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Good To Great I

By Free Online Articles Editor       May 11, 2014



Good To Great I

 Lessons on eggs, flywheels, hedgehogs, buses, and other essentials of business that can help you transform your company.

I want to give you a lobotomy about change. I want you to forget everything you’ve ever learned about what it takes to create great results. I want you to realize that nearly all operating prescriptions for creating large-scale corporate change are nothing but myths.

The Myth of the Change Program: This approach comes with the launch event, the tag line, and the cascading activities.

The Myth of the Burning Platform: This one says that change starts only when there’s a crisis that persuades “unmotivated” employees to accept the need for change.

The Myth of Stock Options: Stock options, high salaries, and bonuses are incentives that grease the wheels of change.

The Myth of Fear-Driven Change: The fear of being left behind, the fear of watching others win, the fear of presiding over monumental failure—all are drivers of change, we’re told.

The Myth of Acquisitions: You can buy your way to growth, so it figures that you can buy your way to greatness.

The Myth of Technology-Driven Change: The breakthrough that you’re looking for can be achieved by using technology to leapfrog the competition.

The Myth of Revolution: Big change has to be wrenching, extreme, painful—one big, discontinuous, shattering break.

Wrong. Wrong. Wrong. Wrong. Wrong. Wrong. Totally wrong.

Here are the facts of life about these and other change myths. Companies that make the change from good to great have no name for their transformation—and absolutely no program. They neither rant nor rave about a crisis—and they don't manufacture one where none exists. They don't “motivate” people—their people are self-motivated. There’s no evidence of a connection between money and change mastery. And fear doesn't drive change—but it does perpetuate mediocrity. Nor can acquisitions provide a stimulus for greatness: Two mediocrities never make one great company. Technology is certainly important—but it comes into play only after change has already begun. And as for the final myth, dramatic results do not come from dramatic process—not if you want them to last, anyway. A serious revolution, one that feels like a revolution to those going through it, is highly unlikely to bring about a sustainable leap from being good to being great.

These myths became clear as my research team and I completed a five-year project to determine what it takes to change a good company into a great one. We systematically scoured a list of 1,435 established companies to find every extraordinary case that made a leap from no-better-than-average results to great results. How great? After the leap, a company had to generate cumulative stock returns that exceeded the general stock market by at least three times over 15 years—and it had to be a leap independent of its industry. In fact, the 11 good-to-great companies that we found averaged returns 6.9 times greater than the market’s—more than twice the performance rate of General Electric under the legendary Jack Welch.

The surprising good-to-great list included such unheralded companies as Abbott Laboratories (3.98 times the market), Fannie Mae (7.56 times the market), Kimberly-Clark Corp.(3.42 times the market), Nucor Corp. (5.16 times the market), and Wells Fargo (3.99 times the market). One such surprise, the Kroger Co.—a grocery chain—bumped along as a totally average performer for 80 years and then somehow broke free of its mediocrity to beat the stock market by 4.16 times over the next 15 years. And it didn't stop there. From 1973 to 1998, Kroger outperformed the market by 10 times.

In each of these dramatic, remarkable, good-to-great corporate transformations, we found the same thing: There was no miracle moment. Instead, a down-to-earth, pragmatic, committed-to-excellence process—a framework—kept each company, its leaders, and its people on track for the long haul. In each case, it was the triumph of the Flywheel Effect over the Doom Loop, the victory of steadfast discipline over the quick fix. And the real kicker: The comparison companies in our study—firms with virtually identical opportunities during the pivotal years—did buy into the change myths described above—and failed to make the leap from good to great.

How change doesn't happen

Picture an egg. Day after day, it sits there. No one pays attention to it. No one notices it. Certainly no one takes a picture of it or puts it on the cover of a celebrity-focused business magazine. Then one day, the shell cracks and out jumps a chicken.

All of a sudden, the major magazines and newspapers jump on the story: “Stunning Turnaround at Egg!” and “The Chick Who Led the Breakthrough at Egg!” From the outside, the story always reads like an overnight sensation—as if the egg had suddenly and radically altered itself into a chicken.

Now picture the egg from the chicken's point of view.

While the outside world was ignoring this seemingly dormant egg, the chicken within was evolving, growing, developing—changing. From the chicken’s point of view, the moment of breakthrough, of cracking the egg, was simply one more step in a long chain of steps that had led to that moment. Granted, it was a big step—but it was hardly the radical transformation that it looked like from the outside.

It’s a silly analogy, but then our conventional way of looking at change is no less silly. Everyone looks for the “miracle moment” when “change happens.” But ask the good-to-great executives when change happened. They cannot pinpoint a single key event that exemplified their successful transition.

Take Walgreens. For more than 40 years, Walgreens was no more than an average company, tracking the general market. Then in 1975 (out of the blue!) Walgreens began to climb. And climb. And climb. It just kept climbing. From December 31, 1975, to January 1, 2000, $1 invested in Walgreens beat $1 invested in Intel by nearly two times, General Electric by nearly five times, and Coca-Cola by nearly eight times. It beat the general stock market by more than 15 times.

I asked a key Walgreens executive to pinpoint when the good-to-great transformation happened. His answer: “Sometime between 1971 and 1980.” (Well, that certainly narrows it down!)

Walgreens’s experience is the norm for good-to-great performers. Leaders at Abbott said, “It wasn't a blinding flash or sudden revelation from above.” From Kimberly-Clark: “These things don't happen overnight. They grow.” From Wells Fargo: “It wasn't a single switch that was thrown at one time.”

We keep looking for change in the wrong places, asking the wrong questions, and making the wrong assumptions. There’s even a tendency to blame Wall Street for the “instant results” approach to change. But the companies that made the jump from good to great did so using Wall Street's own tough metric of success: a sustained leap in their stock-market performance. Wall Street turns out to be just another myth—an excuse for not doing what really works. The data doesn’t lie. 

 

How Change Happens

Now picture a huge, heavy flywheel. It’s a massive, metal disk mounted horizontally on an axle. It's about 100 feet in diameter, 10 feet thick, and it weighs about 25 tons. That flywheel is your company. Your job is to get that flywheel to move as fast as possible, because momentum—mass times velocity—is what will generate superior economic results over time.

 

Right now, the flywheel is at a standstill. To get it moving, you make a tremendous effort. You push with all your might, and finally you get the flywheel to inch forward. After two or three days of sustained effort, you get the flywheel to complete one entire turn. You keep pushing, and the flywheel begins to move a bit faster. It takes a lot of work, but at last the flywheel makes a second rotation. You keep pushing steadily. It makes three turns, four turns, five, six. With each turn, it moves faster, and then—at some point, you can’'t say exactly when—you break through. The momentum of the heavy wheel kicks in your favor. It spins faster and faster, with its own weight propelling it. You aren't pushing any harder, but the flywheel is accelerating, its momentum building, its speed increasing.

This is the Flywheel Effect. It's what it feels like when you’re inside a company that makes the transition from good to great. Take Kroger, for example. How do you get a company with more than 50,000 people to embrace a new strategy that will eventually change every aspect of every grocery store? You don’t. At least not with one big change program.

Instead, you put your shoulder to the flywheel. That’s what Jim Herring, the leader who initiated the transformation of Kroger, told us. He stayed away from change programs and motivational stunts. He and his team began turning the flywheel gradually, consistently—building tangible evidence that their plans made sense and would deliver results.

“We presented what we were doing in such a way that people saw our accomplishments,”Herring says. “We tried to bring our plans to successful conclusions step by step, so that the mass of people would gain confidence from the successes, not just the words.”

Think about it for one minute. Why do most overhyped change programs ultimately fail? Because they lack accountability, they fail to achieve credibility, and they have no authenticity. It’s the opposite of the Flywheel Effect; it's the Doom Loop.

Companies that fall into the Doom Loop genuinely want to effect change—but they lack the quiet discipline that produces the Flywheel Effect. Instead, they launch change programs with huge fanfare, hoping to “enlist the troops.” They start down one path, only to change direction. After years of lurching back and forth, these companies discover that they’ve failed to build any sustained momentum. Instead of turning the flywheel, they've fallen into a Doom Loop: Disappointing results lead to reaction without understanding, which leads to a new direction—a new leader, a new program—which leads to no momentum, which leads to disappointing results. It’s a steady, downward spiral. Those who have experienced a Doom Loop know how it drains the spirit right out of a company.

Consider the Warner-Lambert Co.—the company that we compared directly with Gillette—in the early 1980s. In 1979, Warner-Lambert told Business Week that it aimed to be a leading consumer-products company. One year later, it did an abrupt about-face and turned its sights on healthcare. In 1981, the company reversed course again and returned to diversification and consumer goods. Then in 1987, Warner-Lambert made another U-turn, away from consumer goods, and announced that it wanted to compete with Merck. Then in the early 1990s, the company responded to government announcements of pending healthcare reform and reembraced diversification and consumer brands.

Between 1979 and 1998, Warner-Lambert underwent three major restructurings—one per CEO. Each new CEO arrived with his own program; each CEO halted the momentum of his predecessor. With each turn of the Doom Loop, the company spiraled further downward, until it was swallowed by Pfizer in 2000.

In contrast, why does the Flywheel Effect work? Because more than anything else, real people in real companies want to be part of a winning team. They want to contribute to producing real results. They want to feel the excitement and the satisfaction of being part of something that just flat-out works. When people begin to feel the magic of momentum—when they begin to see tangible results and can feel the flywheel start to build speed—that’s when they line up, throw their shoulders to the wheel, and push.

And that’s how change really happens. 



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