quiet,
deliberate process of figuring out what
needed to be done to create the best future
results and then simply take those steps
Buildup and Breakthrough,
continued

Example: UCLA Bruins

No matter how short or long it took,
every good-to-great company
transformation followed the basic steps,
accumulating momentum, turn by turn,
until breakthrough
Not Just a Luxury of Circumstance
After Buildup-Breakthrough Flywheel Model,
it’s not just a luxury of circumstance
 Good-to-Great companies followed this
model no matter how bad their short-term
circumstances were

 Wells Fargo—deregulation
 Nucor and Circuit City—looming bankruptcy
 Gillette and Kroger—potential takeover threats
 Fannie Mae—million-dollar-a-day losses
Not Just a Luxury of Circumstance,
continued
Companies must also manage the short-term
pressures of Wall Street
 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, Good-to-
Great companies had the patience and discipline
to follow the buildup-breakthrough flywheel model
despite these pressures
 In the end, they attained extraordinary results by
Wall Street’s own measure of success
Not Just a Luxury of Circumstance,
continued
The key is to harness the flywheel to manage
these short-term pressures
 Example: Abbott Laboratories—Blue Plans

 Would tell Wall Street analysts that it expected to
grow earnings of a specified amount which would be
lower than their internal goal
 Kept rank-ordered list of the proposed entrepreneurial
projects that had not yet been funded—the Blue Plans
 Abbott would pick a number that exceeded analysts’
expectations but fell short of the actual growth rate
○ Would then take the difference between the “make
analysts happy” growth and the actual growth and
channel those funds into the Blue Plans
Not Just a Luxury of Circumstance,
continued

Example: Abbott Laboratories, continued
 Brilliant mechanism for managing short-term
pressures
 No evidence that comparison company, Upjohn,
did anything similar
○ Was only investing for the future
 Abbott became a consistent performer, breaking
through in 1974 with Upjohn falling behind
 Good-to-Great companies effectively manage
Wall Street during their buildup-breakthrough
years
○ Practice the time-honored discipline of under-
promising and over-delivering
The “Flywheel Effect”

“Tremendous power exists in the fact of
continued improvement and the delivery
of results.”
 Tangible accomplishments can be a very
useful tool to build momentum in the
flywheel
○ Even incremental accomplishments at first
○ Must show how these accomplishments fit into
the overall concept
○ People must see and feel these
accomplishments
The “Flywheel Effect,” continued

When accomplishments are pointed to,
people will line up with enthusiasm
The “Flywheel Effect,” continued

Good-to-Great companies don’t worry
about consciously creating commitment
and alignment
 Kroger can’t get a company of over 50,000
people to embrace a radical new strategy
○ Jim Herring, Kroger’s Level 5 leader, avoided
any attempts at motivation
○ He and his team began turning the flywheel,
creating tangible evidence that their plans
made sense
The “Flywheel Effect,” continued

Instead of publicly proclaiming huge
goals, Good-to-Great companies began
spinning the flywheel, step by step, turn
by turn
 After momentum was built, they could look
up and say, “Hey, if we just keep pushing on
this thing, there’s no reason we can’t
accomplish X.”
The “Flywheel Effect,” continued

Nucor Example
 Nucor began turning the flywheel in 1965
○ Trying to avoid bankruptcy (Starting to push)
○ Building first steel mills because of lack of reliable
supplier (Building speed and momentum)
○ Realized they could build steel better and cheaper
than anyone else, so built two, then three additional
mini-mills (Building even more speed and
momentum)
 In 1974, it dawned on Nucor that they could
become the most profitable steel company in
America
○ It took 20 years of doing what they were doing,
pushing the flywheel to become number one
The “Flywheel Effect,” continued

Overview (page 177)
 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
The “Flywheel Effect,” continued

Overview, continued
 The right people 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 people can see tangible results, when they
can feel the flywheel beginning to build speed,
then the majority of people will line up and help
push
The Doom Loop

Collins and his team found a very different
pattern in the comparison companies
 They instead frequently launched new programs
aimed at “motivating the troops” only to see the
programs fail to produce sustained results
 They sought a single defining action, the miracle
moment that would allow them to skip right to the
breakthrough
 After years of lurching the flywheel back and
forth, the comparison companies failed to build
sustained momentum and fell into what came to
be called the doom loop
The Doom Loop, continued

Example: Warner-Lambert
 Direct comparison company to Gillette
 In 1979, told Business Week it aimed to be a




leading consumer products company
In 1980, redirected its aim to health care
companies, such as Merck
In 1981, returned to a consumer goods focus
In 1987, again aimed toward Merck
Finally, in the early 1990s, reversed again to a
consumer goods aim
The Doom Loop, continued

Example: Warner-Lambert, continued
 From 1979 to 1998, Warner-Lambert
underwent three major restructurings—and
changed CEOs for each—in search of
breakthrough results
○ Each CEO brought in a new program, halting
the momentum of his predecessor
 Time and again, the company would attain a
burst of results, then slacken, never
attaining the sustained momentum of a
buildup-breakthrough flywheel
The Doom Loop, continued
The Doom Loop is shown on page 179
 The Warner-Lambert case is extreme, but some
version of the doom loop was found in every
comparison company

 A full list is given in Appendix 8.A (page 254)

While the specific permutations of the doom
loop varied by company, there were some highly
prevalent patterns, notably:
 The misguided use of acquisitions
 The selection of leaders who undid the work of
previous generations
The Misguided Use of Acquisitions
To understand the role of acquisitions in the
process of going from good to great, the
team undertook a systematic qualitative and
quantitative analysis of all acquisitions and
divestitures of the companies in the study
 No pattern was noticed in the amount or
scale of acquisitions, but there was a
significant difference in the success rate of
the acquisitions in the good-to-great
companies versus the comparisons

 For a full list, see Appendix 8.B (page 259)
The Misguided Use of Acquisitions,
continued

So, why did the good-to-great
companies have a substantially higher
success rate with acquisitions?
 The key to their success was that their big
acquisitions generally took place after the
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
The Misguided Use of Acquisitions,
continued

The comparison companies frequently
tried to jump right to to breakthrough via
an acquisition or merger
 It never worked

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 and already
spinning flywheel, and threw it in an
entirely new direction

One company that has suffered from
this doom loop pattern is Harris
Corporation
Leaders Who Stop the Flywheel,
continued

Example: Harris Corporation
 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 and
strove to be the best in the world at applying
technology to printing and communications
 Reached breakthrough results in 1975
Leaders Who Stop the Flywheel,
continued

Example: Harris Corporation, continued
 Spinning flywheel began to slow down in 1978
due to newly chief executive Joseph Boyd
 Boyd’s first decision was to move the
headquarters from Cleveland to his hometown in
Florida
 Flywheel came to a grinding halt in 1983 when
Boyd divested the printing business
 Boyd decided to throw the company into the office
automation business
Leaders Who Stop the Flywheel,
continued

Example: Harris Corporation, continued
 Attempted to design office automation which
would rival producers such as IBM, DEC,
and Wang
 Spent 1/3 of its entire corporate net worth to
buy Lanier Business Products, a low-end
word processing company
 Idea was scrapped before introduction into
the market
 Project was an epic fail
Leaders Who Stop the Flywheel,
continued

Example: Harris Corporation, continued
 From the end of 1973 to the end of 1978,
Harris beat the market by more than five
times
 From the end of 1978 to the end of 1983,
Harris fell 39% behind the market
 By 1988, Harris had fallen over 70% behind
the market
The Flywheel: A Wraparound Idea

Consistency and coherence

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
How To Tell If You’re on the Flywheel
Signs That You’re on the Signs That You’re in the
Flywheel
Doom Loop
Follow a pattern of buildup leading
to breakthrough
Skip buildup and jump right to
breakthrough
Reach breakthrough by an
accumulation of steps, one after
the other, turn by turn of the
flywheel; feels like an organic
evolutionary process
Implement big programs, radical
change efforts, dramatic
revolutions; chronic restructuring—
always looking for a miracle
moment or a new savior
How To Tell If You’re on the Flywheel,
continued
Signs That You’re on the
Flywheel
Signs That You’re in the
Doom Loop
Confront the brutal facts to see
clearly what steps must be taken to
build momentum
Embrace fads and engage in
management hoopla, rather than
confront the brutal facts
Attain consistency with a clear
Hedgehog Concept, resolutely
staying within the three circles
Demonstrate chronic
inconsistency—lurching back and
forth and straying far outside the
three circles
Follow the pattern of disciplined
people, disciplined thought,
disciplined action
Jump right into action, without
disciplined thought and without first
getting the right people on the bus
How To Tell If You’re on the Flywheel,
continued
Signs That You’re on the
Flywheel
Signs That You’re in the
Doom Loop
Harness appropriate technologies to
your Hedgehog Concept to
accelerate momentum
Run about like Chicken Little in
reaction to technology change,
fearful of being left behind
Make major acquisitions after
breakthrough (if at all) to accelerate
momentum
Make major acquisitions before
breakthrough in a doomed attempt
to create momentum
Spend little energy trying to motivate
or align people; the momentum of
the flywheel is infectious
Spend a lot of energy trying to align
and motivate people, rallying them
around new visions
How To Tell If You’re on the Flywheel,
continued
Signs That You’re on the
Flywheel
Signs That You’re in the
Doom Loop
Let results do most of the talking
Spend a lot of energy trying to align
and motivate people, rallying them
around new visions
Maintain consistency over time; each
generation builds on the work of
previous generations; the flywheel
continues to build momentum
Demonstrate inconsistency over time;
each new leader brings a radical new
path; the flywheel grinds to a halt, and
the doom loop begins anew
How the Flywheel is Achieved



Starts with Level 5 leaders who are naturally
attracted towards a flywheel concept, concentrating
on the process of pushing the flywheel and yielding
results rather than flashy, misleading programs
Getting the right people on the bus, the wrong
people off the bus, and the right people into the
right seats
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.”
 Confronting the brutal facts helps to see the obvious, yet
difficult, steps that must be taken to turn the wheel
How the Flywheel is Achieved,
continued

Continuing to push in a consistent
direction on the flywheel and
accumulating momentum step by step
and turn by turn will eventually cause
you to reach breakthrough
“It might not happen today, or tomorrow, or
next week. It might not even happen
next year. But it will happen.” –Jim
Collins