The “Flywheel Effect” as a business concept was introduced byJim Collinsin his seminal bookGood To Greatand it was used to state the fact that companies don’t become exceptional as a result of a single intervention or initiative, but rather from the accumulation of little wins that stack up over years of hard work until such a moment that momentum takes over to power sustained periods of accelerated growth greatly outstrip the effort being applied at that particular point in time. The underlying hypothesis underlying the “Flywheel Effect” is that there’s always a combination of elements within a business which if properly aligned over a period of time will gain significant momentum and subsequently create a self-reinforcing virtuous cycle for the company.
The term “flywheel” comes from mechanics, where it refers to a very heavy wheel that is used to generate and transfer energy to other parts of a machine, the “flywheel” requires significant force to start spinning, but once spinning at high speed and building momentum will begin storing and continue to turn by itself. Flywheels come in different shapes and sizes, and since rotating objects generate kinetic energy based on the distribution of their mass (moment of inertia) and how fast they rotate (angular velocity), those with larger diameters and heavier wheels will store more energy than smaller and lighter wheels, while those that spin faster storemuchmore energy than ones that spin slower.
Just like in machines, the “flywheel effect” occurs in business as a result of very deliberate building and linking together of capabilities to execute against articulated strategic objectives in such a manner that a compounding return on effort, resulting in the delivery of a continuing acceleration in business growth, is introduced. An important concept in building the “flywheel effect” is the hedgehog principle which simply states a business must have anunderstanding(not a goal, a strategy or a plan) of what itcanbe the best at, the distinction is absolutelycrucial.
In most cases, though businesses are unable to achieve the flywheel effect because they don’t commit to a clear set of objectives for the required period of time required to achieve the desired outcomes. They do not apply the hedgehog principle and as such are pushing themselves in different directions at the same time because they do not have a “true north”, they don’t have a clearly articulated “Theory of Their Business” and as such are easily swayed towards new objectives.
Each time the objective changes and resources are re-assigned, the “flywheel” loses momentum and slows down and slips into what is called a Doom Loop, a situation where every action that is taken results in an outcome that's worse than the initial situation. Sometimes the same business can experience both the “flywheel effect” and the “doom loop” after each other, especially if the business does not clearly understand what components enabled the “flywheel” in the first wheel and make not well thought through adjustments.
Flywheel to Doom Loop
An example of an organisation that has gone through both the “Flywheel Effect” and the “Doom Loop” is the Chicago Bulls, a basketball team playing in the National Basketball Association league in the United States of America.
While most people consider the break-out performance in the championship-winning 1991 season as the “event” that triggered the team going on to win six championships in eight years (1991 to 1998), it actually was the many decisions taken by the teams General Manager Jerry Krause between 1985 to 1991, that accumulatively built a team around Michael Jordan and resulted in the “overnight” success of 1991.
On the reverse side, the decision in 1998 not to renew the contract of the team's coach (Phil Jackson), and the clearing out (via retirement and trades) of at least four first-team players resulted in the slowing down of the teams “flywheel” and introduced a “doom loop” that made every action taken, from that point, to rebuild the team result in incrementally worsening the quality of the team.
Fun Exercise
To test your understanding of the concepts of “flywheel effects’ and “doom loops” make a list of the replicable successes your business (either the one you own or work in) has achieved. These wins must be similar, for example, if you work in a civil engineering firm and your firm always deliver certain types of buildings on time, to specification and under budget. That would be a replicable success.
Next, make a list of failures of your consistent failures, using the same civil engineering firm example, it might be that the firm always has issues with getting building plan approvals from the appropriate building control agency.
Then, compare the successes of your business to the failures to illuminate your flywheel’s possible components and to identify what isn’t in your flywheel.
This is the first of three blog posts on the Flywheel Effect
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