Good to Great The Flywheel and the Doom Loop

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Good to GreatThe Flywheel and the Doom Loop

• Team 2
• Shawn Buck
• Ashley Burnett
• Whitney Horton
• Kelly Riester
• Jennifer Shotts
• Sam Snelling
• Mickea Smith

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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.

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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.

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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!

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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 its a
  process of life.

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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.

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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 doesnt
  happen instantly.
• This happened because the way that Wal-marts top
  executives ran the company and the decisions they
  made early on.

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It does not happen immediately

• The book states, lasting transformations from
  good to great follow a general pattern of buildup
  followed by breakthrough.

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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.

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Not Just A Luxury of Circumstance

• During Maxwells 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.

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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.

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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.

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The Flywheel Effect
Steps Forward, Consistent With Hedgehog Concept

• People see and feel tangible accomplishments
• Results in escalating momentum which increases
  enthusiasm as well.

Accumulation Of Visible Results
Flywheel Builds Momentum
People Line Up, Energized By Results
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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

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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

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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 wasnt about speed to them. The flywheel
  effect can be a gradual one!

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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 companys goals.
• The bulk of people begin lining up to help push
  the flywheel after theyve felt the momentum for
  themselves.
• The more people you have pushing, the faster the
  flywheel can rotate, making the company more and
  more successful

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The Doom Loop

• Like weve 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-to- great companies, in
  contrast, principally used large acquisitions
  after breakthrough, to accelerate momentum in an
  already fast- spinning flywheel.

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Warner-Lambert vs. Gillette

• 1979 envisioned being leading consumer products
  company
• 1980 sighted health care industry and
  competition
• 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.
• 1990s focus was on RD 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.

• 1901 birth of the Boston based personal hygiene
  products manufacturer.
• Long term focus has always remained true to their
  humble beginnings
• Variations of their original Trac 2 razor have
  come about through generations.
• Marketed under PG
• Part of both their household products and
  beautification lines.
• Product breadth
• Razors, hair care, shave care, clinical strength,
  body wash
• SNL

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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 didnt 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

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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 dont make one
  great company

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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.

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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

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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.

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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.

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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.

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Signs That Youre 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

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Signs that Youre 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

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Whats 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

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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

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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

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Takeaways

• Good-to-great leaders spent hardly any time
  trying to align or motivate employees