Distillations in this newsletter: Strategy flywheels and strategic synergy; Glossary of company values; Design Fiction; Strategy Distilled – free pdf compilation
STRATEGY DISTILLED:
A monthly concoction of insight, learning and things you might have missed for anyone who works on strategy, works with strategy or just loves strategy.
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This month …
- Strategy flywheels and strategic synergy.
- Strategy snippets you might have missed: Glossary of company values; Design Fiction.
- Strategy Distilled – free pdf compilation: The first two years of Strategy Distilled compiled into an 88-page pdf – free to subscribers.
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Discover the content of past issues of Strategy Distilled.
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Strategy flywheels and strategic synergy
The Amazon ‘flywheel’ is about as close as we get these days to a legend. Originally sketched on the back of a napkin during a two-day management offsite in 2001, the logic of Amazon’s flywheel strategy was as follows: “Lower prices led to more customer visits. More customers increased the volume of sales and attracted more commission-paying third-party sellers to the site. That allowed Amazon to get more out of fixed costs like the fulfillment centers and the servers they needed to run the website. This greater efficiency then enabled it to lower prices further. Feed any part of this flywheel… and it should accelerate the loop” (Stone, 2013, p. 161). As soon as it was articulated, this flywheel strategy created quite a buzz inside Amazon. For the first time in five years, Amazon executives recalled, they felt they understood their own business.
What is less well known is that the idea of flywheel strategy wasn’t invented by Amazon. That honour goes to Jim Collins, author of Good To Great, who had been invited to the Amazon offsite to explain his flywheel ideas in what was, at that time, a forthcoming, book.
Collins introduces the idea of flywheel strategies in Good to Great with Circuit City, an American electrical home appliance retail company. Their flywheel, developed more than a decade before Amazon’s, consisted of excellence in the ‘4-S’ model of Service, Selection, Savings and Satisfaction. Over a period of nine years, they developed a ‘warehouse showroom’ style of retailing for selling domestic appliances – large inventories of named brands, discount pricing and immediate delivery. Between 1982 and 1987, this Circuit City flywheel “generated the highest total return to shareholders of any company on the New York Stock Exchange” (Collins, 2001, p. 166).
Jason Crawford suggests that flywheel effects are what have been driving the progress of human civilisation for millennia. Here is how he introduced his 2022 post entitled Flywheels of progress:
“What causes progress? I’ve been investigating this for five years, and I still don’t have a full answer. But part of the picture is starting to come into focus. Here’s my current, incomplete model: Progress compounds. It builds on itself. Progress begets progress. This is why progress is super-linear: exponential, or indeed, over long periods, even super-exponential. The form this takes is a number of feedback loops, or self-reinforcing cycles. By the nature of such loops, they act as if they had inertia: they are hard to get started, but hard to stop once going. Hence, a flywheel: the perfect metaphor for a loop or cycle with a lot of inertia.”
So, what exactly is a flywheel as it relates to strategy and what lessons ought we as strategists take away and apply to our own strategies? Jim Collins probably still has the best simple and generic explanation of the flywheel effect:
- Firstly, steps are made to introduce change, guided by a powerful but simple insight.
- Secondly, the results become visible and then start to accumulate.
- Thirdly, these results get noticed by more and more people who line-up to participate, energised by those results.
- Finally, this builds the momentum of the flywheel by encouraging further change to be introduced, still guided by the original powerful but simple insight.
There are two key concepts underpinning the idea of flywheel strategies: synergy and compounding.
For a strategy to produce synergies means that the impact of all its component parts, working together, are greater than the sum of these component parts if they were working independently. Simplistically, synergy effects make two plus two equal five.
Let’s imagine a strategy that commits an organisation to being more innovative. This commitment has three key components:
- Substantial improvements in how innovation is managed (such as incentives for participation in innovation and creation of a safe-to-fail culture);
- An increase in budgets supporting innovation;
- Realignment of performance bonuses for all senior leaders, with more dependence upon the success of new products and services.
Each component part of this innovation strategy might well be impactful. Together, however, they could be hugely impactful, as each amplifies the impact of the other. Getting more people involved in innovative thinking should increase the number of innovative ideas being produced and, if these are well shared, this should increase the quality of innovative ideas. This, in turn, will produce more ideas that can be prototyped and tested, using the extra innovation budget. This ought to produce more viable innovations which, with the focused support of senior executives will have a higher chance of becoming commercially successful. And this success will, in turn, encourage even more people to become involved in innovative thinking.
Rosabeth Moss Kanter, professor at Harvard Business School, argued that the only justification for a multi-business company is the achievement of such synergies (Kanter, 1989, p. 100). The idea of strategy compounding is that impact gained last year will drive even more impact next year, leading to compound (exponential) impact over time. So, our innovation strategy, described above, should, if consistently pursued over several years, produce more and better innovations as the learnings from last year are added to and amplified this year.
Flywheel strategies, where they can be made to work, do appear to deserve their legendary status. As with many legends, however, it can probably be stripped down to a much simpler set of insights. Good strategies should feature a small set of goals, each of which amplifies the impact of the others. Continued over several years, these synergies will produce compound effects. Like all good strategies should.
References:
Collins, J. (2001) Good to Great. Random House, London.
Kanter, R. M. (1989) When Giants Learned to Dance. Simon and Schuster, London.
Stone, B. (2013) The Everything Store: Jeff Bezos and the Age of Amazon. Little Brown & Co, Boston.
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Strategy snippets you might have missed
Glossary of company values
A great resource to pair with my book on Core Values and How They Underpin Strategy & Organisational Culture, which I published this spring, this glossary is a 28-page pdf from Hubspot (free but registration required) listing 50 common company values and providing an explanation of each. Use it to get inspired when writing your own organisational values and “note which ones resonate the most with you, your leadership team, and the purpose of your company’s existence”. Here, for example is how they describe the value ‘diversity’:
“Making a company-wide commitment to build a diverse and inclusive organization that’s reflective of your customer base. You’ve likely heard that diverse teams are proven to perform better than teams that lack diversity. But creating a company culture where everyone’s unique ideas, backgrounds, and perspectives are valued is also the right thing to do for your employees, customers, and candidates.
Making diversity a core value at your company may look like evolving your recruiting processes to be more inclusive, introducing employee resource groups, and investing in career growth opportunities for underrepresented minorities. Once you’ve made changes internally, sharing your value of diversity externally can help signal to customers and candidates that they’re welcome at your organization.”
Design Fiction
Design fiction is a form of storytelling that provides a narrative impression of aspects of the future that could be brought about by design. Julian Bleeker, probably the best known pioneer of design fiction, produced a quick start guide for a self-driving car. Offering a fictional but “grounded experience [rather] than discussing aspects of autonomous vehicles in the abstract, we set ourselves to the task of embodying the technical, user-interface, user-experience, and hot-button socio-technical issues through the archetype of a Quick Start Guide”. I’m looking forward to finding my first client to translate this idea across to strategy fiction.
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Strategy Distilled – FREE pdf compilation
In case you missed it, I recently published a compilation of all my articles and ‘strategy snippets’ from the first two years of my Strategy Distilled newsletter. This 88-page pdf contains 24 articles and 53 ‘snippets’, all with links to source material, covering all aspects of strategy, from ‘how to think big in strategy’ and strategy innovation to strategy metrics and the role of values.
STRATEGY ARTICLES – examples:
- How strategy actually works
- Separating strategy from strategic planning
- The case for strategy scoping
- Justifying stakeholder consultation in strategy development
- Managing innovation within strategy
- Can Ikigai reveal the four deficiencies of strategy?
- Leading and lagging indicators as strategy metrics
SNIPPETS ON STRATEGY YOU MIGHT HAVE MISSED – examples:
- Google’s ‘Simplicity Sprint’
- How risky is innovation in your organisation?
- McKinsey’s Seven Step Problem-Solving Process
- Connecting strategy and culture
- What the Beatles can teach us about strategy
- What kind of strategist are you?
The pdf is FREE to subscribers – download your copy now. If you think ‘Strategy Distilled’ would be of value to friends and colleagues, get them to sign up here and they will be sent the compilation straight away.
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Goal Atlas gives you structured processes and tools to ensure strategy is adopted and impactful across your organisation. Get in touch if you think we might be able to help.
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If you enjoyed reading this newsletter, don’t forget to forward it to friends or colleagues who might also find it of interest.
Was this forwarded to you? Sign-up
Discover the content of past issues of Strategy Distilled.