Good to Great

1
Good to Great

• Chapter 8
• The Flywheel the Doom Loop
• Group 2
• Mitchell Stack
• Heather McMahon
• Scott Devore
• Cory Gregory
• Ryan White
• Brittany Thomason
• Jacob Western

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Revolution means turning the wheel. -Igor
Stravinsky
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Buildup and Breakthrough

• Flywheel image captures the overall feel of what
  it was like inside the companies as they went
  from good to great.
• Never happens in one fell swoop
• Step by step, action by action, decision by
  decision
• Turn by turn of the flywheel
• All add up to sustained and spectacular results

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Medias influence on our perceptions

• Often, the media doesnt cover a company until
  the flywheel is already turning at a thousand
  rotations per minute.
• Skews our perception of how the transformation
  happens
• Portrays the transformation as some sort of an
  overnight metamorphosis

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Circuit City turning the flywheel

• Alan Wurtzel CEO in 1973
• Struggling with a crushing debt load
• Implemented a warehouse showroom style
• 1982 with 9 years of turning the flywheel
• Within the next 5 years C.C. shifted entirely to
  this concept

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Circuit City Cont.

• Generated highest total return to shareholders of
  any company on the NYSE
• Cumulative stock returns 22x better than the
  market
• (Intel, Wal-Mart, GE, Hewlett-Packard and
  Coca-Cola)
• There were not any articles of significance in
  the decade leading up to the transition
• After the transition there were 97 articles worth
  examining
• 22 with significant information

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What is this Transformation called?

• The good to great companies had no name for their
  transformations
• No launch event, no tag line, no programmatic
  feel whatsoever
• Some say that executives weren't even aware that
  a major transformation was under way until they
  were well into it.
• Often more obvious to them after the fact than at
  the time

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There is no miracle moment!

• It may look like a single-stroke breakthrough to
  those viewing it from the outside
• People on the inside see it as a deliberate
  process of figuring out what needs to be done to
  create the best future results
• Then take those steps, one after the other, turn
  by turn of the flywheel.
• Consistent pushing of the flywheel over an
  extended point of time
• Inevitably you will hit a point of breakthrough

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No Miracle Moment

• There is no Miracle Moment in going from a good
  company to a great company
• The top companies that made the jump from good to
  great all agree that there was no miraculous jump
  to greatness

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No Miracle Moment

• Abbott- Our change was a major one and yet in
  many aspects simply a series of incremental
  changesthis is what made our change successful
• Circuit City- The transition to the superstore
  didnt happen overnightit took 10 years after
  wed refined the concept and built enough
  momentum to bet our whole future on it
• Fannie Mae- There was no magical event, no one
  turning point. It was more of an evolution

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No Miracle Moment

• Gillette- We didnt really make a big conscious
  decision or launch a big program or initiate a
  major change or transition
• Kimberly-Clark- These things dont happen
  overnight. They grow. The ideas grow and mushroom
  and come into being
• Kroger- The major thing the Lyle did was to say
  that were going to change beginning now, on a
  deliberate basis

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No Miracle Moment

• Another example of this is coach John Wooden of
  the UCLA Bruins.
• He had a basketball dynasty from the 1960s to
  the 1970s but it did not start that way.
• It took fifteen years for John Wooden to bring in
  his first National Championship and from there
  went on to win ten in the next twelve years

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Not Just A Luxury of Circumstance

• Good-to-Great companies paid no attention to long
  term constraints.
• Instead, they embraced those constraints
• This also applies to the short-term pressures of
  Wall Street
• The key is to harness they flywheel to manage
  these short-term pressures

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• 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, they had the patience and discipline
  to follow the buildup-breakthrough flywheel model
  despite these pressures. And, in the end, they
  attained extraordinary results by Wall Streets
  own measure of success.

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Blue Plans

• Blue Plans- One method for managing short-term
  pressures --- Abbot Labortories
• Each year, Abbot would tell analysts that it
  expected to grow 15, for example. At the same
  time, it would set an internal goal of a much
  higher growth rate, say 25
• Meanwhile, it kept a ranked-ordered list of
  proposed entrepreneurial projects that had not
  yet been funded, Blue Plans
• Abbot would then take the difference between the
  analysts growth rate and the actual growth rate
  and channel those funds into the Blue Plans
• This managed short term pressures while
  systematically investing in the future

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Wall Street

• Good-to-Great companies, such as Abbot,
  effectively managed Wall Street during their
  buildup-breakthrough years
• These companies simply focused on accumulating
  results, often under promising and over
  delivering
• As the results began to accumulate as the
  flywheel built momentum the investing community
  came along with great enthusiasm

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The Flywheel Effect

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Flywheel Effect

• Tremendous power exists in the fact of continued
  improvement and the delivery of results. Point
  to tangible accomplishments.
• When you do this in such a way that people see
  and feel the buildup of momentum, they will line
  up with enthusiasm. This is the flywheel effect
  and it applies not only to outside investors but
  also to internal constituent groups.

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Flywheel Effect
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Flywheel Effect

• Collins found the question of alignment was not a
  key challenge faced by good to great companies.
• Clearly, the good to great companies did get
  incredible commitment and alignment they
  artfully managed change but they never really
  spent much time thinking about it. It was utterly
  transparent to them. We learned that under the
  right conditions, the problems of commitment,
  alignment, motivation, and change just melt away.
  They largely take care of themselves.

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Flywheel Effect

• Kroger
• 50,000 employees
• How do you get employees to embrace a radical new
  strategy that will eventually change virtually
  every aspect of how the company builds and runs
  grocery stores?
• The answer is You Dont. Not in one big event
  or program anyway.

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Flywheel Effect

• Kroger
• Jim Herring, the level 5 leader who initiated the
  transformation of Kroger avoided any attempt at
  hoopla and motivation.
• Instead Kroger began turning the flywheel,
  creating tangible evidence that their plans made
  sense.
• Herring understood that the way to get people
  lined up behind a bold new vision is to turn the
  flywheel consistent with that vision from two
  turns, to four, eight, sixteen then say See
  what we are doing and how well it is working?
  Extrapolate from that, and thats where were
  going.

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Flywheel Effect

• When people begin to feel the magic of momentum
  when they begin to see tangible results, when
  they can feel the flywheel beginning to build
  speed thats when the bulk of people line up to
  throw their shoulders against the wheel and push.

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The Doom Loop
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The Doom Loop

• Instead of a quiet careful process of figuring
  out what needed to be done and simply doing it
• Comparison Companies
• Frequently Launched New Programs
• Made it a big deal to Motivate
• Programs failed to produce lasting results
• Fell inside the doom loop

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The Doom Loop Continued
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The Doom Loop Continued

• For Example
• Warner-Lambert ( Comparison Company to Gillette)
• 1979 Aimed to be a Consumer Products Company
• 1980 Decided aim towards Health Care (went
  after Merck)
• 1981 Went back to Consumer Products
• 1987 Once again went back to Health Care
• 1990 Went back AGAIN to Consumer Products

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The Doom Loop Continued

• Warner Lambert Continued
• Went back and forth from 1979 to 1998
• Each CEO tried to make a mark with him own
  program
• Fired 20,000 people in search of a breakthrough
• They would get results, but slack off, and
  couldnt sustain the momentum of a breakthrough
  flywheel.
• Finally Stock Returns Flattened and they
  disappeared as an independent company to Pfizer.

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The Doom Loop Continued

• Two common patterns of the Doom Loop from company
  to company
• The Misguided Use of Acquisitions
• Leaders Who Stop the Flywheel

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The Misguided Use of Acquisitions

• When the going gets tough, we go shopping!
• Pete Drucker observed that that 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.

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The Misguided Use of Acquisitions

• Why did the good-to-great companies have a
  substantially higher success rate with
  acquisitions, especially major acquisitions?
• The key to their success was that they used
  acquisitions as an accelerator of flywheel
  momentum, not a creator of it.
• In contrast, the comparison companies frequently
  tried to jump right to breakthrough via an
  acquisition or merger.

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Leaders Who Stop the Flywheel

• The other frequently observed doom loop pattern
  is that of new leaders who stepped in, stopped an
  already spinning flywheel, and threw it in an
  entirely new direction.
• For example In 1978, Joseph Boyd became the new
  CEO of Harris Corporation. His first key
  decision was to move the company headquarters
  from Ohio to Florida. In the early 80s he also
  decided to divest the their printing division
  (their primary and very successful division) and
  go headlong into the office automation business.
  By 1988 the company had fallen over 70 behind
  its competitors.

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The Flywheel as a Wraparound Idea

• Each piece of the system reinforces the other
  parts.
• An integrated whole that is much more powerful
  than the sum of the parts.

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How to Tell if You're on the Flywheel or in the
Doom Loop

• Flywheel

• Doom Loop

• Follow a pattern of buildup leading 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.
• Confront the brutal facts to see clearly what
  steps must be taken to build momentum.
• Attain consistency with clear Hedgehog Concept,
  resolutely staying within the three circles.

• 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.
• Demonstrate chronic inconsistency-lurching back
  and forth and out of the three circles.

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Flywheel or Doom Loop cont

• Flywheel

• Doom Loop

• Follow the pattern of disciplined people (first
  who), disciplined thought, disciplined action.
• Harness appropriate technologies to your Hedgehog
  Concept, to accelerate momentum.
• Make major acquisitions after breakthrough (if at
  all)
• Spend little energy trying to motivate or align
  people.
• Let results do the most of the talking.
• Maintain consistency over time.

• Jump right to action, without disciplined though
  and without first getting the right people on the
  bus.
• Run about like Chicken Little in reaction to
  technology.
• Make major acquisitions before breakthrough.
• Spend a lot of energy trying to align and
  motivate people.
• Sell the future.
• Inconsistency over time.

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How to Start

• Level 5 Leaders
• Getting the right people on the bus.
• Completely understand the three circles of your
  Hedgehog Concept.

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Takeaways

• Buildup and Breakthrough
• Not just a Luxury of Circumstance
• Flywheel Effect
• Doom Loop
• What to Do and What to Avoid