hedgehog-concept

Hedgehog Concept In A Nutshell

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.”

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.

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.

Connected Business Concepts

Barbell Strategy

barbell-strategy
A Barbell strategy consists of making sure that 90% of your capital is safe, and using the remaining 10%, or on risky investments. Applied to business strategy, this means having a binary approach. On the one hand, extremely conservative. On the other, extremely aggressive, thus creating a potent mix.

Technological Modeling

technological-modeling
Technological modeling is a discipline to provide the basis for companies to sustain innovation, thus developing incremental products. While also looking at breakthrough innovative products that can pave the way for long-term success. In a sort of Barbell Strategy, technological modeling suggests having a two-sided approach, on the one hand, to keep sustaining continuous innovation as a core part of the business model. On the other hand, it places bets on future developments that have the potential to break through and take a leap forward.

Heuristics

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.

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.

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.

Moonshot Thinking

moonshot-thinking
Moonshot thinking is an approach to innovation, and it can be applied to business or any other discipline where you target at least 10X goals. That shifts the mindset, and it empowers a team of people to look for unconventional solutions, thus starting from first principles, by leveraging on fast-paced experimentation.

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.

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.

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 is marketing can be associated with social proof.

Read Next: BiasesBounded RationalityMandela EffectDunning-Kruger EffectLindy EffectCrowding Out EffectBandwagon Effect.

Read Next: Mental Models, BiasesBounded RationalityMandela EffectDunning-Kruger EffectLindy EffectCrowding Out EffectBandwagon Effect.

Related Strategy Concepts: Go-To-Market StrategyMarketing StrategyBusiness ModelsTech Business ModelsJobs-To-Be DoneDesign ThinkingLean Startup CanvasValue ChainValue Proposition CanvasBalanced ScorecardBusiness Model CanvasSWOT AnalysisGrowth HackingBundlingUnbundlingBootstrappingVenture CapitalPorter’s Five ForcesPorter’s Generic StrategiesPorter’s Five ForcesPESTEL AnalysisSWOTPorter’s Diamond ModelAnsoffTechnology Adoption CurveTOWSSOARBalanced ScorecardOKRAgile MethodologyValue PropositionVTDF FrameworkBCG MatrixGE McKinsey MatrixKotter’s 8-Step Change Model.

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