1. (Simplicity within the Three Circles)
Good to Great-Chapter 5
The Hedgehog Concept
(Simplicity within the Three Circles)
Crystal Hill
Stephen Lechtenberg
Anand McGee
Allison Purtell
Jason Torres

2. Hedgehog Concept
“The fox knows many things, but the hedgehog knows one big thing-rolling into a perfect ball becoming a sphere of sharp spikes, pointing out in all directions to ward of predators.”

3. 2 Basic Groups-
Fox: pursue many ends at the same time and see the world in all its complexity
Hedgehogs: Simplify the complex world into a single organizing idea, a basic principle or concept that unifies and guides everything
Understand that the essence of profound insight is SIMPLICITY

4. Hedgehog vs. Fox
Those who build the good-to-great companies are, to one degree or another, hedgehogs. They used their hedgehog nature to drive toward what they call a Hedgehog Concept for their companies. Those who lead the comparison companies tend to be foxes, never gaining the clarifying advantage of a Hedgehog Concept, being instead scattered, diffused, and inconsistent

5. Example: Walgreens vs. Eckerds
Walgreens: generated cumulative stock returns from 1975 to 2000
Hedgehog Concept: become the best, most convenient drugstore with a higher profit per customer visit.
Eckerds: executives compulsively leapt at opportunities to acquire clumps of stores with no obvious unity

6. Example: Starbucks
Hedgehog Concept: Premium quality coffee that sells at affordable prices
Establish relationships with well known third parties that share their values
Does not outsource operational control
Vertically integrated: control coffee sourcing, roasting, and distribution

7. The Three Circles
The essential strategic differences between the good-to-great companies lay in two fundamental distinctions:
Founded the their strategies on deep understanding along 3 key dimensions-
the 3 circles
Translated that understanding into a simple, crystalline concept that guided all their efforts

8. The Three Circles (cont.)
A Hedgehog concept is a simple concept that flows from deep understanding about the intersection of the following circles:
What are you deeply passionate about?
What drives your economic engine?
What can you be the best in the world at?

9. Understand what you can (and cannot) be best at
Don’t get distracted by things that would feed company’s ego if you can’t be the BEST at them.
Core competency does not equal hedgehog concept.
Straight A student analogy

10. Insight into your economic engine - what is your denominator?
Good-to-Great companies frequently produce spectacular returns in very unspectacular industries
They were able to do this because they attained profound insights into their economics and found the right economic denominator

11. Economic Denominator
If you could pick one ratio- profit per x or in the social sector- cash flow per x to increase over time what x would have the greatest and most sustainable impact
Don’t have a denominator just to have one, but for the sake of gaining insight which leads to more robust and sustainable economics

12. Understanding Your Passion
Philip Morris vs. R.J. Reynolds
Passion is a key part of the Hedgehog Concept
Can’t manufacture passion or “motivate” people to feel passionate.

13. Understanding Your Passion (cont.)
Gillette
Don’t have to be passionate about the mechanics of the business.
Fannie Mae
Having passion is key to succeeding.

14. The Triumph of Understanding over Bravado
Pre-hedgehog vs. Post-hedgehog
2 Reasons for Complexity
Mindless Pursuit of Growth
Great Western vs. Fannie Mae

16. The Triumph of Understanding over Bravado (cont.)
Turning Point in the Journey
Disciplined Action
“Can’t just Jump” – Albert Einstein
Inherently Iterative Process
Useful Mechanism – The Council

18. Questions?