What do hedgehogs have to do with strategy? The hedgehog concept is a framework for organizational strategy. In this post, I’ll define it and share some ideas on how to put it into practice.

What is the hedgehog concept?

The Greek poet Archilochus wrote: “The fox knows many things, but the hedgehog knows one big thing.” Psychologist Peter Tetlock uses this parable to describe two ways of thinking.

Foxes are clever and practical: they use different strategies for different problems. Nuance is a fact of life for them. `

Hedgehogs, on the other hand, interpret the world through a single theory or principle. They’re big-picture thinkers and they prize consistency.

Both approaches have inherent advantages and disadvantages. Foxes are adaptable, but they can be shortsighted and miss long-range opportunities. Hedgehogs can hold a vision and see beyond the horizon to possibilities that don’t exist yet. But
they can be rigid and dogmatic in tying decisions to a single vision, system, or theory.

The “hedgehog concept” was introduced by consultant and researcher Jim Collins in his 2001 book “Good to Great.” Collins acknowledges that foxes have their strengths, but he argues that when it comes to setting strategy, it’s better to be a hedgehog.

The hedgehog concept says that organizations will be more likely to succeed if they can identify one thing they do better than anyone else and devote all of their resources to pursuing it.

Breaking down the hedgehog concept

The hedgehog concept suggests that a company’s guiding strategy can be found at the intersection of passion, competency, and an economic driver.

Passion

Passion is essential. It’s the beating heart of any business or organization, and it needs to come from a deep and genuine place. To identify passion, ask:

• What draws people to your company or organization?
• What are you excited about? What gives you energy?
• What is your “why” for existing?

Competency

Competency is not about what a company is good at, nor what it aspires to be good at. It’s about what the organization is already the best at, or what it could be the best at with marginally more effort and energy. Once this “one thing” is identified, the company should narrow its focus to that single initiative. Things that it is only good or great at should be discontinued.

Identifying a single competency requires honest self-appraisal. Sometimes this can be painful: there may be things that an organization wishes it was better at, but it’s just not.

To identify a key competency ask:

• What is our competition best at?
• How do we stack up? What do we have a shot at being the best at?
• What skills do our people have?

Economic drivers

An economic driver is how the business generates and sustains cash flow and profitability. To start, identify revenue drivers by analyzing:

• For what value are your customers willing to pay?
• What do they currently pay?
• How are they currently paying?
• How would they prefer to pay?
• How much does each revenue stream contribute to your overall business revenues?

Then, quoting Collins:

“Think about it in terms of the following question: If you could pick one ratio (profit per X) – to systematically increase over time, what X would have the greatest and most sustainable impact on your economic engine?”

Examples are “profit per employee” or “profit per sale.” Reducing an economic driver to a single metric is key because it will determine many strategic decisions.

Collins writes about how Walgreens made a change in its core metric and unlocked exceptional growth. Traditionally, convenience stores based success on profit per store. This metric, however, incentivized companies to reduce the number of more expensive, convenient stores and to buy less convenient ones at cheaper and more remote locations. Walgreens decided to take a different approach.

“Walgreens switched its focus from profit per store to profit per customer visit. Convenient locations are expensive, but by increasing profit per customer visit, Walgreens was able to increase convenience (nine stores in a mile!) and simultaneously increase profitability across its entire system. The standard metric of profit per store would have run contrary to the convenience concept.

Google and Apple: the fox and the hedgehog

Let’s look at a real-world example of a fox and a hedgehog by contrasting Google and Apple.

Google’s strategy can be encapsulated by the adage: “don’t put all your eggs in one basket.”

They diversify their product lines to minimize risk and spur innovation. This is why Google is involved in search, hardware, cloud, fiber optic internet, and self-driving cars – just to name a few. The company as a whole is less exposed to risk if one area of the business underperforms. And by placing strategic bets on several initiatives at once, Google can run what amounts to live experiments to try out new ideas. They keep the ones that stick and cancel the ones that don’t. Most fall into the latter category: there’s even a site called Killed By Google that shows, at the time of this writing, 273 canceled products or apps.

Apple’s strategy, on the other hand, can be summarized by the maxim “more wood behind fewer arrows.”

Apple is really good at one thing: making hardware. In 2021, Apple made over $365.8 billion in revenue. The iPhone, iPad, Mac, and wearables made up 82% or $294 billion of that revenue. 52% of all revenue, or $191.9 billion, came from the iPhone alone. To maintain its edge against competitors and deliver a product that customers will keep coming back for year after year, Apple has gotten extremely good at two core competencies: design and supply chains. Apple knows what it is best at, and it doesn’t stray too far from that.

Google and Apple pursue very different strategies: Google throws a lot at the wall to see what sticks. Apple focuses on one thing and does it, arguably, better than anyone else.

Google is a fox. Apple is a hedgehog.

Which begs the question: which approach is better? Both companies are tremendously successful, so why is it better to be a hedgehog?

Collins argues that foxes are “scattered, diffused, and inconsistent.” They waste resources on strategies that don’t pan out and would be better off picking one thing and sticking to it. For most companies, this probably makes the most sense. While it’s hard to argue with Google’s success, it is unique because it can afford to be a fox. It has the resources to absorb failure after failure and still thrive. Most companies don’t have this luxury.

The limitations of the hedgehog concept

The hedgehog concept is an effective way to uncover insights and define a guiding strategy for decision-making. It can help an organization achieve profitability and survive the inevitable tough stretches that any company encounters. But companies today need to do more than make money.

The world has some wicked problems on its hands: technological disruption, the threat of superpower conflict, and climate change.

The private sector must be a part of the solution.

In addition to turning a profit, companies need to consider the well-being of their customers, invest in their employees, and support their communities. This broader view of a company’s purpose is often referred to as “stakeholder capitalism.” This stands in contrast to “shareholder capitalism,” in which a company’s only objective is to return value to shareholders.

In stakeholder capitalism, a company is obligated to serve the interests of all of its stakeholders, which include customers, suppliers, employees, shareholders, and local communities. 

The hedgehog concept’s core limitation is that it only accounts for the shareholder.

Solving for profitability isn’t enough anymore. Strategic frameworks should be assessed on the extent to which they incorporate solutions to social and environmental challenges. After all, a weapons manufacturer or an oil company could apply the hedgehog concept and develop an effective guiding strategy just as much as any other company could. We need companies to think bigger.