Framework Author: Jim Collins
Year of origin: October 16, 2001
Originating Organization: Good to Great Book
Objective
The objective is to make readers get a thorough understanding of what the flywheel effect is & how
its application has helped organizations succeed. The framework can assist readers in growing their
enterprise, business, or any other project they have in mind by accumulating tiny wins that build on
each other over time, eventually gaining enough momentum for development to occur on its own.
Executive summary
The flywheel effect is a model used by businesses to ensure an incremental change in growth and
performance in its operations, finances and other functions by leveraging the results of the efforts
put in previous cycles. This enables the business to build momentum in every cycle and achieve
better results. However, this cycle becomes a virtuous cycle only if the result of a cycle becomes a
positive one and if it doesn’t then in can lead to a vicious cycle.
Description
The "Flywheel Effect" as a business concept was introduced by Jim Collins in his seminal book Good
To Great, and it was used to state that companies don't become exceptional as a result of a single
intervention or initiative, but rather as a result of a series of small wins that accumulate over years
of hard work until momentum takes over to power sustained periods of accelerated growth that
greatly outstrip the effort being applied at that particular time.
The "Flywheel Effect" hypothesis states that there is always a mix of variables within a firm that, if
properly aligned over time, can develop tremendous momentum and, as a result, produce a self-
reinforcing virtuous cycle for the organisation.
The "flywheel effect" occurs in business, just as it does in machines, because of very deliberate
building and linking together of capabilities to execute against articulated strategic objectives in such
a way that a compounding return on effort is introduced, resulting in continued acceleration in
business growth.
The hedgehog principle, which essentially argues that a business must have an understanding (not a
goal, strategy, or plan) of what it can be the best at, is a fundamental notion in creating the
"flywheel effect."
Businesses are unable to accomplish the flywheel effect in the majority of cases because they do not
commit to a clear set of objectives for the requisite period of time to attain the intended outcomes.
They do not follow the hedgehog principle, and as a result, they are pulling in multiple directions at
the same time because they lack a "true north," a clearly articulated "Theory of Their Business," and
are thus readily swayed toward new goals.
The "flywheel" loses momentum and slows down each time the objective changes and resources are
reassigned, eventually slipping into a Doom Loop, a circumstance in which every action leads to a
worsening of the initial situation.
The "flywheel effect" and the "doom loop" can occur in the same firm at the same time, especially if
the company does not fully comprehend what components enabled the "flywheel" in the first wheel
and makes rash alterations.
The Chicago Bulls, a basketball team in the National Basketball Association league in the United
States of America, are an example of an organisation that has experienced both the "Flywheel
Effect" and the "Doom Loop." While most people think of Michael Jordan's breakout season in 1991
as the "event" that led to the team winning six championships in eight years (1991 to 1998), it was
actually the many decisions made by General Manager Jerry Krause between 1985 and 1991 that
accumulated to build a team around Michael Jordan and resulted in the "overnight" success of 1991.
On the other hand, the decision not to renew the team's coach's contract (Phil Jackson) in 1998, as
well as the clearing out (via retirement and trades) of at least four first-team players, slowed the
team's "flywheel" and introduced a "doom loop" that made every action taken to rebuild the team
from that point result in incrementally worsening the team's quality.
Case Study
The most celebrated example of the application of the Flywheel effect is ‘Amazon’ which calls it the
virtuous cycle. It was written by the company’s founder Jeff Bezos on a napkin a few years after the
company was founded & it is still the core approach that Amazon takes to improve customer
experience & fuel growth.
Process
Image: The Virtuous Cycle
It starts with customer experience. If the company wants to grow, it has to have a good customer
experience. This will make the customers happy & they will come back again to the website. Also,
they will tell others either via word of mouth or some other way. So, there would be traffic on the
website. This would allow it to sell various products on its website. Going forward, the company
would also allow other sellers to sell their items on the website. This may arise a question as to why
a company would allow other competitors to compete with it. The answer lies in a better customer
experience. The onboarding of outside sellers will bring in selection. This will allow the customers to
choose from a range of products. This again leads to a better customer experience & completes the
virtuous cycle.
Also, if the company is growing, you get this side benefit of a lower cost structure. It gets to leverage
its fulfilment infrastructure, its logistics infrastructure, the website & which helps lower the cost per
unit of all the things. The money saved either can be retained or be given as dividends or be used to
further lower prices for the customers. It’s the last one that the company does which again leads
better to customer satisfaction. If you feed any part of the loop, the entire cycle gets accelerated
thereby helping the company to grow faster.
Summary
Companies do not become exceptional as a result of a single intervention or initiative, but
rather as a result of a series of small wins accumulated over years of hard work until
momentum takes over to power sustained periods of accelerated growth that greatly
outstrip the effort applied at the time.
To achieve the flywheel effect, it is important for businesses to commit to a clear set of
objectives for the required period of time to achieve the desired results.
Amazon has utilized the flywheel effect which it calls the virtuous cycle to improve customer
experience & fuel growth.
References
1) https://youtu.be/3kM2hFNZAio
2) The Amazon Flywheel Explained: Learn From Bezos’ Business Strategy - Feedvisor
3) https://www.linkedin.com/pulse/what-flywheel-effect-wale-adisa/
4) https://www.jimcollins.com/article_topics/articles/the-flywheel-effect.html
