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Crystal Hill Stephen Lechtenberg Anand McGee Allison Purtell Jason Torres

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

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Crystal Hill Stephen Lechtenberg Anand McGee Allison Purtell Jason Torres

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

  2. “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.” Hedgehog Concept

  3. 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 2 Basic Groups-

  4. Those who build the good-to-great companies are, to one degree or another, hedgehogs. They used their hedgehog nature to drive toward what theycall 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 Hedgehog vs. Fox

  5. 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 Example: Walgreens vs. Eckerds

  6. 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 Example: Starbucks

  7. 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 The Three Circles

  8. 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? The Three Circles (cont.) What can you be the best in the world at?

  9. 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 Understand what you can (and cannot) be best at

  10. 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 Insight into your economic engine - what is your denominator?

  11. 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 Economic Denominator

  12. 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. Understanding Your Passion

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

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

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

  16. Questions?

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