My friend Mike Baxter had a good post on strategy flywheels (which I also talk about in my books on Agile Transformation and Agile Marketing), talking about two key concepts that underpin the whole idea of strategy flywheels: synergy and compounding. The ‘flywheel’ approach has been popularised by Amazon’s famous example which articulates how exceptional customer experience builds traffic which attracts more sellers and brands to the platform which in turn enables Amazon to deliver a better range of products and leverage a lower cost structure which in turn generates a better customer experience and so on.
Just like industrial and mechanical flywheels the idea is that the combination of these factors helps to build momentum in a self-reinforcing loop. As Mike notes, the concept originally came from Jim Collins (in Good To Great) and it was whilst in conversation with Jim that Jeff Bezos sketched his rudimentary Amazon flywheel on the back of a napkin.
I’ve seen a few people being a bit sniffy about this idea of late, saying that it’s a rudimentary and overly simplified approach to strategy, but I think this misses the potential benefits of what a strategy flywheel can do.
Defining a strategy flywheel requires breaking down the different component parts of a strategy and considering the relationship between them. This in itself is a useful process as a way to bring clarity to what the critical elements of a strategy are, but beyond this to how they can then work together to amplify impact. It forces you to consider how they can interact with each other in a positive way. As Mike says:
‘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.’
Mike uses the example of a strategy to make an organisation more innovative whereby this might break down into three key components – improved innovation management, increased innovation budgets, alignment of leadership performance incentives. Each are potentially powerful but it is when they are brought together that the true value is realised since each amplifies the impact of the other. The way in which a flywheel should work is that investing in any of these individual components should increase the overall momentum, but it is how they are set up which enables this self-reinforcing cycle.
The flywheel concept has multiple applications (for example, I’ve described how it can be applied to growing capability rapidly within organisations) but at the heart of it is a simple, but powerful idea, which is nicely captured by Mike:
‘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’.
My addendum to this it that it’s also worth considering the opposite of a positive reinforcing loop. The wrong type of flywheel can also build momentum in the wrong direction and potentially even create a ‘death spiral’ of compounding negative affects. An example of this is how companies can get stuck in current ways of thinking, which can lead to a lack of innovation, which can result in a decline in business performance, which can in turn lead to being even more risk-averse and less likely to try something new. This is the kind of negative reinforcing loop which may take years to play out but which can quite easily kill a company.