Hedgehog Concept

Hedgehog Concept“The fox knows many things, but the

hedgehog knows one big thingThe hedgehog sees what is essential, and

ignores the restYou want to know what separates those who

make the biggest impact from all the others who are just as smart

Walgreens Vs. EckerdCork Walgreen the CEO had a simple

concept, the most convenient drugstores, with high profit per customer visit

Store by store, block by block, city by city, region by region. Walgreens became more and more of a hedgehog with this incredibly simple idea

The Three CirclesWhat you can be the Best in the World at?

What drives your Economic Engine?

What you are deeply Passionate about?

Understanding what you can (and Cannot) be the best at

" They stick with what they understand and let their abilities, not their egos, determine what they attempt."

Wells Fargo “ What can we do better than any other company,

and what can we not do better than any other company, and if we cannot be the best then why are we doing it ”

Abbott v UpjohnIn 1964 they were identical in:RevenuesProfitsProduct Lines

Knowing when to Change DirectionsMerck vs. Upjohn- Upjohn tries to out muscle

Merck because they believe that their core competency is worth competing on

OrAbbot vs. no one – Abbot knows that they are

better

Creating Blue Oceans by cutting your LossesEstablished 1886 with playing card

gamesMoved to cab services, network TV,

and food productionStarted designing products to

accommodate the arcade boomDeveloped Donkey KongStarted a revolution

What drives your Economic EngineThe notion of a single Economic DenominatorQuestion is…If you could pick one and only one ratio -

profit per X to systematically increase over time, what X would have the greatest and most sustainable impact on your economic engine?

Zoom ZoomThe denominator question serves as a

mechanism to force deeper understanding of the key drivers in your economic engine

Have a denominator not for the sake of just having one, but for the sake of gaining insight that ultimately leads to more robust and sustainable economics

Circuit City – Per geographic region

Fannie Mae – Per mortgage risk level

Gillette – Per CustomerKroger – Per local PopulationNucor – Per ton of finished steelPhilip Morris – Per global brand category

Pitney Bowes – Per customerWalgreens – Profit per visitWells Fargo – Per employee

Understanding your passionPhillip Morris understood passion

Phillip Morris’ success was mainly dependent on the fact that it’s employees were hugely passionate about what they did.

Ross Millhiser, former vice chairman “I love cigarettes, it’s one of the things that makes life

really worth living.” Needless to say, he’s dead,…but he had passion while he

was alive, and that inspired those around him to be the best at what they were doing which in turn, became a core competence that made Phillip Morris become a Great company

Passion is Nature, not NurtureThe good-to great companies didn’t say,

“okay, folks, lets get passionate about what we do.” They went the other way entirely.“We should only do those things that we can

get passionate about.” Ex. Republic airlines

Genius Right?

Not Really

Diversifying for PassionAsdfasdfasdfa new the market for disposable

razors was a red ocean, so it diversified to fit a new mold where consumers saw Gillette as a company keen on engineering and technology. It’s hedgehog strategy was to become the leader in innovative and sophisticated shaving systems.Gillette’s was noted in an article for the Wall

Street Journal for the quote “people who aren't passionate need not apply,” describing a situation where a top graduate student wasn’t hired due to her lack of passion for deodorant.

Triumph of Understanding Over Bravado

Charismatic leaders of good companies were to often relying on Bravado, not understanding in an attempt to sort through the fog. They never made it into daylight because they were asking the wrong questions.Growth need not be an obsession, it will come

with an appropriate hedgehog strategy.

Fannie Mae and Great Western

The Council: Asking the right Questions Good to Great companies asked these questions when defining

their hedgehog concept Do we really understand what we can be the best in the world at? Do we really understand the drivers in our economic engine? Do we really understand what best ignites our passion?

The CouncilThe first step in defining a hedgehog concept

is to put the right people in place to engage in dialogue guided by the three circles.Characteristics of the council

Different backgrounds = different POV Immune to groupthink – consensus views are at

odds with intelligent decisions. Arguments based on need for positive conclusion,

not an egoistic need to win.