Kelly Bredensteiner
Christine Cox
Cailtin Greenwood
Michele Haynes
Hedgehog or Fox
 Fox
 Knows many things
 See the world in all its complexity and pursue many
things at one time
 Moving on many levels and are then scattered and are
not unified on one concept
 Hedgehog
 Knows one big thing
 Simplify a complex into a single organized idea
 Reduces all challenges and dilemmas
Walgreens
 Took a simple concept and implemented with fanatical
consistency …“The best, most convenient drugstores,
with high profit per customer visit.”
 Replace all inconvenient locations with convenient ones
 Pioneered drive-through pharmacies
 Idea of profit per customer visit
 Tight clustering of stores - local economies of scale
 High-margin services - Increase profit per customer visit
 More convenience – more visits more profit per visit
The Three Circles
 “A hedgehog Concept is a simple, crystalline concept
that flows form deep understanding about the
intersection of the following three circles:”
 What you can be the best in the world at?
 What drives your economic engine?
 What are you deeply passionate about?
Three Circles Concept
What you Are
Deeply
Passionate
About
What Drives
Your
Economic
Engine
What you
Can Be the
Best In The
World At
Understanding what you can and
cannot be the best at
 Put away the ego and understand:
1.
What are you best at?
2.
What are you not best at?
3.
What do you need to change or dump? (outsource?)
Plans vs. Ability
 Hedgehog Concept is NOT
 what you plan or intend to be the best at
 It IS
 What you CAN be best at.
Wells Fargo- Keeping it Simple
 What it didn’t do well:
 International operations
 What it did well:
 Running a bank like a business esp. in the western US
 How it kept it simple:
 Dropped most of its IOs
 Conclusion:
 When deregulation occurred, Wells Fargo was king
Core vs. Ability
 Just because its your core.
 Just because it’s what you have been doing for years.
 Does NOT mean its what you’re best at.
Abbott vs. Upjohn: Changing Cores
 Both similar companies in 1964
 Why did Abbott change so dramatically?
 How it employed the Hedgehog Concept:
 Lost chance to be best in pharmaceuticals to Merck
 Still chance to provide cost effective health care with
 Nutritional and diagnostic services
Money and Growth vs. Greatness
 Just because you’re growing and making money,
 Does NOT mean you are the best in the world.
 “Doing only what you are good at will only make you
good.” (pg 101) Greatness focuses on your best
attributes
 Ex: SAT’s and the exceptional math student vs. the
average student
Companies Employing the
Hedgehog Concept
 Gillette
 Kimberly-Clark
 Kroger
 Nucor
 Philip Morris
 Pitney Bowes
 Walgreens
 Wells Fargo
Insight Into Your Economic Engine- What is
Your Denominator?
 A company does not need to be in a great industry to
become a great company
 Each good-to-great company built an excellent
economic engine
 They attained profound insights in their economies
 Attained a deep understanding of the key drivers in its
economic engine and built its system in accordance with
this understanding
Economic Denominator
 All good-to-great companies have an economic
denominator
 Asking one question can lead to profound insight into
the inner workings of an organization’s economics
 This question is “if you could pick one and only one
ratio- profit per x (or, in the social sector, cash flow per
x)- to systematically increase over time, what x would
have the greatest and most sustainable impact on your
economic engine?
Economic Denominator Example
 The denominator can be quite subtle, sometimes even
unobvious.
 The key is to use the question of the denominator to
gain understanding and insight into your economic
model
 You can have more than one economic denominator,
but it is better for the company to strive for only one.
Examples of Economic
Denominators











Abbott: per employee
Circuit City: per geographical region
Fannie Mae: per mortgage risk level
Gillette: per customer
Kimberly-Clark: per consumer brand
Kroger: per local population
Nucor: per ton of finished steel
Philip Morris: per global brand category
Pitney Bowes: per customer
Walgreens: per customer visit
Wells Fargo: per employee
Successful Companies Without
Economic Denominators
 Hasbro
 More sustainable cash flow than big one time hits
 Understood all three circles of the Hedgehog Concept
 Reintroduced classic brands at the right time
 Employees had a passion for the business
 Didn’t stay within the three circles after the CEO
Stephen Hassenfeld Died
 If you successfully apply these ideas, but then stop doing
them, you will slide backward, from great to good, or
worse. The only way to remain great is to keep applying
the fundamental principles that made you great.
Understanding Your Passion
 Many CEOs of companies are passionate consumers of
their products
 In 1979, Ross Millhiser, then vice chairman of Philip
Morris and a dedicated smoker, said, “I love cigarettes.
It’s one of the things that makes life worth living.”
 Passion became a big part of the Hedgehog Concept in
good-to-great companies
 You cant manufacture passion or “motivate” people to
feel passionate. You can only discover what ignites your
passion and the passion of those around you.
Understanding Your Passion Cont.
 You don’t necessarily have to be passionate about the
product but more on what the company stands for.
 For example, employees of Fannie Mae were not
passionate about the mechanical process of packaging
mortgages into market securities. But they were
motivated by the whole idea of helping people of all
classes. Backgrounds, and races realize the American
dream of owning their own home.
The Triumph of Understanding Over
Bravado
 Pre-hedgehog
 State of fog creating a slow progression on a long march
 Hedgehog
 Fog lifts and less deliberation is required at each
juncture
 Post-hedgehog
 Quickly make decisions
Great Western vs. Fannie Mae
 Great Western
 Focused on growing in every way possible
 Found itself in finance, leasing, insurance, and manufactured
houses on an expansion binge
 Fannie Mae
 Focused on being the best capital markets player in anything
related to mortgages
 Inspired workers by its vital role in democratizing home
ownership
 After 1984 when Fannie Mae clarified its Hedgehog
Concept, the company’s stock charts exploded upward
while Great Western lagged around until its acquisition in
1997
Acquiring a Hedgehog Concept
 It took about 4 years for the good-to-great companies
to clarify their hedgehog concepts
 It is an inherently iterative process, not an event
 Essence of the process is to get the right people engaged
in dialogue and debate, infused with the brutal facts and
guided by the questions formed by the 3 circles

The Council can be a useful device for stimulating the process
of acquiring a hedgehog concept
The Council
 Consists of a group of the right people who participate
in dialogue and debate guided by the three circles





Ask the right questions
Engage in dialogue and debate
Make decisions
Autopsy the results
Learn
Hedgehog Concept
 Does every organization have a Hedgehog Concept
to discover?
 Most good to great companies were not the best in the
world at anything
 Infused with the Stockdale Paradox, every company
prevailed in its search
 When you get the concept right, it has the quite ping
of truth