How to use ‘flywheel’ thinking to grow your business

When Lou Gerstner was brought in to revive IBM in 1993, the odds seemed against him. Everyone insisted bold action was needed, with the favoured step breaking the fabled giant into autonomous units.

But he seemed to dither. He felt IBM could benefit from having its many parts working together. He astounded everyone when he said "the last thing IBM needs right now is a vision." The supposed saviour of Big Blue looked like an idiot.

Of course, in the end he was triumphant. And to Jim Collins, author of Good to Great, it shows what leaders must do to be successful: move deliberately, not pronounce grand strategies, find what is working and push hard to attain consistent momentum. He calls it "the Flywheel Effect" but others might consider it a virtuous circle, in which one thing feeds off another, over and over again, leading to success.

I called him recently because it seemed many companies were missing this essential element of the Good to Great model. He doesn't do many media interviews but it turned out he had been focusing on this feature as he works with major companies in what he calls his "management laboratory."

That's an odd term – management laboratory – and there are certainly no test tubes or centrifuges in his Boulder, Col., headquarters. It's a room with a table and a great view of the reddish-brown Flatirons sandstone formations on the city's foothills. Executive teams fly in. Mr. Collins, who describes himself as "intensely curious," asks question after question over two half-day sessions, offering no advice. He helps them to understand their situation and often that involves identifying their flywheel.

In 2001, amidst the dot-com bust, Amazon visited. Their discussion led to this formation: Lower prices on more offerings would lead to more customer visits, which would attract more third-party sellers, which expands the Amazon store and selection, which grows revenues on the same fixed costs, which allows lower prices and the process to continue again and again.

"One of the biggest strategic mistakes you can make is to fail to make the most of your victories. Yet even brilliant leaders sometimes make this mistake. One reason they fail is if they are obsessively searching for the Next Big Thing," Mr. Collins writes in a new article on his website.

Instead of lurching for salvation, smart companies such as Amazon capitalize on their successful big bets rather than abandon them prematurely. "This doesn't mean they mindlessly repeat what they've done before. It means evolving, exploiting, expanding, extending. It doesn't mean just selling books online; it means extending and evolving the Amazon.com system into the biggest, most comprehensive e-commerce store in the world," he writes.

Giro Sport Design focused on how people are influenced by others to buy athletic gear, something Nike had also taken advantage of and Giro validated with its bicycle helmet. The idea is to invent good products, have elite athletes use them, move from there into heavy-using "weekend warriors," then to mainstream customers, building brand power, which allows higher prices and research and development, turning the flywheel again as new products are created.

To build your flywheel, Mr. Collins advises you to create a list of replicable successes your enterprise has achieved. Variations on an essential idea count as replicable successes. Vanguard, which came to his lab, created a plethora of low-cost mutual funds that were variants of its existing funds and consistent with the underlying flywheel.

Next compile a list of failures and disappointments, including new initiatives that fell far below expectations or failed. Compare the successes to the failures to illuminate your flywheel's possible components and what isn't in your flywheel. Use that to diagram your virtual circle, which should have four to six components, as with Amazon and Giro. Test it against your list of successes and failures, and keep tweaking.

This suggests to me that if you are coming in as a new leader, consider carefully before changing the leadership team. They likely understand the flywheel better than you do and are more inclined to see the successes rather than drool over the Next Big Thing. Bringing in outsiders, as is common, usually means people who know you but not the flywheel.

And don't run around proclaiming major changes . Fung Loy Kok Taoist Tai Chi, an organization I am involved with as student and volunteer instructor, always ties changes to its founder and even when those changes seem big to me and other participants, they are accompanied by statements from leaders that nothing fundamental has changed. That's flywheel thinking.

Cannonballs

• Judgments on two court cases involving Indigenous people as well as the Patrick Brown imbroglio – the forced resignation of Ontario’s Progressive Conservative party leader after allegations of sexual misconduct – have raised a connected issue: Not only must justice be done, it must also be seen to be done. That applies in your workplace as well, to all sorts of decisions, notably personnel decisions such as promotions. If you want people to support you and the organization, keep that in mind.
• The push for accountability has led managers to be told to focus on results, not effort. But engagement experts David Sturt and Todd Nordstrom say you should cheer for effort as that builds confidence, shows staff they are on track and improves relationships.
• Research by Bain Consulting across 45 industries found that the link between scale of a company and profitability is not as direct as assumed. Looking at the highest profiting companies, 40 per cent were not scale leaders in their industry. Smaller can be beautiful.