Good to Great
The Flywheel and the Doom Loop
Team 2
Shawn Buck
Ashley Burnett
Whitney Horton
Kelly Riester
Jennifer Shotts
Sam Snelling
Mickea Smith
Build up and Breakthrough
• What was the one push that made the
flywheel go so fast?
• All of the pushes are important, no matter
how big or small.
• The media usually reports these cases as if
they were overnight successes. This is not
true.
Circuit City Example
• The first national story about Circuit City was
August of 1984 by Forbes Magazine.
• The media reported this as if it were an
overnight success.
• The truth was that this was a result of more
than 10 years of hard work.
• There were zero articles written about Circuit
City before 1982, and close to 100 articles
within the following 10 years.
Circuit City Example Cont.
• 1973 Alan Wurtzel takes over CEO position.
– Company was near bankruptcy.
– Wurtzel rebuilt executive team and faced brutal
facts.
– 1974 They began to experiment with showroom
style retailing, selling appliances, and electronics.
– 1982 they fully committed to the new Circuit City
Superstore.
– Success!
What's important about breakthroughs?
• From the outside of the company your
breakthrough may seem big.
• To the inside of the company it is more of just
a process to get to a breakthrough.
– Ex: a chicken hatching from an egg
• To people watching the egg turning into a chicken is a
big breakthrough but to the chicken it’s a process of
life.
What do executives think?
• Good to great executives could not pinpoint a
single key event or moment in time that
exemplified the transition.
• This process will not happen over night.
– A Kimberly Clark executive said, “ Darwin evolved
it over time.”
– Selling their mill to become the number one paper
based consumer product was just one push to
becoming great.
Example
• Wal-mart
– When first opened it was just another discount store
nothing like it is today.
– There is no defining moment in time when this change
happened since “good to great” doesn’t happen instantly.
– This happened because the way that Wal-mart’s top
executives ran the company and the decisions they made
early on.
It does not happen immediately
• The book states, “lasting transformations from
good to great follow a general pattern of
buildup followed by breakthrough.”
Not Just A Luxury of Circumstance
• Its important to understand that following the
buildup-breakthrough flywheel model is not
just a luxury of circumstance.
• Good to great companies followed this model
no mater how dire the short term
circumstances.
– ex: wells fargo, nucor and circuit city
• This also applies to managing the short-term
pressures of Wall Street.
Not Just A Luxury of Circumstance
• During Maxwell’s first two years, the stock
lagged behind the market, but then it took off
– From the end of 1984 to 2000, $1 invested in
Fannie Mae multiplied 64 times, beating the
general market
• Ex: Abbott would tell wall street analysts to
expect a 15% growth in the company but
would set an internal rate of 25 to 30%.
Not Just A Luxury of Circumstance
• Upjohn ( “buy into our future”) investing for
the long-term.
• Upjohn continually threw money after
harebrained projects like Rogaine baldness
cure.
– Not surprisingly, Abbott became a consistent
performer and a favorite holding on Wall Street,
while Upjohn became a consistent
disappointment.
Not Just A Luxury of Circumstance
• Fannie Mae and Abbott, simply focused on
accumulating results, often practicing the time
honored discipline of under promising and
over delivering.
The Flywheel Effect
Steps Forward, Consistent
With Hedgehog Concept
People see and feel
tangible
accomplishments
•Results in escalating
momentum which Flywheel Builds
Momentum
increases enthusiasm
as well.
Accumulation Of
Visible Results
People Line Up,
Energized By Results
Kroger Example
Jim Herring, President
• Needed to change virtually every aspect of
how Kroger grocery stores were run
• Avoided any attempts at ‘hoopla and
motivation’
• Instead, began turning the flywheel by
creating tangible evidence that their plans
made sense
Characteristics of G2G Companies and
the Flywheel Effect
• Good-to-great companies:
– Do not publicly proclaim big goals at the beginning
(or at all)
• People will infer this from the flywheel effect
– Spin the flywheel, all the while building
momentum for their plan of action
– Have complete and selfless support from the
executive team, as well as their Level 5 Leader
– Do not always have an obvious goal in mind when
the flywheel effect engages
• Example: Nucor
Nucor Example
• Began turning their flywheel in 1965
– Looked into making their own steel because they
could not find a reliable supplier
– Realized they could make steel better and cheaper
• Took over two decades, but by continuously
pushing their flywheel, Nucor eventually
generated greater profits than any other steel
company on the Fortune 1000 list.
• It wasn’t about speed to them. The flywheel
effect can be a gradual one!
The Flywheel Needs People
• When the right people see tangible results
and facts, they are likely to ‘get on the bus’
and help to achieve the company’s goals.
• The bulk of people begin lining up to help
‘push’ the flywheel after they’ve felt the
momentum for themselves.
• The more people you have pushing, the faster
the flywheel can rotate, making the company
more and more successful
The Doom Loop
•
Like we’ve talked about:
–
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.
•
There is no single action, no grand program, no one killer
innovation, no miracle moments.
•
Sustainable transformations follow a predictable pattern of buildup
and breakthrough.
•
Comparison companies 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-togreat companies, in contrast, principally used large acquisitions
after breakthrough, to accelerate momentum in an already fastspinning flywheel.
Warner-Lambert vs. Gillette
•
1979: envisioned being leading consumer
products company
•
1901: birth of the Boston based personal
hygiene products manufacturer.
•
1980: sighted health care industry and
competition
•
Long term focus has always remained true to
their humble beginnings
–
•
1981: focused on diversification and consumer
goods once again
•
1982: Ward Hagen CEO turned to hospital.
•
1985: Joe Williams CEO took a $550 million
write off.
•
1990’s: focus was on R&D in an effort to once
again beat out competitors.
•
1998: sold out to Pfizer- ironically a global
health company.
–
This was a time of heavy health care reform, yet
the company backtracked and focused once again
on consumer brands.
•
Marketed under P&G
–
•
Part of both their household products and
beautification lines.
Product breadth:
–
•
Variations of their original “Trac 2” razor have
come about through generations.
SNL:
Razors, hair care, shave care, clinical strength,
body wash
Inferences
• Porter would conclude: Lambert allowed external
forces to prematurely dictate their business strategy.
They were blinded by their immediate competition
and rattled by consumers lack of demand. On the
other hand, Gillette didn’t allow these same forces to
change the course of their company culture. They are
a true G2G company, abiding by the flywheel.
• Two patterns of the doom loop
– Misguided use of Acquisitions
– Leaders Who Stop the Flywheel
Misguided Use of Acquisitions
•
“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”
(Drucker)
•
Why do G2G companies have a higher success rate with acquisitions?
–
–
They use acquisitions as an accelerator of the flywheel rather than a creator.
Done after the hedgehog concept
•
You absolutely cannot buy your way to greatness
•
Two big mediocrities together don’t make one great company
The Misguided Use of Acquisitions
• Peter Drucker observed that the drive for mergers and
acquisitions comes from the fact that they are more
exciting than every day work.
• Good to Great companies do not use mergers to make
them a great company but to accelerate the flywheel not
to create it.
• 2 Mediocar companies do not create a great company
from just merging together.
• You need to have a sound reason for an acquisition to
work.
Leaders Who Stop the Flywheel
• Another doom loop pattern is that the new leader of the
company will change the path of where the firm is
heading
• This causes the flywheel to be stopped drastically.
• After all the effort that was made into putting the flywheel
into motion, this can cause major damage to the company.
• A company that was gaining in profits will suddenly lose
money and fall behind in the market if the new leader
changes the concept
Leaders Who Stop the Flywheel
• An example of a leader who stopped the flywheel is Joseph Boyd who
was previously CEO of Radiation, Inc. which was acquired by Harris.
• He moved the company from the previous location to the hometown
of Radiation, Inc. Where his home as well as boat was located
• At the time, Harris had a well known Printing business that created
over a third of the total profit for the company.
• Boyd halted the flywheel by changing the direction of the company
from printing to home office.
• This put them in a competitive group of companies including IBM and
DEC putting them far behind the competition.
Acquisitions and Leadership
• By changing the direction of the company the CEO can
damage the progress on the FlyWheel
• For Harris this is what put them on the Doom Loop. They
were a company of everything but an office product.
• Good to Great Leaders will know not to change the
direction of the company or to Merge with another
direction to keep things interesting.
• There needs to be a good sound reasons to do either.
Flywheel as a Wraparound Idea
• Two Key Words
– Consistency
– Coherence
• Basic Idea
– 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.
Signs That You’re on the Flywheel
• Follow a pattern of buildup leading to
breakthrough
• Reach breakthrough by an accumulation of
steps
• Confront the brutal facts to see clearly what
steps must be taken to build momentum
• Momentum of flywheel is infectious
Signs that You’re in the Doom Loop
• Skip buildup and jump right to breakthrough
• Implement big programs, radical change
efforts, dramatic revolutions; chronic
restructuring-always looking for a miracle
moment or new savior
• Embrace fads and engage in management
hoopla, rather than confront the brutal facts
• Spend time trying to align and motivate
people
What’s Important
• Remember to maintain level 5 leadership
• Get the right people on the bus
• Attain deep understanding of the Hedgehog
Concept
• Have the discipline to make good decisions
consistent with your hedgehog concept
• Accumulate momentum step by step
Takeaways
• Good-to -great transformations may look
dramatic on the outside but really are organic,
cumulative processes to the people on the
inside
• No good-to-great transformation happened in
one fell swoop
• Sustainable transformations follow a
predictable pattern of buildup and
breakthrough
Takeaways
• Comparison companies followed a different
pattern known as the doom loop
• Comparison companies frequently tried to
create a break through with large, misguided
acquisitions
• Those inside the good-to-great companies
were often unaware of the magnitude of their
transformation
Takeaways
• Good-to-great leaders spent hardly any time
trying to align or motivate employees