Chapter 8: The Flywheel & The Doom Loop

Team 2 Presenters:

Lydia Herschap Raquel Vasquez Nancy Nguyen Quintin Jordan Sarah Doyle Monica Del Bosque Chris Flockerzy Gabriel Gamez

Good to Great By Jim Collins

INTRODUCTION- THE FLYWHEEL AND THE DOOM LOOP

Overview of Components:The Build Up:• Disciplined People

• Level 5 Leadership• First Who Then What

• Disciplined Thought• Confront the Brutal Facts

The Breakthrough:• Hedgehog Concept

• Disciplined Action• Culture of Discipline• Technology Accelerators

FLYWHEEL AND DOOM LOOP OVERVIEWS

The Flywheel The flywheel expresses the transition that good-to-

great companies experience after choosing a direction based on their hedgehog concept and enacting it with disciplined people who exercised disciplined thoughts.

It captures the overall feel of what it was like inside the companies as they went from good to great.

A representation of work building on top of itself to create momentum for success.

The Doom Loop The doom loop captures the methods of the

comparable companies that did not transition to greatness.

BUILD UP AND BREAK THROUGH

Push with great effort to turn the flywheel, building upon earlier work to compound invested effort to create unstoppable momentum, and thus a sustainable great company once it takes off. • The breakthrough is seen in the companies stock

prices and represents all the combined efforts It is not one single great push, it is all of the

pushes and ideas added together in an overall accumulation of effort applied in a consistent direction to get the flywheel spinning. • This idea contradicts what the media portrays

COCA-COLA’S STOCK RETURNS

BUILDUP AND BREAKTHROUGH

What's important ?

-To know the process is long and built up. -There is no one transition point. -The breakthrough appears dramatic and

revolutionary on the outside but it is more like

an organic development process from the

inside.

BUILDUP AND BREAKTHROUGH

Many interlocking pieces that build one upon another

Evolves over time, the transition is gradual

Companies require thousands of pushes on the flywheel big and small

Each push is a step in the direction to becoming great

They accumulate one on top of another Takes years to build up momentum

COCA COLA A push in the flywheel

• Buying North American bottling operations into Coca-Cola's ownership

• Coca-Cola CEO Muhtar Kent and a group of senior executives from Coca-Cola and CCE will oversee efforts to join CCE's bottling plants with Coca-Cola's fountain and juice businesses into a new entity called Coca-Cola Refreshments.

“NO MIRACLE MOMENT”

What did they call what they where doing?

Did they have a name for it?

The answer: “They didn’t call it anything.”• No launch event, no tag line, no programmatic feel

The transformation from within

Buildup followed by Breakthrough

NOT JUST A LUXURY OF CIRCUMSTANCEFollowing the buildup-breakthrough

flywheel model is not just a luxury of circumstance.

Good to great companies followed this model no mater how bad the short term circumstances.

This also applies to managing the short-term pressures of Wall Street.

NOT JUST A LUXURY OF CIRCUMSTANCE Applies to managing the short-term

pressures of Wall Street. David Maxwell- from the end of 1984

to 2000, $1 invested in Fannie Mae multiplied 64 times, beating the general market

Blue Plans-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 CIRCUMSTANCEUpjohn investing for the long-term

“buy into our future”.

Upjohn continually threw money after projects like Rogaine baldness cure, becoming a consistent disappointment.

THE “FLYWHEEL EFFECT” Power through continued improvement

and tangible accomplishments

Image: The Flywheel Effect. Photograph. Good to Great. New York: Harper Business, 2001. 175.

THE “FLYWHEEL EFFECT”

Not a question of alignment as a key challenge• “Under the right conditions, the

problems of commitment, alignment, motivation and change just melt away.”

The idea is to help people understand the new strategy and vision through a series of successes. • People will stand behind your company

THE “FLYWHEEL EFFECT”

By putting a successful flywheel into action and accumulating momentum, the goals of the company are obvious and people more easily agree to help keep the flywheel moving.

The bottom line: • The “right people” want their company to

succeed. • With a successful flywheel (momentum pushing it

continuously in the right direction) the company will, through the support of everyone involved, become great.

Coca-Cola Example

THE MISGUIDED USE OF ACQUISITIONS Good to Great: After the development of the

Hedgehog Concept/After the flywheel had built significant momentum

Accelerator vs. Creator Comparison: Tried to jump right to breakthrough by

increasing growth, diversifying troubles, or making CEO’s look good through acquisitions or mergers

Companies are able to buy growth but NOT greatness

2 big mediocrities joined together NEVER make one great company

COKE ACQUISITIONS

International Acquisitions:

Joint Ventures:

Joining New Markets:

LEADERS WHO STOP THE FLYWHEEL

If your company changes direction, ask yourself, “Can I still be the best at what I’m doing and am I passionate about it.”

Don’t let the flywheel come to a grinding halt, sometimes it’s not to late to retrace your steps. It’s ok to go back to what was working if at all possible.

STOPPING THE FLYWHEEL & CHANGING IT’S COURSE

Comparison Companies- Used new innovation and new programs to speed the momentum of the flywheel to “motivate the troops.”

New programs failed to sustain results. They attempted to skip the difficult build up stage

and tried to jump right into breakthrough. They would push the flywheel in one direction then

stop it and change its course, numerous times to achieve their desired results.

After years of lurching back and forth the companies failed to sustain their momentum and fell instead into what is called the “doom loop”.

DOOM LOOP

DOOM LOOP

Problem: Each new program and innovation halted the momentum of its predecessor. • This forced the flywheel into a different course instead of allowing it to

build momentum and bring the company closer to a breakthrough.

Example: Coke changing it’s formula to reenergize its Coca Cola on April 23, 1985. Then having to revert back to the old formula on July 11, 1985, where it reintroduced the old formula as Coca-Cola Classic.

Some version of the doom loop is found in every comparison company.

Though some comparisons vary from company to company they have shown some highly common patterns such as the following: • Misguided use of acquisitions• The selection of leaders that undid the work of previous generations.

FIXING A BREAKING FLYWHEEL

Roberto C. Goizueta became the chairman of the BOD and CEO of the Coca Cola Company in the early 1980s.

Good: Organized numerous U.S. bottling organizations into a new public company (Coca Cola Enterprises Inc.)/Led the introduction of the first extension of the Coca Cola trademark (Diet Coke).

Bad: In 1985 Goizueta changed the coke formula called “New Coke,” in a move called “the biggest marketing blunder ever” by critics.

THE FLYWHEEL AS A WRAPAROUND 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

It is only through consistency over time… that you get maximum results

RC COLA

Established by Claud Adkin Hatcher Hit hard by barriers to entry

• Lawsuit from Coca-Cola• Government ban of sweetener

cyclamate Attempts at dramatic changes Inconsistencies in a tough industry

SUMMARY

Good to Great transformations never happen in one fell swoop.

Sustainable transformation follows a predictable pattern of buildup and breakthrough

Comparison companies followed the doom loop Acquisitions to accelerate momentum Beware of rushing breakthrough by changing

the direction of your flywheel causing you to fall into a doom loop

REFERENCES "Coca-Cola – Heritage - The Chronicle of Coca-Cola - A Global

Business." Coca-Cola: The Coca-Cola Company. Web. 26 Mar. 2010. <http://www.thecoca-colacompany.com/heritage/chronicle_global_business.html>.

Collins, Jim, Chapter 8, The Flywheel and The Doom Loop, Good to Great. New York: Harper Business 2001. Print.

“The Hedgehog Concept”- “Good is the Enemy of Great,”, Web. 27. Mar. 2010. http://thehedgehogconcept.com/

Coke Lore – “The Real Story of New Coke,” Web. 27. Mar. 2010. http://www.thecoca-colacompany.com/heritage/cokelore_newcoke.html