Until about 2 minutes ago, I had no idea what a hedgehog was. I’m not sure why I don’t know… I’m sure it’s one of those things everything thinks they know but really don’t. Sort of like how no one knows how electoral colleges work during elections.
Anyway, I looked up “hedgehog” online and apparently it’s what you get when you cross a porcupine with a chia pet. Now that I know that, I have no idea why Jim Collins talks about the Hedgehog Concept in his book Good to Great.
A brief recap of the book: It’s basically about how some businesses are good and stay good, while other businesses are good and then discover phenomenal success. One of the catalysts of that good to great process is the Hedgehog Concept.
Collins prompts us to discover our own good-to-great Hedgehog Concept by asking 3 questions: “What are you deeply passionate about?”, “What can you be best in the world at?”, and “What drives your economic engine?”. I’m sure you can figure out what you are passionate about, and I’m sure that you can figure out what you can be best in the world at. You don’t need my help to tell you. But driving your economic engine is a fascinating idea and it’s that third question that I want to talk about here, over the next two blogs.
Collins says that “… good-to-great companies frequently produced spectacular returns in very unspectacular industries” (Collins, Good to Great, p.104). He goes on to tell readers that in order to generate these spectacular returns, companies need to develop some idea about what drives their economic engine. I like that he doesn’t instruct readers in what it should be; he recognizes that it’s different for every business and for every industry.
Then he makes this point, and it was this exact point that really won me over to his book. In encouraging readers to figure out what drives their economic engine, businesses need to…
“… Pick one and only one ratio – profit per ‘x’ – to systematically increase over time”. (And he defines “x” as the item that would have the most sustainable impact on your business’ economic engine).
- In the banking industry, profit per loan was a classic example but Wells Fargo changed that metric to be profit per employee.
- Nucor (a steel manufacturer) knew that profit per employee or profit per fixed cost wouldn’t work for them. So their metric become profit per ton of finished steel.
- Circuit City uses profit per geographic region. This helps to solve the issues around single-store economic fluctuations in an area that has more than one Circuit City store.
- Walgreens uses the metric profit per customer visit, which makes way more sense than profit per store.
In each case, these businesses examined the kinds of metrics they wanted to measure and found a way to turn them into that single “x” which would allow them to monitor their progress. Nucor is a good example because their metric of profit per ton of finished steel captured the employee productivity and technology realities they needed to measure in just one number.
In the next blog, we’ll look at how you can incorporate this into your business.
-Jessica Routier, IAC-EZ