Hedgehog Concept
 “The fox knows many things, but the hedgehog knows
one big thing
 The hedgehog sees what is essential, and ignores the
rest
 You want to know what separates those who make the
biggest impact from all the others who are just as
smart
Walgreens Vs. Eckerd
 Cork Walgreen the CEO had a simple concept, the
most convenient drugstores, with high profit per
customer visit
 Store by store, block by block, city by city, region by
region. Walgreens became more and more of a
hedgehog with this incredibly simple idea
The Three Circles
 What you can be the Best in the World at?
 What drives your Economic Engine?
 What you are deeply Passionate about?
Understanding what you can
(and Cannot) be the best at
 " They stick with what they understand and let
their abilities, not their egos, determine what
they attempt."
Wells Fargo
 “ What can we do better than any other company,
and what can we not do better than any other
company, and if we cannot be the best then why are
we doing it ”
Abbott v Upjohn
In 1964 they were identical in:
 Revenues
 Profits
 Product Lines
Knowing when to Change
Directions
 Merck vs. Upjohn- Upjohn tries to out muscle Merck
because they believe that their core competency is
worth competing on
Or
 Abbot vs. no one – Abbot knows that they are better
Creating Blue Oceans by cutting
your Losses
 Established 1886 with playing card games
 Moved to cab services, network TV, and food
production
 Started designing products to accommodate
the arcade boom
 Developed Donkey Kong
 Started a revolution
What drives your Economic Engine
 The notion of a single Economic Denominator
 Question is…
 If you could pick one and only one ratio - profit per X
to systematically increase over time, what X would
have the greatest and most sustainable impact on your
economic engine?
Zoom Zoom
 The denominator question serves as a mechanism to
force deeper understanding of the key drivers in your
economic engine
 Have a denominator not for the sake of just having
one, but for the sake of gaining insight that ultimately
leads to more robust and sustainable economics
 Circuit City – Per geographic region
 Fannie Mae – Per mortgage risk level
 Gillette – Per Customer
 Kroger – Per local Population
 Nucor – Per ton of finished steel
 Philip Morris – Per global brand
category
 Pitney Bowes – Per customer
 Walgreens – Profit per visit
 Wells Fargo – Per employee
Understanding your passion
 Phillip Morris understood passion
 Phillip Morris’ success was mainly dependent on the fact
that it’s employees were hugely passionate about what they
did.
 Ross Millhiser, former vice chairman


“I love cigarettes, it’s one of the things that makes life really worth
living.”
Needless to say, he’s dead,…but he had passion while he was alive,
and that inspired those around him to be the best at what they
were doing which in turn, became a core competence that made
Phillip Morris become a Great company
Passion is Nature, not Nurture
 The good-to great companies didn’t say, “okay, folks,
lets get passionate about what we do.” They went the
other way entirely.
 “We should only do those things that we can get
passionate about.”
 Ex. Republic airlines
Genius Right?
Diversifying for Passion
 Asdfasdfasdfa new the market for disposable razors
was a red ocean, so it diversified to fit a new mold
where consumers saw Gillette as a company keen on
engineering and technology. It’s hedgehog strategy
was to become the leader in innovative and
sophisticated shaving systems.
 Gillette’s was noted in an article for the Wall Street
Journal for the quote “people who aren't passionate need
not apply,” describing a situation where a top graduate
student wasn’t hired due to her lack of passion for
deodorant.
Triumph of Understanding Over
Bravado
 Charismatic leaders of good companies were to often
relying on Bravado, not understanding in an attempt
to sort through the fog. They never made it into
daylight because they were asking the wrong
questions.
 Growth need not be an obsession, it will come with an
appropriate hedgehog strategy.
Fannie Mae and Great Western
The Council: Asking the right
Questions
 Good to Great companies asked these questions when defining their hedgehog
concept
 Do we really understand what we can be the best in the world at?
 Do we really understand the drivers in our economic engine?
 Do we really understand what best ignites our passion?
The Council
 The first step in defining a hedgehog concept is to put
the right people in place to engage in dialogue guided
by the three circles.
 Characteristics of the council



Different backgrounds = different POV
Immune to groupthink – consensus views are at odds with
intelligent decisions.
Arguments based on need for positive conclusion, not an
egoistic need to win.