GOOD TO GREAT CHAPTER 5

ARE YOU A HEDGEHOG OR A FOX?

A fox is sleek, cunning and always devising a plan

A hedgehog is slow, simple, dowdy creature, going about his day

“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. HEDGEHOGS simplify a complex world into a single organized idea, a basic concept that guides everything

THE HEDGEHOG CONCEPT

A simple, crystalline concept that flows from deep understanding about the intersection of the three circles.

  • A simple concept, implemented with fanatical consistency
  • A principle done with excellence and imagination
  • This concept is not a goal, strategy or intention; it is an understanding

“You want to know what separates those who make the biggest impact from all the others who are just as smart? They’re hedgehogs.”

THE THREE CIRCLES

1. What you can be the best in the world at

  • Just because you possess a core competency doesn’t mean you can be the best in the world at it
  • If you cannot be the best in the world at your core business, then your core business cannot form the basis of you Hedgehog Concept

2. What drives your economic engine

  • Attain insight on how to effectively generate sustained and robust CASH FLOW and PROFITABILITY
  • Search the single denominator that has the SINGLE greatest impact

3. What you are deeply passionate about

  • Activities that ignite your passion
  • The idea is NOT to stimulate passion but to DISCOVER what makes you passionate

If you make a lot of money doing something at which you could never be the best, you’ll only build a successful company, NOT A GREAT ONE.

If you become the best at something, YOU’LL NEVER REMAIN ON TOP if you don’t have intrinsic passion for what you are doing.

You can be passionate all you want but if you can’t be the best at it or it doesn’t make economic sense, then you’ll have a lot of fun BUT WON’T PRODUCE GREAT RESULTS.

COMPANIES APPLY HEDGEHOG CONCEPT

Walgreens

  • Concept: the best, most convenient drugstore with high profits per customer visit.
  • Tight clustering leads to local economies of scale, which provides the cash for more clustering, which in turn draws more business.
  • From profit per store to profit per customer.
  • Relationship between convenient store sites and sustainable economics

Wells Fargo

  • Concept: the best at running a bank like a business, with focus on the western United States.
  • Recognized that they could not be the best in the world as a super-global bank, but that it could be the best in the western United States.
  • From profit per loan to profit per employee.
  • Understanding of the brutal fact of deregulation: Banking is a commodity.

“They stick to what they understand and let their abilities, not their egos, determine what they attempt.” – Warren Buffet

SUMMARY

  • It took FOUR years on average, for a Good to Great company to clarify their Hedgehog Concept.
  • Over two-thirds of the comparison companies displayed an obsession with GROWTH without the benefit of a Hedgehog Concept.
  • Can’t manufacture passion or motivate people to feel passion. DISCOVER what ignites your passion and those around you.
  • No matter how bad the industry, every good-to-great company figure out how to produce truly superior economic returns.

Be a hedgehog, not a fox!

Credits:

Created with images by MichaelGaida - "architecture skyscraper glass facades" • markusspiske - "office home office creative" • StartupStockPhotos - "conference table meeting startup" • Supermac1961 - "The dome is open at the top" • Life-Of-Pix - "office buildings skyscrapers buildings" • viganhajdari - "handshake business hand" • cdu445 - "roundtable light interior design"

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