This is the fourth of a five-part series. Check out parts one (Good to Great in the Boardroom: Level 5 Leadership – Private Company Director), two (Good to Great in the Boardroom: First Who, Then What – Private Company Director) and three (Good to Great in the Boardroom: Confront the Brutal Facts) of the series.
Good to Great, published in 2001, is one of the most influential management books of the past 25 years. Its ideas gave a generation of executives and directors a practical vocabulary for disciplined leadership, strategic focus and sustained organizational performance. One of its best-known principles may also be the one most strangely named — the “Hedgehog Concept.”
Even readers who know the phrase often have only a hazy idea of what a hedgehog does, much less why it sits at the center of a theory of corporate greatness. The animal is not native to North America, and to many American readers, it is simply unfamiliar. As metaphors go, this is an odd one. So, why a hedgehog?
The phrase comes from a 2,700-year-old surviving fragment attributed to the ancient Greek poet Archilochus: “The fox knows many things, but the hedgehog knows one big thing.” The British philosopher Isaiah Berlin later turned that fragment into a classification of writers and thinkers, separating the foxes, who pursue many ends at once, from the hedgehogs, who relate everything to a single organizing vision. Berlin meant the classification lightly; Collins turned it into a framework for organizational strategy. Through studying the companies that pulled away from their rivals, he found that the great ones behaved like hedgehogs, reducing a complicated world to one organizing idea and maintaining the discipline to reject whatever fell outside it. He located the concept at the intersection of three circles: what a company can be the best in the world at, what drives its economic engine and what it is deeply passionate about. In Collins’s hands, the fox keeps finding new possibilities, while the hedgehog organizes everything it does around one coherent understanding of where the three circles meet.
This is the fourth installment in a series carrying Collins’s principles into the boardroom. Earlier articles used “Level 5 Leadership,” “First Who, Then What” and “Confront the Brutal Facts” to examine the board as one team, the people it puts in place and its duty to face hard truths. The “Hedgehog Concept” raises a different question: How does a board help a company identify the few priorities that deserve its full attention, talent and capital, and protect them from the many competing demands around them?
Here, Julie Gilbert, director of Telestream, founder and CEO of Full Throttle Growth and Capital, and member of the Private Company Director editorial advisory board, brings Collins’s concept into the boardroom. She has spent much of her career choosing among growth opportunities when resources and management capacity are limited. A former McKinsey partner whose career was built first as a CEO and growth operator, she helped infuse the building and scale of McKinsey’s business-building practice with the practical disciplines of building, scaling and leading businesses — not just advising them. She is a CPA and has served as an executive and director across public, private-equity-backed and family-owned companies. She has watched boards mistake activity for strategy, allow a CEO’s personal enthusiasm to become corporate direction and approve growth initiatives without committing the people or capital to make them work.
To start with, she draws a careful line between public and private companies. Public company directors get a visible, continuous and sometimes unforgiving signal in the share price, a real-time read on what the market thinks of the strategy, though not always a sound judgment of it. Private company boards get no comparable daily verdict, which places a particular responsibility on directors to catch strategic drift early. Comfort and underreaching are the board-level risks she watches for. “You’re not reaching far enough to grow. You’re getting comfortable in what’s made money to date,” says Gilbert. The board’s job is to help the company identify the bets that fit its strengths and let the rest go.
New markets, promising acquisitions and interesting technologies come around all the time, each with a plausible case and an internal champion; AI is only the latest arrival. Companies can drift by treating each one as a priority unless the board preserves focus. But how is a board supposed to do that? Gilbert’s answer begins with a division of labor. “Management is naturally closest to opportunities. Directors must be closest to focus.” Even as management keeps identifying promising places the company could go, the board’s job is to test each of them against the company’s strategy and its capacity to execute.
Finding the Source of Greatness
That test begins with Collins’s first circle, which asks what a company can be the best in the world at. Gilbert’s way of answering leans on customers and old-fashioned legwork more than on market sizing and profit-pool analysis. In her experience, the only way to really understand what a company is best at “is to go personally talk to customers and interview them.” She asks what they think of the company, how long they have been customers, why they stay and what they wish it offered. Her favorite question asks a customer to imagine doing without. “If you were put on a desert island and all of a sudden you couldn’t have whatever this company provides to you, how devastating would it be to you?” Sometimes she flips it around and asks for the top five products or services the customer could not live without.
What comes back from these conversations, from new and longtime customers alike, is a portrait of what the company does that others cannot easily replace. The hard part is hearing it without defensiveness. Directors may listen with more distance than the executives whose decisions produced the product. Distance offers no immunity, however; boards can also become attached to a company’s preferred story about itself.
In Gilbert’s best-in-class boardroom, every strategy review brings customers directly into the room. “Let’s go have actual video interviews on screen in the boardroom,” she says. “It can be three or four, or send 10 in the pre-read. But what are customers saying about us?” She concedes this work takes a thicker skin than reviewing a satisfaction survey, because “you sometimes have to sit in front of a customer and hear stuff you don’t want to hear about your baby.”
Some executives treat the practice as unscalable and want to hand the whole job to an outside firm. Her response is blunt: “You can’t do that.” Customer evidence helps identify the strengths that may belong inside Collins’s first circle, and it carries more weight when directors have heard those views firsthand.
The harder question is how far those strengths extend. A company is unlikely to become best in the world at work that draws on none of its existing capabilities. Gilbert has seen the pattern play out in health care. “If you think that tomorrow you’re going to be a health care company when you’ve never, ever, done anything in the space around caring for people, it’s highly unlikely you’re going to be successful. And we’ve seen companies do that and fail.”
The question for a board weighing such a move is whether it builds on strengths the company can credibly claim or requires an operating identity the company has never had. Gilbert distills this into a single boardroom test. “If we were building this company today, would we choose to enter this business?” Answering the question honestly forces the board to name which capabilities would carry the move, which would have to be built or bought and how the business fits the company’s defining logic. When directors cannot supply that explanation, the proposal has not yet earned a place inside the company’s strategy.
Understanding the Economic Engine
Collins’s second circle asks what drives the economic engine, and Gilbert has found the answer is sometimes less well understood around the table than it should be. On more than one board, she says, “I didn’t have complete confidence that the board directors actually had a good handle on how the company makes money in the first place.” A company may operate five divisions while only one generates most of the profits and cash that support the rest. That division is, in Gilbert’s words, “the one driving the company forward and creating the wherewithal.” Directors who cannot name that division are in a poor position to defend it, and in a worse one to question the other four.
She has a theory about why directors hold back. “Maybe board directors are afraid to ask detailed questions because it feels like you’re getting too inside the car as opposed to admiring it from the outside.” She starts with the revenue register. “If I were to have a transactional register for the revenue, from the largest customer to the least, what would be the breakdown?” In her experience, the answer often lands near the familiar pattern of 80% of revenue coming from 20% of customers. Knowing who sits in that 20%, and what would tempt them to leave, leads straight to the question with the most money riding on it: How does the company keep that 20% from going elsewhere? Other questions follow, says Gilbert. “Tell me where the competitors are at. How exactly do we make money? Is that protectable?”
Questions like these are within any director’s reach, and they lead directly to how the company actually deploys its capital. According to Gilbert, “The difference between strategy and wishful thinking is capital allocation.”
Strategy is supposed to drive the budget, but Gilbert’s test runs that logic in reverse: To find out what the strategy really is, read the budget. A stated priority backed by full funding and dedicated people is real; where the plan and the spending diverge, the spending is telling the truth.
Testing Strategic Passion
Collins’s third circle asks what an organization can be deeply passionate about. Passion can sustain the difficult work of building something exceptional. In the boardroom, though, it also requires a test: Is the organization committed to an initiative because it expresses the company’s distinctive strengths or is the CEO committed to it because the subject is personally compelling? The distinction must be tested against strategic fit, economics and evidence, because a CEO’s conviction can otherwise substitute for a strategic case.
Gilbert has seen personal enthusiasm pass for strategic passion. “I’ve been on boards where the CEO had a personal passion around a space, and so we’re in this space,” she says. “It doesn’t align with the direction of the historic elements of the company. And frankly, it doesn’t align with the future either.”
The business was also consuming cash, though that alone did not mean it should be abandoned. New ventures often lose money before they establish themselves, and a board that demands immediate profitability can kill a promising strategy before it has a fair chance to work. The losses did, however, require an answer.
“We’re hemorrhaging cash in this space. We have been,” Gilbert says. “Is there a future where we’re not, when is that and how does that turn?” Those questions should produce a credible explanation of the market opportunity, the economics, the timetable and the evidence directors should expect to see along the way.
Gilbert is equally clear about answers that fall short of that standard. If the response is “It’s too hard to get out of it,” she says, “that’s not a good answer.” Nor is “our competitors started doing it, so we decided to do it.” One answer defends the initiative through inertia, the other through imitation, and neither demonstrates that the business belongs where the company’s capabilities, economic engine and passion intersect.
The tone matters when a board challenges an initiative closely associated with the CEO. Gilbert sometimes raises the issue privately and sometimes in the boardroom, depending on the circumstances. In either setting, she keeps the inquiry direct and objective. “It’s not personal,” she says. “Show me the data. Show me the data that would give us the confidence that we should continue down this road.” The board can scrutinize the decision while keeping the discussion focused on the evidence. The remaining issue is whether the company still has a defensible reason to keep funding the business.
Backing the Few That Remain
In Gilbert’s experience, one of the most common reasons new initiatives fail is “misalignment of executives’ mindset around what the goal is.” Her diagnostic for it is an exercise she runs with executive teams. Each leader takes a blank page and writes the Wall Street Journal article of “what good will look like for this company revenue-wise, strategy-wise, team-wise and culture-wise five years from now.” When the leaders read their pieces aloud, “They’re all over the map.” Some of the differences turn out to be nuggets worth discussing. The rest expose the underlying problem, which she frames with a question: “Are we all driving to the same destination or am I going to the Caymans and you’re going to Puerto Rico and somebody else is going to Washington?”
At that point, Gilbert says, “The board’s role is just to ask that question: What is the objective and by when?” Having asked, the board should resist taking the answer for granted, revisiting the objective at every meeting and testing it against what the company is actually doing and spending.
Once the destination is agreed, the board should insist on “a prioritized roadmap” and put full talent and capital behind whatever comes first. A priority without staff and funding is only a wish. Gilbert has watched companies “try to do it all” and “fail at all of it,” sometimes because they under-resourced sound ideas and sometimes because they judged young ventures by the expectations of mature businesses.
This is where focus and ambition turn out to be the same discipline. A company that backs a few well-chosen bets fully, and measures them fairly, can reach further than one that spreads its people and capital across everything plausible.
The Fox and the Hedgehog
The hedgehog concept is often described as choosing one thing, and the shorthand sells it short. A board that takes the principle seriously makes the company clearer, and that clarity lets it pursue its chosen priorities more ambitiously. The work runs through the three circles in turn: learning from customers what the company can truly be best at, understanding the engine that pays for everything else and separating the passions the organization owns from the ones it has borrowed from a corner office. Whatever survives those three tests deserves the company’s full weight: its capital, its best people and the patience to be judged by honest milestones. The fox will always see more opportunities; seeing them is its gift, and a company wants a management team with exactly that gift. The board’s contribution is to make ambition selective: to prevent the company from confusing the discovery of an opportunity with a decision to pursue it and to ensure that the opportunities it chooses are fully supported. Over time, that discipline gives the hedgehog its advantage.