The Flywheel ManifestoBy CIOinsight | Posted 07-01-2002
How Technology 'Accelerates Greatness'
Jim Collins, author of two landmark management books, Built to Last: Successful Habits of Visionary Companies (HarperCollins, 1994) and Good to Great: Why Some Companies Make the Leap . . . and Others Don't (HarperCollins, 2001), doesn't belong to the arm-waving school of management advice. His skill lies in performing powerful research that identifies the leaders, strategies and processes that make great and sustainable companies. Leaders who cannot sustain success tend to "sell the future to compensate for lack of results," he says.
Collins, a former McKinsey & Co. researcher, now runs a management lab in his hometown of Boulder, Colo., and says that technology matters to great companiesbut only after they've got all the other stuff working right. "Technology is an accelerator of mediocrity and decline as powerfully as it is an accelerator of greatness, but it's never the cause of either," he told Executive Editor Marcia Stepanek in a recent interview.
CIO INSIGHT: All of your work during the past 15 years has focused on one simple dichotomythe difference between good and great companies. How do great companies use technology differently?
COLLINS: When we were working on the research for Built to Last, we found that technology pioneers tended, over time, to become the good companiesbut not the great ones. In other words, there was an inverse correlation between early technological leadership and becoming an enduringly great company. Take General Electric Co. and Westinghouse Electric Corp. Westinghouse had the early technological lead and ended up with the superior technology. Yet it was GE that became the great company. In the creation of the Internet, the technology pioneer was not America Online Inc. AOL was a laggard. The early pioneers were CompuServe Interactive Services Inc. and Prodigy Inc.and where are they today?
In the Good to Great study, similar results surfaced. Consider Nucor Corp., a steel mini-mill. The conventional view is that Nucor pioneered mini-mill technology and used that as a torpedo to blow Bethlehem Steel Corp. and the others out of the water. But when we asked Ken Iverson of Nucor to name the top five factors that enabled Nucor to go from good to great, where do you think he put technology? Well, it wasn't first, it wasn't third, it wasn't fourth, and it wasn't even fifth. In fact, more than 80 percent of executives we interviewed for Good to Great didn't even mention technology in the top five factors.
The application of technology is neither the cause of greatness nor the cause of decline. Technology is an accelerator of greatness already in place, never the cause of it. Technology, as in the case of Bethlehem Steel, is an accelerator of mediocrity and decline, never the cause of it. What our data taught us is that technology cannot, does not, will not make a company great. But technology is necessary once you are already great to accelerate that greatness to another level.
The Flywheel Manifesto
The Flywheel Manifesto
Yet we're always being told that great companies are those that have successfully aligned technology in the service of boosting the business.
Most management thinking suffers because it starts from a churchthe church of technology, the church of strategy, the church of culture, the church of revolution, the church of whatever the church happens to be. The approach in these cases is to say, "Well, what we're going to do is figure out how technology applies, the role of culture, the role of alignment and so forth." Ask me, though, and I'm purely agnostic. I come from no church. To serve the business best, what you want to do is discover. Instead of starting with an input variable, we actually start with an output variable: stock charts, because ultimately, from a company standpoint, the big question is, how do you change your cumulative returns to investors and go from one performance level to another, and stay there? If technology drives that, great. If it doesn't, great. If culture does, great. If leadership does, great. Whatever the answer turns out to be, the question is, what are the inputs that drive those outcomes?
Picture a huge, heavy flywheel, a metal disk the size of a city block and about 30 feet thicka massive piece of metal sitting on an axle. And imagine that your task is to get that flywheel turning as fast as possible, to take it from standing still or just puttering along to truly break through the momentum. You start pushing on that flywheel in an intelligent, consistent direction, and you keep pushing on it, and after a whole lot of work, you finally get one giant, slow, creaky turn. Then you keep pushing on that flywheel, and you get another big giant, slow, creaky turn number two, and then four, and then eight. Eventually, you go from 8 to 16, 16 to 32, 32 to 64, 64 to 128, the thing starts to build this momentum turn upon turn upon turn, push upon pushand then at some point, bang! You can feel all that cumulative weight behind you starting to add up, and the flywheel starts to pick up more and more speed, more and more momentum, and you keep pushing in that intelligent, consistent direction, and whoosh!that thing hits 1,000 RPMs, 10,000 RPMs, a million RPMs. And then all of a sudden, bang! You've hit this point of real breakthrough.
Now that flywheel image of buildup leading to breakthrough is exactly what it feels like to take a company or any organization from good to great. Technology accelerates your momentum after you've hit breakthrough. If you're trying to use technology as a way to jump-start things, to go from 2 RPMs to 200 RPMs right away, it never works.
The flywheel process breaks into three basic stages. Stage one is disciplined people, stage two is disciplined thought, and stage three is disciplined action. Technology falls into stage three, disciplined action.
When David Maxwell became CEO of Fannie Mae, it was losing $1 million every business day with $56 billion of loans under water. The board asked David, "What are you going to do?" He said, "That's the wrong question." It was the wrong first question, actually. He decided that he wasn't going to figure out what he was going to do or where his company was going to drive this bus until he figured out who should be on the bus, who should be off the bus, and who should be in what seats. And only when he decided that did he turn to the question of where Fannie Mae was going to drive the bus.
We found that as companies become great, the people who built them were always "who" people first and "what" people second. They always thought first in terms of "who" and then in terms of "what." Technology is a "what" question. It comes later. No technology can turn the wrong people into the right people. And remember: People are not your most important asset. The right people are. It's like the Indy 500. Eighty percent of it is the driver and the team, and only 20 percent of it is the car. Ultimately, everybody pretty much gets the same cars anyway.
And that alone can guarantee IT alignment?
If a company has an alignment gap, then it must have skipped some earlier stages of evolution in its corporate development.
What we found is that if you get the right people on the bus, have disciplined thought and disciplined action, then you're aligned from the startand you stay there. Everyone's turning the same flywheel in the same direction and benefiting from the same momentum. The gap simply wasn't a problem for these companies because it was just the very next stage as things began to unfold.
Do you have the right people on the bus? The wrong people off the bus? A clear, simple concept that pulls everybody in the same direction to turn the flywheel? Have you built a culture of discipline as opposed to just having a culture of bureaucracy or a culture of entitlement? If any of those are missing, you're going to have an alignment gap on all kinds of things, not just technology. You're going to find an alignment gap in tactics versus strategy. You're going to find an alignment gap in how your acquisitions merge in. You're going to have more gaps than you can manage.
One of the key questions we asked every one of the executives for our Good to Great research was how they got alignment among all functions in a company. It wasn't a popular question. One day, my researchers came in, and they sort of threw their binders down on the table in frustration, and they told me that the executives who made these great companies thought it was a stupid question. In fact, a lot of them didn't even understand the question.
Why Initiatives Fail
Why Initiatives Fail
Why, then, do companies with good cultures and the right people keep embarking on technology initiatives that fail?
Because there's no disciplined thought behind them. Remember when the Internet came along? Take Walgreen Co. Everybody was talking about how Walgreen was going to be toast. But they should have looked closer. Walgreen hit breakthrough in 1975, and about 1985 it began to accelerate the flywheel with some key technologies. So it's humming along, the flywheel's spinning fine, and bang! We hit the mid-1990s. The Internet comes along. Walgreen looked at the Internet and said, "We're a crawl-walk-run company, and our response to the Internet is going to be crawl-walk-run." So, Walgreen wasn't too worried about drugstore.com, which went from run to walk to crawl. Walgreen stood back and, with disciplined thought, confronted the brutal facts of the Internet. It knew it didn't understand the Internet and needed time to figure it out. So it crawled at first. Of course, Walgreen has ultimately prevailed in its application of the Internet. Meanwhile, drugstore.com is no serious threat.
Now, companies like Walgreen sizing up the Internet, or The Kroger Co. thinking about whether scanning technology applies, or Fannie Mae thinking about applying expert systems for risk assessment for mortgage lending, they're not taking the technology in isolation. What they're doing is always tying their technology back to a fundamental business model. We learned that the fundamental business model that drives that flywheel to breakthrough momentum is one that reflects deep understanding of three things: one, what the company is passionate about; two, what it can do better than any other company in the world; and three, what best drives its economic engine.
Technology only helps when you understand that, and you harness your technology back to those three concepts. Any technology that is not harnessed to those three concepts is just technology for technology's sake.
Many companies have gotten to the stage of trying to use technology to cut costs, boost profits and innovate. But time and again, they run smack into cultural problems as they implement these technologies. Can technology make it harder to be great?
Well, first of all, we found virtually no evidence of cultural resistance among great companies, but we found lots of it in the comparison companies. Great companies always began with the question, "Do we have the right people?" A "right" person, fundamentally, is someone who understands that they do not have a job, they have a responsibility. Big difference. If an air traffic controller were to say, "I did my job right, but the airplane crashed," it doesn't really matter whether he did his job right. The airplane crashed. That controller has a responsibility to make sure the planes don't crash.
The cornerstone of the cultures in great companies wasn't just that they had a culture. They had a culture of discipline, one where people have a wide amount of freedom within the context of very stiff responsibilities. If you have a very stiff responsibility, you're responsible for the lives of people on that plane. How would you respond if someone said, "I can give you better information that will help you keep those people alive and planes from crashing?" If you view it as, "I have a job," then you're more likely to react to the new technology by saying, "I have too much to deal with already." But, if you're the type of person who believes that you need every tool and every piece of information you can gather to execute your responsibility, then your response to information is that you need more of it to execute your responsibility, rather than just to survive your job.
So the amount of information at your disposal does ultimately matter?
Not at all. We found no evidence at allnonethat the Good to Great companies had more or better information than the comparison companies. When you look over economic history and comparisons of companies in the same industryWalgreen to Eckerd Corp., Abbott Laboratories to The Upjohn Co., Nucor to Bethlehem Steel, and so onyou don't find that the great company had this key information that the comparison company didn't. You actually find that in any given industry, information starts to be pretty widely available. There's really not a lot of mystery, and people tend to collect the same kinds of information. They may have better systems or whatever, but fundamentally pretty much everyone has the same key pieces of information. So what's different? The key is how you turn information from just plain information into information that cannot be ignored.
Bruce Woolpert, CEO at [construction materials company] Granite Rock Co., initiated what he called "Short Pay." At the bottom of every customer invoice, he gave customers the chance to decide whetherand how muchto pay, based on their satisfaction level. It says at the bottom of the invoice, if there's anything you're not completely satisfied with, identify the item, deduct the amount from the total and send Granite Rock a check for the balance. Imagine something like that on your airline ticket stub! Woolpert now has a very powerful customer information system that turns customer data into information that absolutely cannot be ignored.
I think the fundamental principles of what it takes to build a great company, like the laws of physics, don't change. But the engineering, the practices, the ways we need to do it need to be continually evolving.