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November 15, 2022

What is the Value Flywheel?

By David Anderson ,Michael O’Reilly ,Mark McCann

This post is adapted from The Value Flywheel Effect by David Anderson, with Mark McCann and Michael O’Reilly.

Momentum is a strange thing. It’s difficult to imagine what it will feel like and takes a great deal of effort to achieve. When we learn to ride a bicycle, for example, it feels clunky and awkward at first. It’s hard to get the wheels turning in the beginning, and our frustration is often evident. But our teacher assures us that it will pass. When we finally start to build momentum, the exhilaration takes our breath away. Every push of the pedal gets easier and takes less effort. Suddenly we can focus on the larger experience of gliding through a beautiful forest or tree-lined street. The value of our hard work is evident, and we can now continue to reap the benefits with less and less toil.

However, just as the work becomes second nature, new challenges present themselves— namely, turning, shifting, and, importantly, stopping.

This cycle of nerves, uncertainty, confidence, drive, and then back to nerves is repeated by everyone, from five-year-olds learning to ride for the first time to Olympic cyclists racing in their hundredth or thousandth race. When it comes to riding a bike or any similar task, we know this cycle exists. We overlook the initial challenges of getting started because we know the value we will reap in the end. We have seen others do it, so we steel ourselves for the journey, not just the start.

It should be no different in business, especially in a world where we are constantly and with increasing speed being thrown new and more difficult challenges. And yet, too many organizations are frozen in the initial phases of nerves and uncertainty, content to remain still instead of pushing to move forward.

The Value Flywheel Effect

The Value Flywheel Effect can help organizations escape this state of stagnation and fear in the face of new challenges. For example, one of the most ubiquitous challenges organizations face today is when, if, and how to start a cloud transformation. The modern cloud (serverless) promises speed, low friction, and reduced costs, but most organizations don’t realize that achieving these results requires more than just lifting and shifting their existing architecture into the cloud.

At Liberty Mutual, it took focusing on a clarity of purpose, creating an environment for success, and experimenting with the next best action we could envision (serverless) to finally realize the long-term value that was promised. Then, using one small win (one pump of the wheel) we were able to experiment again and achieve another success (another spin of the wheel). With each success (each spin of the flywheel), the effort and work it took to earn another success was reduced. We built the momentum that eventually shot us into the forefront of technological innovation and excellence and drove huge business growth.

It can be challenging to start turning the flywheel. There are nerves and uncertainty, and it requires significant effort. Technology and product drivers are necessary, and the flywheel needs to absorb both. But as the flywheel starts to turn, it releases energy that will drive your organization forward. It achieves momentum. The systemic forces are now hard to stop but easier to guide.

Unlike many frameworks, the Value Flywheel Effect is not a “one and done” exercise. The entire idea of a project conjures up the image of a start and an end, point A to point Z. The fast iteration of a flywheel, however, is more akin to Atomic Habits, the seminal book by James Clear. By breaking larger actions down into smaller efforts and moving through the four phases of the Value Flywheel, progress may seem insurmountable, but it will be faster.

The Four Phases of the Value Flywheel

The Value Flywheel Effect is the third iteration of the concept of the organizational flywheel, combining elements from Jeff Bezos’s Virtuous Cycle and Jim Collins’s flywheel and applying much of our own technical leadership lessons learned.

This Value Flywheel Effect reveals the rapid acceleration and transformation that is possible when technology and business strategies intertwine. If the focus is only on the customer (as with Bezos) or only on the organization (as with Collins), organizations will continue to struggle to bring technology and business together. They will struggle to improve how long it takes them to realize value. In the modern digital age, technology and the business must become one. As we evolve the works of Collins and Bezos, this Value Flywheel Effect will be the catalyst for all our future endeavors.

The Value Flywheel Effect
The Value Flywheel Effect (Copyright David Anderson)

Phase 1: Clarity of Purpose

A clear and definitive purpose is often hard to achieve (like starting a mechanical flywheel), but it’s a critical starting point. As Simon Sinek points out with his “Golden Circle” concept, we have to “start with why” (from his book of the same name). Once you have clarity on your why (your purpose), only then can the flywheel start turning. Liberty Mutual first had to align to three main areas of digital transformation: customer centricity, agility, and cloud-native development. This became the north star we used to direct all our future efforts.

Phase 2: Challenge & Landscape

Once a purpose is selected, this will inevitably lead to challenges (the second phase of the Value Flywheel). How are we going to achieve this? What actions do we need to take to reach our goal? Challenge is good. It helps an organization question its business-as-usual attitudes. It helps lead them out of stagnation. Only through embracing and confronting challenges can an organization hope to grow and meet the demands of an ever-changing market.

Phase 3: Next Best Action

In today’s landscape, solutions to challenges need to be executed quickly. Instead of waiting for the perfect solution, the goal should be to quickly identify and implement the next best action (the third phase of the Value Flywheel). There is no need to over-plan or stall. Instead, the organization must ask itself, “What’s the next most useful thing we can do to provide some value?” and then act accordingly. Overcoming challenges demands speed, so this is not the time for over-engineering or deep analysis.

Phase 4: Long-Term Value

This next best action must have the goal of turning small wins into lasting, long-term value (the fourth phase of the Value Flywheel) to ensure that your organization creates a sustainable practice early instead of building quickly but badly, creating further complications down the line.

Continue Spinning the Value Flywheel

But the journey is not over. Once the wheel has spun, it is essential to return to clarity of purpose (the first phase of the Value Flywheel). A fast experiment should have supplied some valuable feedback so that the whole iteration (a turn of the flywheel) can start again. And again. And again. The faster your organization moves through these iterations (turns of the flywheel), the more you will learn, the more value you will deliver, and the more opportunities that will present themselves. The business strategy never stands still. There will be new ideas, new opportunities, and new developments. There will also be improvements to the technology stack and to the teams themselves. The Value Flywheel works as it absorbs changes from the business and technology (both never stop evolving).

The Value Flywheel Effect always intends to move and absorb challenges, energized through pragmatic decision-making. It’s crucial to maintain momentum—to never slow down or stop. Note that the Value Flywheel Effect is neither a hybrid strategy nor operational efficiency. It’s about creating a true bias for action, aligned with the pragmatic and proven ways of working that we’ve seen work in our own experiences.

The Value Flywheel is designed to spin many times, so don’t feel that you need to do everything in phase two before moving on to phase three. Momentum and bias for action are more important than anything else. The flywheel gets its energy through feedback and ideas from both product and technology, so getting moving is critical. The flywheel then levels out these requests and maintains a steady flow of power throughout the organization.

The Value Flywheel Effect in Action

Let’s look at the Value Flywheel in action.

Phase 1 in Action

The first phase of the Value Flywheel is clarity of purpose when a new requirement emerges. Can we line it up to a north star? Are the benefits of this ask clear? What is the value proposition that this ask will deliver, and is the time to value clear? A well-thought-out ask will quickly move you through this phase.

Phase 2 in Action

Next is the challenge. An ask will always require specific capabilities. Is there a safe environment to challenge and explore this ask? Can we pick at it and get behind it? Is the opportunity cost of doing this over another thing clear? Are the teams well-positioned to do this work? From a sociotechnical perspective, is our system set up for success, or could this ask be a breaking change?

Phase 3 in Action

Once we have confidence that the ask aligns with our capability, we move on to the third phase, finding and acting upon the next best action. This is one of the most critical stages of the Value Flywheel. Most organizations that are moving to serverless will eventually use public cloud providers as their platform. Cloud platforms exist to enable and provide acceleration. The smart organizations that leverage the cloud properly will see the benefit of acting quickly. If the engineers have a frictionless developer experience and execute against a serverless-first strategy, they will build well and fast.

Phase 4 in Action

Finally, long-term value is our check and balance against technical debt, which slows the flywheel down. This phase benefits from seeds planted at the start and aims to prevent longer-term issues. A problem-prevention mindset is often forgotten when we go to market quickly, and we rarely come back to clean up the mess. Facilitating and investing in well-architected and sustainable engineering/product development will ensure that we think ahead and keep the flywheel turning smoothly.

If the ask moves through these four phases smoothly, we have ensured that our flywheel will output value and is ready to turn again. The momentum generated in the organization by building this way is invaluable.

In our next post, we’ll examine the 12 Key Tenets of the Value Flywheel Effect.

- About The Authors
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David Anderson

David Anderson has been at the leading edge of the technology industry for twenty-five years. He formed The Serverless Edge, and continues to work with clients and partners to prove out the thinking in his book, The Value Flywheel Effect. He is also a member of the Wardley Mapping community.

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Michael O'Reilly

Michael O’Reilly

Michael O'Reilly is a Software-Architect who specializes in arming organizations with the ability to develop ideas into world-class products by leveraging the capabilities of the modern cloud.

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Mark McCann

Mark McCann is a Cloud Architect and leader focused on enabling organizations and their teams to rapidly deliver business value through well-architected, sustainable, serverless-first solutions. He was heavily involved with Liberty Mutual's journey to the cloud, leverages Wardley Mapping, and writes for the The Serverless Edge.

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