From the book “Good to Great” by Jim Collins, comes the idea of the ‘hedgehog concept’ created by Isaiah Berlin wherein a company defines a simple three-prong focus and sticks to it. By doing so the enterprise eliminates complication, resists destructive temptations and opens the door to enormous opportunities by specializing. Those companies that do not embrace the Hedgehog Concept never gain a clarifying advantage and instead, pursue a path that is scattered, confused and often inconsistent.
The Hedgehog and the Fox
Much like the tortoise and the hare parable, the hedgehog and the fox story ends with the underdog winning out in the long run. No matter how clever the plans of the fox to trap the dull-witted hedgehog, no matter the preparations, the deep thinking or the cunningness of the fox, the hedgehog merely folds into an impregnable ball whenever the fox suddenly appears to claim its hedgehog dinner. The clever fox always loses out to the simple-minded hedgehog.
From this idea comes the advice that, like the simplistic hedgehog approach, there are simple things that will lead a company to a great future. Success and greatness are within your grasp if the three components of the Hedgehog Concept are sought out, understood and applied.
The Three Components
The three components of the Hedgehog Concept that should guide the company’s efforts, as a focal point in everything it does, are:
- Determine what you can be best at.
- Translate that service or product into its single
- Ensure you are passionate about that service
Stop. Think about what you, as a firm, do. Of those things, at which one can you be the best in your world? Just because you are competent, doesn’t mean you can be best in the world at that competency. Discover what possibilities exist that you can take the lead in. Develop an understanding of what you have the potential to be best at, with piercing insight and ego-less clarity. It is not what you want to be best at but an understanding of what you are or can readily be best at.
Usually it means that the field is open to you; no one else is taking advantage of the ‘obvious’ opportunity. Or, others may be in that domain, but fail to see it as a unique, identifying possibility. Are there any niches in which you have quietly exhibited success, already?
Doing what you’re good at will only make you good. Focusing on what potentially you can do better than anyone else is the path to greatness.
To assist yourself in this analysis, also ascertain what you CANNOT be the best in the world at. That will help eliminate what may initially appear to be positive candidates for your excellence and help remove aggressive bravado.
If you do things at which you can never be the best, you’ll make money but you’ll never have a great company.
Now, having chosen the ‘best’ approach, take pains to stick at it.
With the decision made about the ‘best’ product or service for success, determine what drives its economic engine. How can you most effectively generate sustained cash flow? It must be articulated to show potential results.
It should also be described by a single common determinant. It has to be the one metric that has the greatest impact on all that you do. It must have clarity, so everyone in the organization understands what the metric is and will be able to keep aiming towards it.
It will be unique – defined really, by the nature of your business and your product.
If you are good at something but if it doesn’t make economic sense, or you don’t know the way to measure how you are doing, you might do well but you’ll never produce great results.
What are you deeply passionate about? Discover what thrills you and focus on those ‘best’ activities that ignite your passion.
Even if you are best at something, you’ll never remain great, if you are not passionate about it.
Conclusion about Hedgehogs
The hedgehog is a pretty dull animal. It knows one great thing and sticks to it – no complicated strategies – but it succeeds beautifully. If you know one realistically great thing about yourself and stick to it, you will succeed beautifully.
1. On Being Best
Abbott Laboratories understood it could not become the best pharmaceutical company in the world; several great companies already filled that space. Abbott could try to be better; it could try to work harder; it could try to be more innovative. But it could not control the result vis-à-vis the efforts of the competitors. So instead, Abbott concentrated on pharmaceutical products that reduced the cost of health care. Thus, Abbott entered a space left unattended and became best at low-cost health care.
Walgreens concentrated on being the most convenient drugstore, i.e. located most conveniently and providing the most convenient products – another unattended space.
Walgreens has 9 stores within a one-mile radius in San Francisco. How’s that for convenience! It closed profitable stores in good locations, to move a few blocks to a corner location for greater convenience, sometimes at enormous costs to itself.
Wells Fargo decided to run its bank like a business, not like a traditional bank and only where it could be best – in the Western U.S. It meant adopting business efficiency and kissing goodbye to bank stodginess.
Each one chose a space at that time unoccupied or at least, not concentrated on by anyone else. Then they made it their unique specialty.
In a fifteen-year period up to the year 2000, boring Walgreens outperformed the stock market average by 7 times, boring Abbott 4 times and boring Wells Fargo 4 times. They beat out Coca-Cola, Merck, GE, Intel and other exciting companies such as 3M, Boeing, HP, Johnson & Johnson, Motorola, Pepsi, P & G, Wal-Mart and Walt Disney (which, as a group, outperformed the market by 2.5 times).
2. Of Economic Engines
Attain profound insight into your key financial performance indicators – the drivers in your economic engine and build a system in accordance with this understanding. Reduce it to a single economic determinant. Pick one and only one ratio to aim at. Make sure that you can systematically increase that ratio over time.
Profit-per-customer-visit of Walgreens increased convenience (its goal) and profitability simultaneously i.e. profit per convenience (per customer visit). How do you measure convenience? “The more time I’m visited the more convenient I am”, says Walgreens.
Abbott was seeking cost-effective health care and therefore reasoned that its measure should be profit per employee. “Is the most expensive part of our business (i.e. employees) profitable?” asked Abbott.
Wells Fargo thought of profit per loan. But that was not right, because loans became a commodity and none would have a decent profit margin. The same thinking applied to profit per deposit. Goal: to run a bank like a business – effective (service that clients want) and efficient (lower costs). Instead, Wells Fargo focused on profit per employee. Its reasoning was to offer great service through employees and thus, it needed to measure profit of that service and that employee. Wells Fargo reduced the number of employees to increase its profit-per-employee ratio. Then it added automation (such as ATMs) to make up for lost employees.
Fannie May grasped that profit per mortgage would not work. Instead it found that profit per risk level i.e. chance of default was more relevant for it than profit per mortgage.
Gillette set its goal: Repeatable business. Thus tracking customer history to determine profit per customer told Gillette how much repeatable business would be attained.
Kroeger shifted from profit per store to profit per local population. How much of the local market did Kroeger capture became the measure of success for these grocery stores.
It’s all about gaining the insight that leads to more robust and sustainable economics.
Results: Kroeger beat the market average by 4times, Gillette by 7 times and Fannie May by 8 times.
3. Thinking towards Passion
Passion is not about becoming passionate over what you do but doing what you are passionate about.
You have to love what you do and want to share it with the world. Otherwise you may be good, but you’ll never be great.
Here’s a surprise: Growth is not a Hedgehog Concept. There is no passion about growth – only naked ambition. Companies falsely pursue growth at any price. Yet Collins’ research shows that growth develops naturally and more explosively from following the Hedgehog Concept. Growth does not have to be rushed; it will come fast enough on its own after you embrace the Hedgehog Concept.
You and the Hedgehog Concept
There is no easy way to create or test your company against the Hedgehog concept. Below, we attempt to assist you with some generalities, which will have more meaning once you get into the exercise.
Start by writing out your existing mission statement and tag lines. Then match the mission statement and tag lines, one-by-one against the three elements of the Hedgehog Concept. Do they fit? If so, you may be close. If not, proceed as follows:
- Best in the world
What can you be the best in the world at? How can you uniquely solve customer problems to everyone’s satisfaction? What, in your general industry domain, is the edge you can have? What special understanding do you have at which you can be highly successful? Do you have a history of a 100% success rate at some specific area? Now define it.
Examine your current products and services brochures to pick out those parts that define this unique capability. Expand the brochure or expand the articulation of the uniqueness.
Examine the connection of this uniqueness to your present tag line or revised tag line. Initially you may see that the fit is there but it is not precise. Wrestle with the tag lines to get a match.
Take your time – it requires several months to reach the ‘Aha-I’ve-got-it!’ stage.
- Economic Driver
The goal is to create a robust and sustainable economics that can be increased over time.
|Company||Being Best at||Rationale||Economic Driver|
|Walgreens||Being the most convenient drugstore||The more ‘convenient’, the more the customer will buy at the moment.||Profit per customer visit|
|Gillette||Getting most repeats from clients||The customer will keep coming back so need to track the business with each customer||Profit per customer|
|Abbott||Lowest cost healthcare||After focusing on low-end healthcare products, need to keep business expenses down. Most expensive part is employee wages. Therefore need to monitor results per employee.||Profit per employee|
|Wells-Fargo||Best run bank -running a bank like a business, not like a bank||A business must (a) provide services and (b) do it economically (i.e. be effective and efficient). Therefore monitor the amount of services and the efficiency of providing those services||Profit per employee|
|Kroeger||Best grocer in the area||If best in the area, how much of local market do we capture?||Profit per local population|
a) With the above table as a reference, define your company’s several possible goals of what it can be best at. If you have reduced it to one goal, then you are so much the better for it. If not, look at all the options and ascertain how you measure the economic effectiveness of doing what you do? Economic impact? Number of issues dealt with? Size of product or issue? Profit per issue?
Looking at all the ‘best product’ options against the economic drivers may help to focus on the right choice of unique product for you. That is, it is an iterative process: ‘best’ to ‘economic’ to ‘best’ to ‘economic’, etc.
Whatever the economic driver, you must eventually tie it to price through some route.
What difficulty does its measurement pose? The difficulty in measuring the benefits needs to be bridged and its outcome needs to be both accurate and thorough.
b) As an option, define your clients’ goals that you are achieving for them. For example if your product improves client profits significantly it might trigger a definition of your niche. Then pursue your economic driver for that niche.
The company passion is helping others to achieve better results towards……………(whatever ‘it’ is for you).
Having ascertaining ‘it’, also fit ‘it’ to your own personal passion.
Now that you’re done, as a crosscheck, ask if every word of your mission fits? Use this as a verification of your Hedgehog Concept and your mission.
Whenever you reach a point of defining the three components of your unique Hedgehog Concept, you will sense an epiphany. It is a difficult point to attain but, it is doable and it does get results. Look all around you. Success lies with companies having unique specializations, not in generalizations. Pringle succeeded with the simple concept of high quality potato chips in an already crowded market. You should be there too.