The fox knows many things, but the hedgehog knows one big thing. Foxes pursue many ends at the same time and see the world in all its complexity. They are scattered, diffused, inconsistent, moving on many levels, never integrating their thinking into one overall concept or unifying vision. Hedgehogs, on the other hand, simplify a complex world into a single organizing idea, a basic principle or concept that unifies and guides everything. It doesn't matter how complex the world is, a hedgehog reduces all challenges and dilemmas to simple - indeed almost simplistic - hedgehog ideas.
The three circles
The essential strategic difference between the good-to-great and comparison companies lay in two fundamental distinctions. First, the good-to-great companies founded their strategies on a deep understanding of three key dimensions - the three circles. Second, the good-to-great companies translated that understanding into a simple, crystalline concept that guided all their efforts - hence the term Hedgehog Concept.
- What you can and cannot be the best at
- What drives your economic engine
- What you are deeply passionate about
What you can and cannot be the best at
A Hedgehog Concept is not a goal to be the best, a strategy to be the best, an intention to be the best, a plan to be the best. It is an understanding of what you can be the best at. The distinction is crucial.
Every company would like to be the best at something, but few actually understand - with piercing insight and egoless clarity - what they actually have the potential to be the best at and, just as important, what they cannot be the best at.
Just because something is your core business - just because you've been doing it for years or perhaps even decades - does not necessarily mean that you can be the best in the world at it. And if you cannot be the best in the world at your core business, then your core business cannot form the basis of your Hedgehog Concept.
The Hedgehog Concept requires a severe standard of excellence. It's not just about building on strength and competence, but about understanding what your organization truly has the potential to be the very best at and sticking to it.
Some examples are:
- Abbot Laboratories could become the best at creating a product portfolio that lowers the cost of health care.
- Circuit City could become the best at implementing the "4-S" model (service, selection, savings, satisfaction) applied to big-ticket consumer sales.
- Gillette could become the best at building premier global brands of daily necessities that require sophisticated manufacturing technology.
- Nucor could become the best at harnessing culture and technology to produce low-cost steel.
- Pitney Bowes could become the best at messaging that requires sophisticated back-office equipment.
- Walgreens could become the best at convenient drug stores.
- Wells Fargo could become the best at running a bank like a business, with a focus on the western United States.
What drives your economic engine
A company doesn't need to be in a great industry to become a great company. Each good-to-great company built a fabulous economic engine, regardless of the industry. They were able to do this because they attained profound insights into their economics, the notion of a single "economic denominator". If you could pick one and only one ratio - profit per x (or, in the social sector, cash flow per x) - to systematically increase over time, what x would have the greatest and most sustainable impact on your economic engine?
The denominator can be quite subtle, sometimes even unobvious. The key is to use the question of the denominator to gain understanding and insight into your economic model.
You don't have to have one denominator, but pushing for a single denominator tends to produce better insight than letting yourself off the hook with three or four denominators. The denominator question serves as a mechanism to force a deeper understanding of the key drivers in your economic engine.
Some examples are:
- Abbott: per employee
- Circuit City: per geographic region
- Gillette: per customer
- Kroger: per local population
- Nucor: per ton of finished steel
- Philip Morris: per global brand category
- Walgreens: per customer visit
What you are deeply passionate about
It may seem odd to talk about something as soft and fuzzy as "passion" as an integral part of the strategic framework. But throughout the good-to-great companies, passion becomes a key part of the Hedgehog Concept. You can't manufacture passion or "motivate" people to feel passionate. You can only discover what ignites your passion and the passions of those around you.
The good-to-great companies didn't say, "Okay, folks, let's get passionate about what we do." Sensibly, they went the other way entirely: We should only do those things that we can get passionate about.
This doesn't mean that you have to be passionate about the mechanics of the business per se. The passion circle can be focused equally on what the company stands for. For example, you might not be passionate about the mechanical process of packaging mortgages into the market securities. But you might be terrifically motivated by the whole idea of helping people of all classes, backgrounds, and races realize the American dream of owning their home.
The triumph of understanding over bravado
In the pre-hedgehog state, it's like groping through the fog. You're making progress on a long march, but you can't see all that well. You can only see a little bit ahead and must move at a deliberate, slow crawl. Then, with the Hedgehog Concept, you break into a clearing, the fog lifts, and you can see for miles. In the post-hedgehog state, miles of trail move swiftly beneath your feet, forks in the road fly past as you quickly make decisions that you could not have seen so clearly in the fog.
Over two-thirds of the comparison companies displayed an obsession with growth without the benefit of a Hedgehog Concept. Statements such as "We've been a growth at any price company" and "Betting that size equals success" pepper the materials on the comparison companies. In contrast, not one of the good-to-great companies focused obsessively on growth. The comparison companies set their goals and strategies more from bravado than from understanding. Growth is not a Hedgehog Concept. If you have the right Hedgehog Concept and make decisions relentlessly consistent with it, you will create such momentum that your main problem will not be how to grow, but how not to grow too fast.
It would be a terrible mistake to thoughtlessly attempt to jump right to a Hedgehog Concept. You can't just go off-site for two days, pull out a bunch of flip charts, do breakout discussions, and come up with a deep understanding. You can do that, but you probably won't get it right. It would be like Einstein saying, "I think it's time to become a great scientist, so I'm going to go off to the Four Seasons this weekend, pull out the flip charts, and unlock the secrets of the universe." Insight just doesn't happen that way. It took Einstein ten years of groping through the fog to get the theory of special relativity, and he was a bright guy.
It took about four years on average for the good-to-great companies to clarify their Hedgehog Concepts. While it has crystalline clarity and elegant simplicity once you have it, getting the concept can be devilishly difficult and takes time. Recognize that getting a Hedgehog Concept is an inherently iterative process, not an event.
The Council
One useful mechanism for moving the process along is a device named the Council. The Council consists of a group of the right people who participate in dialogue and debate guided by the three circles, iteratively and over time, about vital issues and decisions facing the organization. This is a cycle. The Council helps to accelerate the process of getting a Hedgehog Concept by increasing the number of times you go around that full cycle in a given time.
When you get your Hedgehog Concept right, it has the quiet ping of truth, like a single, clear, perfectly struck note hanging in the air in the hushed silence of a full auditorium at the end of a quiet movement of a Mozart piano concerto. There is no need to say much of anything; the quiet truth speaks for itself.