Good to Great: Chapter 5  Summary & Analysis

Collins relates a parable by the writer Isaiah Berlin about a hedgehog and a fox, in which the cunning fox tries countless clever schemes to catch the hedgehog. In contrast, the hedgehog has only one tool—his spines—and he uses it over and over again to thwart the fox. Berlin uses this story to divide people into two groups: foxes who pursue many strategies simultaneously and view the world as complex, and hedgehogs who have just one, simple view of the world and simplify all challenges to fit that view.

Collins goes on to state that the people who led good-to-great companies were all hedgehogs in one way or another, who developed clear, concise “Hedgehog Concepts” to guide their decisions. He gives the example of Walgreens CEO Cork Walgreen, who viewed the mission of his company in one concise statement: create “the best, most convenient drugstores with high profit per customer visit.” In contrast, the comparison company, Eckerd’s, never found a comparable unifying concept and struggled where Walgreens succeeded.

Along with his research team, Collins found that the Hedgehog Concepts used to guide good-to-great companies were generally developed based on understanding of three key dimensions of a company. Collins calls these dimensions the “three circles” The first of the three circles requires understanding what the company can (and cannot) be the best in the world at. Collins emphasizes that this dimension is not about making a goal or a strategy to be the best, but rather about understanding what a company has a genuine capacity for succeeding at.

Collins gives the example of Abbott Laboratories, which accepted that it could not be the best overall pharmaceutical company and instead focused on being the best at making cost-effective health-care products. In contrast, Abbott’s direct comparison company, Upjohn, tried against the odds to be the best overall pharmaceutical company and never found the specific, focused Hedgehog Concept that might have helped it succeed. Collins points out that a company’s core business might not be the same as its Hedgehog Concept, and that it takes wise leadership to know the difference and change core businesses when necessary. Again, a company does not need to be good at one or more things; it needs to be the best at one thing and be willing to focus only on that thing.

The second of the three circles is the idea that a company must find out what its keys economic engine is and build around that understanding. Collins does not go into detail about all of these economic insights, but he does point out that each good-to-great company successfully found one crucial “economic denominator”; that is, one ratio (profit per store, for example) that was most economically important to the company. For example, Walgreens based its transformation in part on the ratio of increasing profit per customer visit rather than per store. Comparison companies did not usually use these key denominators.

The final of the three circles is the need for companies and their leaders to understand their passions and use them to drive strategy and the development of the Hedgehog Concept. Collins notes that even at tobacco company Philip Morris, executives described working for the company as a profoundly exciting and meaningful experience. Rather than trying to be passionate about their activities after choosing the activities, good-to-great companies consistently decided what to do based on what they could be passionate about. That passion might have to do with what the company actually does or, alternatively, what the company stands for.

Overall, Collins characterizes the use of the three circles and the development of the Hedgehog Concept as a way to move past bravado and into understanding. Rather than relying on this process, the comparison companies often fixated on grand gestures and growth above all else, ignoring the crucial questions that come up in the three circles. Though Hedgehog Concepts do lead to growth, the desire to grow is not itself a Hedgehog Concept.

Collins also emphasizes that Hedgehog Concepts can only be created through sustained debate, with most good-to-great companies taking at least four years to clarify theirs. He also brings up the idea of what he calls “the Council,” which is a group of people devoted to working through the three circles in order to find the Hedgehog Concept. The Council might take different forms in different companies, but it generally consists of a standing body that meets regularly to debate the three questions. The research team found some version of the Council at each of the good-to-great companies. Collins also emphasizes that even companies that weren’t especially good to start with eventually came to embrace effective Hedgehog Concepts through this process.

Collins concludes with an anecdote about his wife, an accomplished athlete who realized one day that she had the potential to win the demanding Ironman race. By combining passion with an understanding of her genuine strengths, she found her Hedgehog Concept and planned all of her next steps around that one simple idea. Collins suggests that a similar process can be helpful for all companies, organizations, and individuals seeking greatness.