Building the flywheel: Achieving success in an ever-changing environment
July 17, 2019
by Nathan Farrugia - CEO at Shireburn Software
Author and researcher Jim Collins attributes the long-standing success of organisations on their ability to build a flywheel that generates momentum and sustained steady growth over the years. It requires continuous investment and focus, little diversification from your core competencies, and avoiding the temptation of chasing quick wins. These companies have built resilience through the development of their flywheel that will help them weather economic storms and carry on growing (or at least not regressing), despite market disruptions.
Companies like Ford and GE in the past, and more recently Alibaba and Facebook, mostly play to their strengths while only experimenting with new non-core ideas in the peripheries. The adage here is to focus on what you are good at. It may not be as obvious as the service or product you are selling, like vehicles, hardware, digital marketplace, or social media in the above examples.
It could be less apparent; for example, Fuji describe themselves as being in the business of light-responsive surfaces – this allows them to experiment with everything from digital film to sunscreen lotions. Netflix, sticking to their core of providing digital entertainment to their customers, did not deviate from this when they started producing their own movies and TV “Original series” instead of simply buying content.
So how can companies avoid becoming obsolete?
This approach to growth requires you to innovate around your core competence, resisting the temptation to diversify into non-core areas. Dyson failed miserably when they launched their very innovative washing machine, because they diverted away from their core area of expertise – moving air (not water). This realisation led them to ditch the washing machine idea and develop their amazingly successful hair dryer, despite it costing a whopping €300.
On the other hand, there are an infamous number of spectacular failures of companies that failed to diversify. Netflix killed Blockbuster DVD rental by starting mail deliveries of DVD and then moving to monthly subscriptions of streamed movies. Fuji (and others) killed Kodak, who, despite actually inventing the digital camera, failed to put the right effort behind it to make it a success.
Is this idea of sticking to your core, therefore, a contradiction? Yes and no (sic)… Situations are far more complex than a binary situation can explain.
Longevity and success require a number of conditions besides a focus on core, after being sure what it actually is (eg., moving wind vs water?). Strong leadership, vision, purpose, strategy, persistence, knowledge management, creativity, trends and market awareness, and all this driven by talented and motivated people.
But what happens when your flywheel has built such momentum in one direction it’s impossible to change quickly and rolls off the edge of a metaphorical cliff when it needed to turn sharply left or right? Did Nokia’s flywheel, which took it to 50% global market share in the mobile industry cause it to fall off the edge of this cliff and drop to a mere 3% share in a few years, because they were unable to shift?
In other words, has agility or nimbleness become more important than momentum?
The argument may be valid, but agility requires a number of conditions and it is primarily (but not always) hampered by size. Once enough people are part of a business the culture becomes sticky, and it’s difficult to change the way they collectively think when you need to change direction abruptly. Keeping people in an agile mindset is extremely difficult, as to manage large teams requires the bedding down of process and structure that forms the glue that holds things together. Without these, people get lost, knowledge isn’t managed effectively, and vision is difficult to communicate. The agile speedboat, able to whiz between the dangerous reefs, can navigate upstream and discover new wealth, while the supertanker requires miles of open sea to turn the slow-moving behemoth.
Jim and other experts seem to point at the ability of companies that have become supertankers to start turning well in advance while they are travelling with momentum. A fully loaded tanker needs to hit the brakes and start turning a few kilometres before the port it is aiming for. Any later and it misses entirely, with dire consequence.
Deciding when it is the right time to turn remains the most difficult part of running a big business because of the huge effort and consequence of getting it wrong. This risk is why big companies like Nokia failed; they keep second-guessing themselves on when it is time to change. This is made worse when you are considering risk from a position of comfort – psychologically and emotionally, you are reluctant to do so. Changing while you are in a position of strength, therefore, is the only way to ensure that large companies with big flywheels can stay ahead of the game.
Shireburn Strategy Day 2019
We recently held our annual strategy day at Shireburn, during which we outlined the possible options for the business over the coming months and years. Our task was to determine whether we need to turn the ship, when, and in which direction.
Shireburn has been in business for 35 years and has seen steady growth and success. It is a textbook ‘flywheel’ company that has remained consistent to its core throughout, focusing on excellent customer care in the software space. Despite evolving products into software platforms and services, respect for human relationships and customer-centric decision-making has allowed Shireburn to remain ahead of the curve. This has not only ensured it continues to gain market share and a high NPS from its clients, but it has extremely low talent attrition rates in a market where software developers and engineers are a rare species.
Core to Shireburn’s leadership are, therefore, customer- and people-driven values, relationships, and partnerships. Applied to software, the key to our success has been the ability to deliver reliable products and services that help clients improve their own business, with continuous innovation to keep staff interested and challenged.
Traditionally, Shireburn innovated their products by redeveloping them with new technologies and libraries, more often than not, by completely rebuilding them from scratch with new tools and libraries. This brave approach to innovation (rather than simply tweaking old software) has kept us ahead of the curve in the HR, Business, and Finance software space.
At our strategy day, we challenged the team to come up with the various alternatives we need to consider for our future’s success across the four areas of strategic intent: Customer, Market, Technology, and People. The workshops across these themes explored the possible threats and opportunities we needed to face, whilst respecting our strengths and vulnerabilities. Our team kept an open mind and stayed curious throughout the process. In essence, this is what we came up with:
Shireburn’s flywheel is its customer-centric approach that has built up a reputation for quality and support in Malta. Therefore one of our growth strategies will be to focus on increasing market share through referrals and a commitment to work with our customers, innovating our products around their needs. At the same time, we recognise the need to change while in a position of strength.
We aim to reinvest our profits into new products as well as developing ways to include AI and blockchain in our current software solutions in order to prepare us for the next economic, financial and technological shifts, ideally before they happen.
Our technologies at the core of our products will be continuously reinvented, not just upgraded, to ensure that any product we build upon it will remain relevant, functional, and future proof.
What we also need to start thinking about is the next step change. Whether this is moving into an international marketplace and becoming a global player in the HR software field, or focus on developing the next game-changing finance tool, or use our huge wealth of data to develop new methods of helping companies engage and manage their employees; we will remain true to our core values – that of being a people-centric business in the technology space, and not the other way around.
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