The Hedgehog Concept In Business, Or The Power Of Simplicity​

Have you heard of the Hedgehog concept? What does the dull, thorny, and slow hedgehog have to do with the existence and development of enterprises? In the article below, we learn about the hedgehog concept in business and why businesses that practice this concept have achieved resounding success even in difficult times.

What is the hedgehog concept?

British philosopher Sir Isaiah Berlin wrote a famous essay based on the ancient Greek adage: “A fox knows many things, but a hedgehog knows one big thing.”

In the wilderness, a fox has many ways to try and prey on a hedgehog, but the hedgehog needs only one defense: curling into a ball and pricking up its spikes. That is what hedgehogs are best at, and they perfect it to the point where they have no need for any other survival strategy.

Jim Collins, the author of Good to Great, the bedside book of managers, proposed the Hedgehog Concept based on such an idea. 

In his book, he described all distinguished companies as hedgehogs. When facing predicaments, these businesses devote all resources to pursuing the goal they are best at. Instead of trying to spread efforts in multiple directions, this hedgehog concept in business helps them stay on their feet, continue to exist, and even thrive.

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3 questions that every business needs to answer

According to Collins, a business should apply the Hedgehog Concept to its business strategy by finding the answers to the three key questions below.

What is your company’s true passion?

Sometimes, the passion for the company’s day-to-day work does not lie only in the financial aspect. It is always good to prosper and develop, but it is even better if the daily routines can foster motivation, excitement, and joy for both managers and their employees.

hedgehog concept in business

Specifying the mission and vision helps the enterprise attract suitable talents who can offer long-term dedication to a collective passion.

To achieve this, the company needs to define its mission and vision, clearly and consistently, in its business and recruitment strategies. At the same time, it is necessary to apply inspirational methods, corporate culture, and a healthy competitive environment, to motivate employees to reach their full potential.

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What your company can do best - better than anyone else in the market?

Your objective in answering this question lies at the heart of your business strategy. If your company cannot be the best in a certain field, it certainly should not be the basis for applying the Hedgehog Concept in business.

You would not have any advantage to compete with Enterprises that secured 5, 10, or even 20 years of experience at the forefront of the industry. They already had enough time to consolidate a brand image, maintain a solid technology foundation, or simply capture a huge market share.

You need to find something unique that you can offer to your customers (e.g. providing high-fiber organic pet food – something that has been rarely practiced or even unavailable, yet is so appealing to people who care about their pet’s well-being). 

Your business should show customers its unique side, so they can consider and possibly choose you among many companies that provide similar products and services. Be number one or give up—that is what Jim Collins’ Hedgehog Concept in business encourages.

Of course, not every difference is economically beneficial. Therefore, businesses need to answer the third question.

What are the economic drives that businesses can capitalize on to generate revenue?

In addition to identifying your core business portion, you need a method to generate sustainable profits from those products. Collins calls this an “economic denominator”, which has the greatest and most sustainable impact on the enterprise’s long-term development and survival. 

Are the policies applied to your business increasing the profit margin per employee or customer? Should you increase your revenue to cover costs or, conversely, cut costs for better profit margins?

After determining your cash flow, you can attain a development strategy in both the short and long terms. You can implement one single strategy for many years with very little modification while adapting to the modern market. This reduces the costs of upgrading infrastructure - technology or staff training to suit those changes. At the same time, you can spend more time creating added value, which means more revenue for the company.

Combining those 3 questions, we have a graph as shown below:

Hedgehog Concept in business

Center of Strategic Model

The overlap of those three circles is the center of your Hedgehog business strategy. Narrowing the scope of concern means minimizing costs and resources that used to be scattered. 

Meanwhile, your enterprise also increases the quality of products, services, and supply chains reaching customers. This usually leads to beneficial results such as revenue growth (profit), and benefits and morale boost to staff. Those are the highest goals that a business always strives for.

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The benefits of a simple business strategy

In his book, Collins used a classic comparison between the two leading pharmaceutical distributors in the US in the 1960s and 1970s: Walgreens and Eckerd. Earlier in that period, they had similar starting points, with the same products and services as well as market capitalization.

Eckerd chose to pursue a Fox business plan, acquiring pharmacies across the United States to capitalize on their presence. In the early 1980s, Eckerd took an even bolder move, as they expanded to the video rental market with the acquisition of American Home Video Corporation. 

The Eckard CEO himself answered in an interview with Forbes magazine in 1981 that some people thought “more specialized is better”. However, he wanted to grow, and video rental was a new industry, unlike pharmacy chains.

Walgreens, on the other hand, remained extremely patient and loyal to pharmacy retail—in the essence of a hedgehog concept. CEO Cork Walgreens and his associates realized they could not become a leader in the pharmacy retail market without closing the physical gaps between their stores and customers. 

The company then launched a massive campaign, starting by replacing their inconvenient sites with new stores that were accessible from multiple directions. They were willing to close any profitable business and compensate up to $1 million for breaking a lease early, to move their store to a prime location a few hundred meters away.

Walgreens went to great lengths for customer convenience, as they created drive-through lanes so customers could purchase just like in fast-food chains. Their stores also became very close to one another, Cork’s idea being no customer had to walk too far to get their medicine. 

Walgreens had put the customer at the center of its innovation, enhancing the buying experience to retain loyal customers and utilizing convenience to attract new customers.

what is the hedgehog concept

Until this day, Walgreens pharmacy retail stores remain an industry legend in the United States, despite fierce competition from large e-commerce corporations like Amazon.

The outcome of this rivalry was not at all surprising: 10 years after Eckerd started their video service business, they suffered a $31 million loss due to their spread-out investment strategy, before accepting the acquisition by the pharmacy retail chain Rite Aid in 2007. Meanwhile, Walgreens’ annual revenue stays 10 times higher than that of its competitor, with cumulative profits surpassing many all-time greats like General Electric, Coca-Cola, or Intel. 

Walgreens’ winning strategy is summarized by his words with Collins: “Look, it is not complicated at all! Once we understood the concept, we just did it.”

The Walgreens example remains living proof of a simple yet straightforward business strategy. This is also the strategic core of “hedgehog” companies - trying to keep things simple, as long as they serve their customers well and achieve the expected profit.

After grasping the relevant information about the Hedgehog concept in business, businesses can consider using tools to support the management and planning of enterprise resources to determine their goals and expectations. wishes and development expectations of the Business Owner.

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The Hedgehog Concept In Business, Or The Power Of Simplicity​
Bùi Thanh Tùng May 10, 2021