hedgehog-concept

Hedgehog Concept In A Nutshell

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The hedgehog concept is a simple yet powerful framework for individual or business success. The hedgehog concept was created by Good to Great author and business consultant Jim Collins. The book is based on an ancient Greek parable about a hedgehog and a fox, stating that “the fox knows many things, but the hedgehog knows one big thing.”

AspectExplanation
Concept OverviewThe Hedgehog Concept is a strategic framework introduced by business author and consultant Jim Collins in his book “Good to Great.” It represents a simple yet powerful strategy that organizations can adopt to achieve long-term success. The concept is inspired by the parable of the hedgehog and the fox, where the hedgehog, with its single, focused strategy, consistently outsmarts the fox’s complex tactics. The Hedgehog Concept revolves around the intersection of three key elements:
1. What You Are Passionate About: Identifying what drives your passion and enthusiasm.
2. What You Can Be the Best At: Determining what your organization can excel in, based on its unique strengths and capabilities.
3. What Drives Your Economic Engine: Discovering how your organization can sustainably generate revenue and profit. The sweet spot where these three circles intersect represents the Hedgehog Concept, signifying the ideal strategic focus for an organization.
Key PrinciplesThe Hedgehog Concept is guided by several key principles:
1. Simplicity: It emphasizes simplicity and clarity in strategic thinking, focusing on what truly matters.
2. Alignment: It aligns an organization’s activities with its core strengths and values.
3. Consistency: It encourages long-term consistency and commitment to the chosen strategic path.
4. Prioritization: It requires prioritizing activities that fall within the intersection of the three circles and saying “no” to distractions.
5. Adaptation: While the core concept remains constant, tactics and approaches can adapt to changing circumstances.
ProcessThe process of developing a Hedgehog Concept typically includes the following steps:
1. Self-Discovery: Organizations must conduct a deep self-assessment to understand their passion, strengths, and economic drivers.
2. Defining the Three Circles: Identify what you are passionate about, what you can be the best at, and what drives your economic engine.
3. Finding the Intersection: Explore the overlaps among the three circles to pinpoint the Hedgehog Concept.
4. Strategy Alignment: Align all aspects of the organization, including culture, operations, and resources, with the Hedgehog Concept.
5. Focused Execution: Execute the chosen strategy with discipline and persistence.
ApplicationsThe Hedgehog Concept is applicable to various types of organizations, including businesses, non-profits, and educational institutions. It can guide strategic decisions, resource allocation, and organizational development.
ExamplesNotable examples of organizations that have successfully applied the Hedgehog Concept include The Good to Great Companies profiled in Jim Collins’ book. These companies, such as Wells Fargo and Walgreens, found their Hedgehog Concept and sustained remarkable performance over the long term.
BenefitsImplementing the Hedgehog Concept offers several benefits:
1. Clarity: It provides a clear and focused strategic direction.
2. Alignment: It aligns the organization’s efforts, culture, and resources.
3. Differentiation: It helps organizations stand out in their industry or sector.
4. Long-Term Success: It promotes sustained, long-term performance and excellence.
5. Decision Making: It simplifies decision-making by emphasizing the strategic core.
Challenges and RisksChallenges in adopting the Hedgehog Concept include the need for deep introspection and the discipline to stay committed to the chosen strategy. Risks may arise if organizations deviate from their Hedgehog Concept or fail to adapt to changing circumstances while staying true to their core values.

Understanding the hedgehog concept

In the parable, the fox attempts to catch the hedgehog using a variety of strategies that fail.

Ultimately, the fox is defeated because the hedgehog does one thing well: defend itself.

In business, Collins argues that a business is more likely to succeed by devoting its resources to one big thing.

In the next section, we will look at how a business can determine what that big thing is.

The three circles of the hedgehog concept

The hedgehog concept is based on three circles. Each of the three circles begins with a question:

What are you deeply passionate about?

In the first circle, a business should define its core values to identify work that inspires them.

Deep passion is important in building an authentic and sustainable brand. 

What can you be the best in the world at?

Determine what the business can do better than any other competitor.

Does the business have unique resources or capabilities? Perhaps it has access to economies of scale?

Defining a competitive advantage means that an organization must also identify its weaknesses.

In so doing, the business avoids spending time on money on initiatives that will never succeed.

What drives your economic engine?

That is, where is a business adept at generating revenue?

Examples of revenue generation include products, services, and other resources.

Whatever the driver, it must have a measurable and sustainable impact on cash flow and profits.

After completing the three circles, the business must identify where each overlaps.

When and How to Apply the Hedgehog Concept

The Hedgehog Concept can be applied in various contexts:

  1. Business Strategy: Organizations can apply the Hedgehog Concept to identify their core strengths and define a clear strategic focus.
  2. Career Development: Individuals can use the concept to identify their passions, strengths, and long-term career goals.
  3. Product Development: It can guide product or service development by focusing on a unique value proposition.

To implement the Hedgehog Concept effectively:

  1. Identify Core Strengths: Organizations and individuals should identify what they can be the best in the world at.
  2. Passion Assessment: Evaluate whether there is genuine passion and commitment for the chosen area.
  3. Economic Viability: Ensure that the chosen area has the potential to be economically sustainable.
  4. Consistency and Discipline: Stay committed to the chosen path and avoid distractions or constant shifts in direction.
  5. Resource Alignment: Allocate resources and efforts in alignment with the chosen core strength.

Benefits of the Hedgehog Concept

The Hedgehog Concept offers several benefits:

  1. Clarity: It provides clarity of purpose and focus, reducing complexity in decision-making.
  2. Long-Term Success: By focusing on core strengths, organizations and individuals can achieve sustained success.
  3. Passion and Motivation: Pursuing what one is deeply passionate about can lead to greater motivation and job satisfaction.
  4. Efficiency: Concentrating resources and efforts on one core strength often leads to greater efficiency.
  5. Differentiation: The Hedgehog Concept can help organizations stand out by becoming the best in their chosen field.

Potential Limitations of the Hedgehog Concept

While the Hedgehog Concept is a powerful framework, it also has potential limitations:

  1. Narrow Focus: The concept’s emphasis on specialization may lead to missed opportunities in related areas.
  2. Adaptability: In rapidly changing environments, overcommitment to a single area can be a disadvantage.
  3. External Factors: External market forces or disruptions may challenge the sustainability of the chosen core strength.

Hedgehog concept case study

Here, the hedgehog concept in the form of a central company vision will be located.

Consider the example of a company that is passionate about innovation and sustainability in third world countries.

Through economies of scale, the company can manufacture solar panels at a lower cost than competitors.

Although primarily operating in the UK, the company also has contacts in certain charitable organizations with a presence in Africa.

Therefore, a potential hedgehog concept may involve selling cheap and affordable electricity units to the African population.

Utilizing bulk orders, the solar panel company works passionately toward its goals while still making a profit.

In summary, businesses should note that the hedgehog concept does not provide a blueprint for becoming the best at something.

Instead, it gives insight into what a business could be best at given the common, intersecting information in each of the three circles.

Hedgehog Concept vs. Mandela Effect

mandela-effect
The Mandela effect is a phenomenon where a large group of people remembers an event differently from how it occurred. The Mandela effect was first described in relation to Fiona Broome, who believed that former South African President Nelson Mandela died in prison during the 1980s. While Mandela was released from prison in 1990 and died 23 years later, Broome remembered news coverage of his death in prison and even a speech from his widow. Of course, neither event occurred in reality. But Broome was later to discover that she was not the only one with the same recollection of events.

Hedgehog concept example: Nike vs Adidas!

In the first hedgehog concept example, we will revisit the so-called Sneaker Wars that started in earnest between Nike and Adidas in the 1970s.

What is the company deeply passionate about?

When Phil Knight’s company Blue Ribbon Sports became Nike in 1971, Adidas was a vast, international brand that had been in operation for almost 50 years. 

Both companies opted to sell shoes via collaborations or partnerships with major athletes, but Nike was far more passionate about the shoes themselves than its German competitor.

Knight was a track-and-field runner at the University of Oregon, and it was there he met coach and eventual business partner Bill Bowerman. 

Both men became obsessed with making a shoe that runners would find comfortable, durable, and nimble.

They initially imported better quality shoes from Japan and sold them in the United States, but with a team of dedicated individuals behind them, the pair decided to end the arrangement and strike out on their own. 

Nike’s mission statement at the time was indicative of its passion: “To bring inspiration and innovation to every athlete in the world.”

This was the sort of passion that had Bowerman develop The Waffle Trainer – the first prototype Nike shoe whose sole was inspired by the grooves in his home waffle maker.

Nike is also passionate about winning. Its first brand ambassador – runner Steve Prefontaine – shared this passion and since he was a native Oregonian, Knight believed he would best represent the company’s core spirit.

What is it the best in the world at?

One may assume that Nike is the best in the world at developing shoes, but this only tells part of the story.

Nike’s passion for shoes meant it had a product that was more durable than the Adidas equivalent. But how to match the German company’s reach?

If Nike is the best at anything, it is the ability to create sponsorship and endorsement deals in numerous different sports.

This started when Nike took a chance on emerging basketballer Michael Jordan in 1985 and continued into the 1990s as the company expanded into Europe.

To do this, Nike skilfully aligned itself with football and took advantage of the cult-following and strong sense of allegiance the sport enjoys.

The company managed to insert itself into youth clubs, local teams, and national teams to take market share away from Adidas. 

When Brazil won the 1994 World Cup wearing Nikes, the popularity of the brand gained momentum and, as Knight had intended, became associated with winning.

Nike then repeated the process in other sports such as golf and tennis which were backed by endorsements from Tiger Woods and Roger Federer respectively.

What drives the company’s economic engine?

Nike’s economic engine is driven by its low-cost structure and wide brand appeal across multiple markets.

One can purchase Nike apparel in Walmart, for example, but the company has also collaborated with premium brands such as Louis Vuitton, Balmain, and Dior.

Today, 66% of Nike’s revenue comes from footwear with profits dependent on whether the customer buys direct or via some third-party retailer.

Retailer markup often consumes a fair chunk of the profit on a pair of shoes in the latter case, which has prompted Nike to make direct purchases more attractive.

To that end, the company has invested in direct-to-consumer (DTC) sales by closely replicating the store experience online.

This has proved lucrative, with DTC revenue up 14% to $18.7 billion in the fiscal year 2022.

Key takeaways

  • The hedgehog concept provides a simple yet clear focus for business success, allowing it to devote resources to a single unifying vision.
  • The hedgehog concept is represented by three intersecting circles. Each circle asks important questions that help a business identify passions that are profitable and result in a competitive advantage.
  • The hedgehog concept does not provide a concrete strategy on how an organization might realize success. But it does illustrate the potential benefits of a business adopting hedgehog concept principles.

Key Highlights

  • Definition and Origin: The Hedgehog Concept, developed by Jim Collins, is a framework for achieving individual or business success. It draws from an ancient Greek parable about a hedgehog and a fox, illustrating the idea that “the hedgehog knows one big thing,” while the fox knows many things.
  • Parable Background: The parable involves a fox attempting various strategies to catch a hedgehog but failing, as the hedgehog excels at defending itself through a single approach.
  • Three Circles of the Hedgehog Concept:
    • What are You Passionate About? Identify the core values and work that inspire passion within the organization.
    • What Can You Be the Best In the World At? Determine the unique strengths and competitive advantages that set the organization apart.
    • What Drives Your Economic Engine? Pinpoint the revenue-generating factors that sustain profitability.
  • Identifying Overlapping Points: The Hedgehog Concept is found at the intersection of the three circles, where a central company vision aligns.
  • Hedgehog Concept Case Study:
    • The example involves a company passionate about innovation and sustainability in third-world countries.
    • Through economies of scale, the company can produce affordable solar panels.
    • By providing low-cost electricity units to the African population, the company achieves its goals and profitability.
  • Insight, Not Blueprint: The Hedgehog Concept doesn’t offer a blueprint for becoming the best; instead, it guides businesses to find their best given the common elements in the three circles.
  • Comparison with the Mandela Effect:
    • The Mandela Effect is a phenomenon where groups of people remember events differently from reality.
    • This is contrasted with the Hedgehog Concept, which focuses on a clear, aligned strategy for success.
  • Example: Nike vs. Adidas:
    • Nike’s Hedgehog Concept demonstrates its passion for shoes, particularly in sports.
    • Nike excels in sponsorship and endorsement deals, establishing itself as a winning brand.
    • The company’s economic engine is driven by a wide brand appeal, low-cost structure, and investments in direct-to-consumer sales.
  • Key Takeaways:
    • The Hedgehog Concept provides a focused approach to success by aligning passion, strengths, and economic sustainability.
    • The concept helps businesses identify their unique strengths, advantages, and revenue drivers.
    • The Hedgehog Concept is adaptable and guides businesses to find their best-fit strategy.

Connected Thinking Frameworks

Convergent vs. Divergent Thinking

convergent-vs-divergent-thinking
Convergent thinking occurs when the solution to a problem can be found by applying established rules and logical reasoning. Whereas divergent thinking is an unstructured problem-solving method where participants are encouraged to develop many innovative ideas or solutions to a given problem. Where convergent thinking might work for larger, mature organizations where divergent thinking is more suited for startups and innovative companies.

Critical Thinking

critical-thinking
Critical thinking involves analyzing observations, facts, evidence, and arguments to form a judgment about what someone reads, hears, says, or writes.

Biases

biases
The concept of cognitive biases was introduced and popularized by the work of Amos Tversky and Daniel Kahneman in 1972. Biases are seen as systematic errors and flaws that make humans deviate from the standards of rationality, thus making us inept at making good decisions under uncertainty.

Second-Order Thinking

second-order-thinking
Second-order thinking is a means of assessing the implications of our decisions by considering future consequences. Second-order thinking is a mental model that considers all future possibilities. It encourages individuals to think outside of the box so that they can prepare for every and eventuality. It also discourages the tendency for individuals to default to the most obvious choice.

Lateral Thinking

lateral-thinking
Lateral thinking is a business strategy that involves approaching a problem from a different direction. The strategy attempts to remove traditionally formulaic and routine approaches to problem-solving by advocating creative thinking, therefore finding unconventional ways to solve a known problem. This sort of non-linear approach to problem-solving, can at times, create a big impact.

Bounded Rationality

bounded-rationality
Bounded rationality is a concept attributed to Herbert Simon, an economist and political scientist interested in decision-making and how we make decisions in the real world. In fact, he believed that rather than optimizing (which was the mainstream view in the past decades) humans follow what he called satisficing.

Dunning-Kruger Effect

dunning-kruger-effect
The Dunning-Kruger effect describes a cognitive bias where people with low ability in a task overestimate their ability to perform that task well. Consumers or businesses that do not possess the requisite knowledge make bad decisions. What’s more, knowledge gaps prevent the person or business from seeing their mistakes.

Occam’s Razor

occams-razor
Occam’s Razor states that one should not increase (beyond reason) the number of entities required to explain anything. All things being equal, the simplest solution is often the best one. The principle is attributed to 14th-century English theologian William of Ockham.

Lindy Effect

lindy-effect
The Lindy Effect is a theory about the ageing of non-perishable things, like technology or ideas. Popularized by author Nicholas Nassim Taleb, the Lindy Effect states that non-perishable things like technology age – linearly – in reverse. Therefore, the older an idea or a technology, the same will be its life expectancy.

Antifragility

antifragility
Antifragility was first coined as a term by author, and options trader Nassim Nicholas Taleb. Antifragility is a characteristic of systems that thrive as a result of stressors, volatility, and randomness. Therefore, Antifragile is the opposite of fragile. Where a fragile thing breaks up to volatility; a robust thing resists volatility. An antifragile thing gets stronger from volatility (provided the level of stressors and randomness doesn’t pass a certain threshold).

Systems Thinking

systems-thinking
Systems thinking is a holistic means of investigating the factors and interactions that could contribute to a potential outcome. It is about thinking non-linearly, and understanding the second-order consequences of actions and input into the system.

Vertical Thinking

vertical-thinking
Vertical thinking, on the other hand, is a problem-solving approach that favors a selective, analytical, structured, and sequential mindset. The focus of vertical thinking is to arrive at a reasoned, defined solution.

Maslow’s Hammer

einstellung-effect
Maslow’s Hammer, otherwise known as the law of the instrument or the Einstellung effect, is a cognitive bias causing an over-reliance on a familiar tool. This can be expressed as the tendency to overuse a known tool (perhaps a hammer) to solve issues that might require a different tool. This problem is persistent in the business world where perhaps known tools or frameworks might be used in the wrong context (like business plans used as planning tools instead of only investors’ pitches).

Peter Principle

peter-principle
The Peter Principle was first described by Canadian sociologist Lawrence J. Peter in his 1969 book The Peter Principle. The Peter Principle states that people are continually promoted within an organization until they reach their level of incompetence.

Straw Man Fallacy

straw-man-fallacy
The straw man fallacy describes an argument that misrepresents an opponent’s stance to make rebuttal more convenient. The straw man fallacy is a type of informal logical fallacy, defined as a flaw in the structure of an argument that renders it invalid.

Streisand Effect

streisand-effect
The Streisand Effect is a paradoxical phenomenon where the act of suppressing information to reduce visibility causes it to become more visible. In 2003, Streisand attempted to suppress aerial photographs of her Californian home by suing photographer Kenneth Adelman for an invasion of privacy. Adelman, who Streisand assumed was paparazzi, was instead taking photographs to document and study coastal erosion. In her quest for more privacy, Streisand’s efforts had the opposite effect.

Heuristic

heuristic
As highlighted by German psychologist Gerd Gigerenzer in the paper “Heuristic Decision Making,” the term heuristic is of Greek origin, meaning “serving to find out or discover.” More precisely, a heuristic is a fast and accurate way to make decisions in the real world, which is driven by uncertainty.

Recognition Heuristic

recognition-heuristic
The recognition heuristic is a psychological model of judgment and decision making. It is part of a suite of simple and economical heuristics proposed by psychologists Daniel Goldstein and Gerd Gigerenzer. The recognition heuristic argues that inferences are made about an object based on whether it is recognized or not.

Representativeness Heuristic

representativeness-heuristic
The representativeness heuristic was first described by psychologists Daniel Kahneman and Amos Tversky. The representativeness heuristic judges the probability of an event according to the degree to which that event resembles a broader class. When queried, most will choose the first option because the description of John matches the stereotype we may hold for an archaeologist.

Take-The-Best Heuristic

take-the-best-heuristic
The take-the-best heuristic is a decision-making shortcut that helps an individual choose between several alternatives. The take-the-best (TTB) heuristic decides between two or more alternatives based on a single good attribute, otherwise known as a cue. In the process, less desirable attributes are ignored.

Bundling Bias

bundling-bias
The bundling bias is a cognitive bias in e-commerce where a consumer tends not to use all of the products bought as a group, or bundle. Bundling occurs when individual products or services are sold together as a bundle. Common examples are tickets and experiences. The bundling bias dictates that consumers are less likely to use each item in the bundle. This means that the value of the bundle and indeed the value of each item in the bundle is decreased.

Barnum Effect

barnum-effect
The Barnum Effect is a cognitive bias where individuals believe that generic information – which applies to most people – is specifically tailored for themselves.

First-Principles Thinking

first-principles-thinking
First-principles thinking – sometimes called reasoning from first principles – is used to reverse-engineer complex problems and encourage creativity. It involves breaking down problems into basic elements and reassembling them from the ground up. Elon Musk is among the strongest proponents of this way of thinking.

Ladder Of Inference

ladder-of-inference
The ladder of inference is a conscious or subconscious thinking process where an individual moves from a fact to a decision or action. The ladder of inference was created by academic Chris Argyris to illustrate how people form and then use mental models to make decisions.

Goodhart’s Law

goodharts-law
Goodhart’s Law is named after British monetary policy theorist and economist Charles Goodhart. Speaking at a conference in Sydney in 1975, Goodhart said that “any observed statistical regularity will tend to collapse once pressure is placed upon it for control purposes.” Goodhart’s Law states that when a measure becomes a target, it ceases to be a good measure.

Six Thinking Hats Model

six-thinking-hats-model
The Six Thinking Hats model was created by psychologist Edward de Bono in 1986, who noted that personality type was a key driver of how people approached problem-solving. For example, optimists view situations differently from pessimists. Analytical individuals may generate ideas that a more emotional person would not, and vice versa.

Mandela Effect

mandela-effect
The Mandela effect is a phenomenon where a large group of people remembers an event differently from how it occurred. The Mandela effect was first described in relation to Fiona Broome, who believed that former South African President Nelson Mandela died in prison during the 1980s. While Mandela was released from prison in 1990 and died 23 years later, Broome remembered news coverage of his death in prison and even a speech from his widow. Of course, neither event occurred in reality. But Broome was later to discover that she was not the only one with the same recollection of events.

Crowding-Out Effect

crowding-out-effect
The crowding-out effect occurs when public sector spending reduces spending in the private sector.

Bandwagon Effect

bandwagon-effect
The bandwagon effect tells us that the more a belief or idea has been adopted by more people within a group, the more the individual adoption of that idea might increase within the same group. This is the psychological effect that leads to herd mentality. What in marketing can be associated with social proof.

Moore’s Law

moores-law
Moore’s law states that the number of transistors on a microchip doubles approximately every two years. This observation was made by Intel co-founder Gordon Moore in 1965 and it become a guiding principle for the semiconductor industry and has had far-reaching implications for technology as a whole.

Disruptive Innovation

disruptive-innovation
Disruptive innovation as a term was first described by Clayton M. Christensen, an American academic and business consultant whom The Economist called “the most influential management thinker of his time.” Disruptive innovation describes the process by which a product or service takes hold at the bottom of a market and eventually displaces established competitors, products, firms, or alliances.

Value Migration

value-migration
Value migration was first described by author Adrian Slywotzky in his 1996 book Value Migration – How to Think Several Moves Ahead of the Competition. Value migration is the transferal of value-creating forces from outdated business models to something better able to satisfy consumer demands.

Bye-Now Effect

bye-now-effect
The bye-now effect describes the tendency for consumers to think of the word “buy” when they read the word “bye”. In a study that tracked diners at a name-your-own-price restaurant, each diner was asked to read one of two phrases before ordering their meal. The first phrase, “so long”, resulted in diners paying an average of $32 per meal. But when diners recited the phrase “bye bye” before ordering, the average price per meal rose to $45.

Groupthink

groupthink
Groupthink occurs when well-intentioned individuals make non-optimal or irrational decisions based on a belief that dissent is impossible or on a motivation to conform. Groupthink occurs when members of a group reach a consensus without critical reasoning or evaluation of the alternatives and their consequences.

Stereotyping

stereotyping
A stereotype is a fixed and over-generalized belief about a particular group or class of people. These beliefs are based on the false assumption that certain characteristics are common to every individual residing in that group. Many stereotypes have a long and sometimes controversial history and are a direct consequence of various political, social, or economic events. Stereotyping is the process of making assumptions about a person or group of people based on various attributes, including gender, race, religion, or physical traits.

Murphy’s Law

murphys-law
Murphy’s Law states that if anything can go wrong, it will go wrong. Murphy’s Law was named after aerospace engineer Edward A. Murphy. During his time working at Edwards Air Force Base in 1949, Murphy cursed a technician who had improperly wired an electrical component and said, “If there is any way to do it wrong, he’ll find it.”

Law of Unintended Consequences

law-of-unintended-consequences
The law of unintended consequences was first mentioned by British philosopher John Locke when writing to parliament about the unintended effects of interest rate rises. However, it was popularized in 1936 by American sociologist Robert K. Merton who looked at unexpected, unanticipated, and unintended consequences and their impact on society.

Fundamental Attribution Error

fundamental-attribution-error
Fundamental attribution error is a bias people display when judging the behavior of others. The tendency is to over-emphasize personal characteristics and under-emphasize environmental and situational factors.

Outcome Bias

outcome-bias
Outcome bias describes a tendency to evaluate a decision based on its outcome and not on the process by which the decision was reached. In other words, the quality of a decision is only determined once the outcome is known. Outcome bias occurs when a decision is based on the outcome of previous events without regard for how those events developed.

Hindsight Bias

hindsight-bias
Hindsight bias is the tendency for people to perceive past events as more predictable than they actually were. The result of a presidential election, for example, seems more obvious when the winner is announced. The same can also be said for the avid sports fan who predicted the correct outcome of a match regardless of whether their team won or lost. Hindsight bias, therefore, is the tendency for an individual to convince themselves that they accurately predicted an event before it happened.

Read Next: Biases, Bounded Rationality, Mandela Effect, Dunning-Kruger Effect, Lindy Effect, Crowding Out Effect, Bandwagon Effect.

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