Ten years ago, Jim Collins published his book “Good to Great” to give exectutives an insight into what seperated leading companies from the mediocre ones. From a researcher’s point of view, the study is deeply flawed and would never get past the desk of a serious business journal. The biggest mistake is that it selects a group of financially successful firms and then finds common characteristics such as leadership style and strategic focus. What we don’t get to find out is whether or not the mediocre businesses had these characteristics too.
But that’s not the point. The book is valuable because it gets managers thinking about some useful ideas that have a certain unversality about them. Avoiding hubris, choosing the right people and focussing on the valuable core of the business are always going to be important messages. Unfortunately when academics write about how great businesses are, it is often the kiss of death. Some of the “Good to Great” businesses began to look very ordinary almost as soon as the book was published. Investing in Pitney Bowes or Abbott would give you a negative investment return over the last 10 years and the Fannie Mae that Collins writes about in terms of managing interest risk has no resemblence to the company that was one of the central players in the global financial crisis.
When I run my strategy course for companies, I take Collins’s concept of the Hedgehog and the Fox that he borrowed from philosopher, Isiah Berlin. Hedgehog firms have a discipline of what they will do and what they won’t do. They make careful choices to operate in markets where they can be the best in the world and they also have clarity about the mechanics of what really drives the business (e.g. profit per customer in the case of Gillette).
Like readers of Collins’s book, managers on the strategy course get this idea and the related concept of strategy as a set of integrated choices around an underlying business logic. On the other hand, I also give examples of businesses who became the best in a particular product and then couldn’t adapt to change. Being a hedgehog is fine as long as the world stands still. The main risk for hedgehogs is that they develop a dominant logic in the executive team that filters out signals for the need to change.
To survive, hedgehogs also need to be a little bit foxy. Good to Great describes the fox as ‘scattered, diffused, and inconstent’ but the other side of this is that foxes are wide-ranging, experimental and open to new ideas. The trick is creating a balance in the organization where there can be a disciplined focus on core business as well as a space to explore new opportunities. Whether the hedgehog or fox is better is the wrong question. The better question is what is the right balance for a given organization. On other words, be a hedgefox.
Practically, the way to manage a hedgefox organization is to run a portfolio of core and expermimental businesses- and manage them seperately. Tim and I often use McKinsey’s three horizons and we have both written a number of blog pieces on the topic.
I think the hard part for mature businesses is to get in touch with their foxy side. It really becomes a matter of survival. What seems speculative today could be a lifeline for the business tomorrow.