Viewpoint

The flywheel concept – A powerfulfoundation for a successful digital shift
Giving your digital strategy a clear purpose and focus

Today’s corporate world requires companies to look for a clear purpose for their business ventures, other than solely
maximizing profits. This purpose, or in other words, the “why”, is essential for future success in an ever-changing and more
and more digital business environment – to convince not only customers of the company’s offerings, but also investors ofopportunities and employees of the company’s strategy.

Purpose: New pivot for successful digitaltransformations

decision-making, and ultimately helps to sustain long-term
financial returns for shareholders of your company.”

Especially when it comes to a firm’s digital strategy, conveying
the “why” is vital for success. In recent years, many traditional
companies have struggled to remain competitive in an evergrowing digital environment. While some companies areretaining their competitiveness in light of the digital transition, oreven capable of strengthening their positions, others are fallingbehind. There are good reasons to believe purpose, as such,plays an important role in this digital showdown.

And indeed, discussions with our clients have revealed thatan integrating element linking the different dimensions of a“digital shift” – that is what we call a comprehensive digitalcompany transformation – seems to be crucial for succeeding.
Admittedly, it might sound rather trivial to just focus on purposeto overcome the traps of digital transformation. However, fromour experience, we see five key reasons companies fail during
their transitions – and all are linked to purpose:

As a matter of fact, a global survey published in the Harvard
Business Review (2015; The Business Case for Purpose)found that most executives (84 percent) believed business
transformation efforts would have a higher probability ofsuccess if they were supported by a clear business purpose.
In line with this result, a majority of respondents (89 percent)were convinced that a shared purpose would lead to higher
employee satisfaction, which is critical during organizationaltransformations.
In addition, studies revealed a positive correlation between
business purpose and stock performance (Gartenberg, Prat,Serafeim, 2016; Corporate Purpose and Financial Performance).
As Larry Fink, the chairman and CEO of BlackRock, puts it:“Purpose guides culture, provides a framework for consistent

1. Lack of common understanding and missing an overall
goal (strategy): There is no clear understanding of what
digitalization means for each of the different business
units of the company and what the overall goal is. Only 20
percent of corporate strategists are aware of how digitaltransformation can enable their companies to win (Gartner,2018; Mobilize Every Function in the Organization forDigitalization).
2. No clear focus and lack of business benefit (technology):
Many companies follow a one-size-fits-all approach, pursuing
too many digitalization trends simultaneously. However, it
is not expedient to implement AI, blockchain, the IoT andothers within every company.
3. Limited view of digitalization (ecosystems): Most
transformation initiatives are too close to the current
business model and existing business ecosystem. Due toViewpoint

exaggerated risk aversion, incremental changes are too often
prioritized over disruptive measures.
4. Missing employee enablement (people): Seventy percent
of employees have stated that they do not understandthe bigger picture and the impact on their day-to-day work
life, and are lacking the necessary skills for digitalization(Gartner; Mobilize Every Function in the Organization forDigitalization). Dedicated training and support with regards to
new technologies are simply missing or insufficient.
5. Missing customer centricity (customer value): Digital
initiatives are not always seen as means to an end – serving
the customer and improving the product offering – but,rather, necessary initiatives in addition to existing business
operations.
A solid digital strategy – the foundation for a successful digital
shift – depends on a clear purpose and a way to spread it easily
and effectively, inside and outside the company. Recently, apractical and effective framework to do so aroused interest
among digital pioneers – the “flywheel”.

Flywheel: Maximizing impact through clear focus
A flywheel serves as a medium to depict the purpose of abusiness, and illustrates the most important levers to achieve
the primary company goal. Originally the term “flywheel”
described a mechanical device designed to efficiently store
rotational energy. In a business context, the flywheel analogy
captures the dynamic of implementing strategy through many
individual measures aligned in one direction and reinforcing
each other. As more results accumulate, the momentum of theflywheel builds and builds.
The flywheel showcases business logic in a simple, straightforward manner. It primarily answers the following three key
questions with regards to a company:nn

What drives our business?
Focus and simplify in a ubiquitous digital worldnn

What are our keys for transformation?
Derive transformation measures to accelerate growthnn

How can we maximize customer value?
Align business activities with customer needs

2The flywheel concept – A powerful foundation for a successful digital shift

To convey the flywheel concept, we use a client’s flywheel inthe insurance sector:
More & younger
customers (insuredpeople)

Digitalcustomer
intimacy

Analogcustomer
intimacy1Growth

Scaling effects& operative
excellence

Service quality
1 Starting point
Source: Arthur D. Little

Historically, analog customer intimacy has been a majordifferentiating factor for the insurance sector and led toincreased customer numbers – this importance, however, willdecrease in future.
An example in health insurance is as follows: looking at theflywheel, it becomes clear that a high number of insured
customers leads to economies of scale in administrative tasks.
Younger customers (insured people) are usually healthier andthus incur fewer costs per insured person, which again results
in a higher budget. Scaling effects and a solid financial budget
can then be used to improve customer service. Innovative,
customer-oriented digital services increasingly determine acompany’s competitive edge – replacing the classic analog
intimacy – raising the numbers of customers and supporting
growth as the primary company goal.

What’s in it for me?
The healthcare insurance example illustrates how the flywheel
helps to depict the business purpose and clarify the individual
core drivers necessary for growth. In another example, theclearly defined business purpose was the basis for a company’s
large-scale, successful digital transformation approach:
nnClear direction: Based on the clear main businesspurpose, high-level ambitions for the company-wide digitaltransformation had been defined to give orientation.
Additionally, concrete, measurable target pictures per
business process had been set up to track digitalizationachievements (e.g., 95 percent of claims processing would
be fully automated in four years). As a result, the company
was able to de-prioritize resource-consuming digital efforts
that were not contributing to the dimensions of the flywheel(e.g., that had no impact on customer intimacy).

Viewpoint

nnnn

Increased engagement: The clearly described businesspurpose helped to communicate the vision of digitaltransformation and increased employee motivation andengagement. Various change management activities
and agile formats were introduced to support the digitaltransformation.
Tangible results: Based on clear focus and employee
engagement, the speed of digitalization has massivelyincreased. Already, throughout the first year, 70+
digitalization measures, including new technologies, havebeen defined, prioritized and introduced. All these measures
pay into the levers of the flywheel, reinforcing each otherand supporting the company´s growth.

Cornerstones of flywheel success for digitaltransformation
For the flywheel to serve as a purposeful tool that is acceptedcompany wide for the digital transformation strategy, it is criticalto involve top-level management and other key stakeholders
in the development process early on. Our experience fromdigital transformation projects has proven that it can be highly
effective to set up a series of workshops, aiming to analyze thecompany’s current situation, outline its vision and ambitions, andultimately develop its flywheel collectively.
As simple as the flywheel looks in its illustration, developmentof this joint purpose is a demanding exercise. Throughout thedevelopment and implementation process, eight key factors
determine the success of the flywheel approach:

01
08

Friction
minimization

Selfreinforcement

03

Communication& acceptance07

02

Vision &target

Flywheel
successfactors

Consistency &perseverance

06
Source: Arthur D. Little

Clarity &simplicity

Focus &
concentration
Flexibility &adaptability

05

04

Quick-start advice for effectively building andimplementing your own flywheel:
1. Vision and target: Having ensured the involvement of yourkey decision-makers, the most important prerequisite fordeveloping an appropriate flywheel is a clear goal and vision.
This includes defining the company’s guiding principle andenduring core values. Only when these are strong and clear
can you think about a meaningful flywheel that will lead you
towards that goal.
2. Self-reinforcement: You need to ensure that, cumulatively,
each of your identified business drivers support andaccelerate the other business drivers. If they do not act andreinforce each other, it will be hard to gain the necessary
momentum to drive the digital transformation process. On
the contrary, if you identify a “stand-alone” business driver,it might be wise to challenge its existence in your flywheel:is it still the right driver nowadays, or is it a legacy of thepast? Make sure the flywheel has a logical start, and thatthe following components represent an outcome for theprevious components and thus make sense of the overallloop cycle.
3. Clarity and simplicity: To be a powerful tool for your internaland external communication, your flywheel must be clear
and easy to grasp. Otherwise, it will remain challenging toconvince employees, investors, etc. Your flywheel should
succinctly answer the question: “How do we achieve ourgoal?” Like any good idea, the flywheel should fit on a small,square napkin, and therefore consist of no more than five toeight key business drivers. Nevertheless, it is very importantto recognize that this requirement of simplicity is not about
being easy. It is about explanatory power. Or as Steve Jobs
put it: “Simple can be harder than complex: you have towork hard to get your thinking clean to make it simple. But
it’s worth it in the end because once you get there, you canmove mountains.”
4. Focus and concentration: Your flywheel should not only
tell you what to do, but also what should no longer be done.
Its key drivers should focus on the company’s strength andthe advantages it may already have over others. To identify
these key drivers, it can be helpful to generate a list of past
successes and failures, which will ultimately guide you ingenerating your key flywheel components. Of course, newstrengths can be built up if this is the best way to achieve
the goal. But as a rule, it is easier and more effective toconcentrate on what resources are already available. Ideally,
your flywheel should make it clear how you stand out fromyour competitors. How do you position yourself in themarket? What do you do differently? And what do you dobetter – for the benefit of your customers?
5. Flexibility and adaptability: “It is not the strongest of thespecies that survives, nor the most intelligent that survives.
The flywheel concept – A powerful foundation for a successful digital shift3Viewpoint

It is the one that is most adaptable to change.” Charles
Darwin’s famous theory of evolution from the 19th century
applies to not only nature, but also today’s digital economy.
In the quote above, one could easily replace the word
“species” with “companies”. Only companies that adapt tochanging market conditions, and are thus one step ahead of
their competitors, have the chance to survive in the market.
Regular transformations are therefore the basis for constantand sustainable growth. Therefore, we recommend revising
your flywheel approach every two to three years.
6. Consistency and perseverance: Of course, you must
constantly check whether your strategy is still correct. To
stick to the wrong strategy until the bitter end would befatal. However, it is too easy for many to be diverted as soon
as the first difficulties arise. In that case, perseverance isrequired. Keep up your strategy. Only continuity ensures thatyour employees will internalize your flywheel, and thus act
and prioritize accordingly.
7. Communication and acceptance: A flywheel that exists
only on paper does not bring any company forward. Your
employees must understand and accept your flywheel.
Only then can everyone together lead the company to its
goal. Therefore, timely, open and sensitive communication
with employees is crucial. Pushing employees in a certain
direction will result in resistance. But providing them witha conceivable goal will lead to an intrinsic push. As a rule,
everyone who is needed to achieve strategic momentum
must know and understand how to establish it.
8. Friction minimization: Since you’re applying force to yourflywheel, you also need to make sure nothing is opposing
it – that means eliminating friction from your businessstrategy. You can reduce friction by identifying your existing
pain points – those that negatively influence and act on
the key business drivers. Based on those identified pains
it becomes possible to formulate your critical digital needs
and define specific activities, which will minimize or eveneliminate identified weaknesses and risks.

Outlook & conclusion
Once you have developed your company-specific flywheel,it can not only serve as an effective tool for company-widecommunication, but also function as the central guiding principle
for managing digital transformation. With just a few arrows, theflywheel makes it possible to quickly and effectively captureand depict the purpose and strategically relevant drivers ofyour business. Hence, from our perspective, it is the inevitable
tool to create the strategic momentum necessary to achieve a
successful digital shift.

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Authors
Tim Christoph, Viktor Kanzler, Philipp Mudersbach, Volker
Pfirsching, Bianca Rieger

Arthur D. Little
Arthur D. Little has been at the forefront of innovation since1886. We are an acknowledged thought leader in linking
strategy, innovation and transformation in technology-intensive
and converging industries. We navigate our clients throughchanging business ecosystems to uncover new growth
opportunities. We enable our clients to build innovation
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