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In this Section:
THE FELDMAN INTERVIEWS

The Hedgehog & Flywheel Effect

In last month’s issue, we featured a discussion with Jim Collins about concepts in his new book, Great by Choice. But we had also spoken to him about the concepts he made famous in one of his best-known books, Good to Great, which has become required reading in business schools.

For that seminal book, Jim and a group of researchers looked into how companies made the transition from just a regular company to a standout organization that perpetuated success. They came to understand some common traits that seemed counterintuitive. For example, the charismatic, white knight CEO rarely saves the day, but more often sinks the company. It is, in essence, the plodding tortoise that wins these races, or as they put it, the hedgehog that wins the fight.

Jim published these ideas in 2001, but as InsuranceNewsNet Publisher Paul Feldman found out in an interview, Jim still loves to discuss them and believes they are even more useful in this economy and with our ever- changing technology.

FELDMAN: My favorite concepts of yours are the flywheel and the hedgehog ideas. You explored those in Good to Great. How have they evolved in your new book?

COLLINS: I feel very passionate about the hedgehog and the flywheel. Basically to review the ideas, what we found in Good to Great is that the successful companies had disciplined people engaged in disciplined thought and disciplined action. That was the journey that they went on. The companies began with disciplined leaders who then surrounded themselves with the right people.

Then they went to disciplined thought, which had two components. First, you confront them with the facts – just constant, obsessive confronting of the brutal facts. But the second is they gained clarity of the direction that they would march in. They tended to simplify the world. Instead of saying, “I’m going to try to do 10 things,” they said, “I’m going to try to do one big thing really, really well.” That was the idea of the hedgehog. The hedgehog knows one big thing. The fox knows many things. And the hedgehog tends to win.

FELDMAN: Can you discuss how the hedgehog concept works with the three circles?

COLLINS: We found that at the good-togreat companies, in the inflection time, the leaders tended to simplify down to a hedgehog concept – a fundamental thing that they focused on. But what is that thing? That thing is kind of an intersection of three circles.

It’s doing what you’re really passionate about, refined by what you can truly be the best at. The best means that distinctive impact. It’s like that restaurant can be the best in its community at doing whatever. It doesn’t mean you have to be the biggest to be the best, and you can be the best at serving your particular community.

Then the third component is that you have an economic engine. I mean you can actually earn the return doing it. Now if you have those three things you have a hedgehog concept, and if you stay focused and say, “We’re not going to do things for which we lack passion. We’re going to focus on the things where we can be distinctively the best in the community that we serve, and we’re going to do things that make economic sense that tie into our economic engine. That’s our hedgehog concept.”

FELDMAN: How does that relate to the flywheel?

COLLINS: We found that by really focusing and making a series of good decisions related to the hedgehog concept over time, it was like pushing a giant, heavy flywheel, which built momentum over time. But you would never find the one big moment. It was a whole series of pushes that added up to the breakthrough momentum. That idea still holds.

FELDMAN: How do you find out what your hedgehog is?

COLLINS: Sometimes you find it by empirical testing. Firing bullets to cannon balls is one way of beginning to figure out what your hedgehog actually is. If you can fire a bullet and find you’re really good at something and that you really have passion for it and it actually makes money, you’re getting an empirical test of your hedgehog concept, and then firing the cannonball is really effective.

FELDMAN: I understand that “firing bullets first” means doing the small tests to determine if an effort is worth a major investment – or “firing the cannonball.”

But could firing bullets miss that cannonball opportunity? Is there ever a time where you should just fire that cannonball?

COLLINS: We found that every once in a while people did just fire a cannonball without firing bullets first or without copying somebody else’s cannonball, but it was highly correlated with disastrous outcomes. You can fire a cannonball without firing bullets by looking at what somebody else has done successfully and then firing a cannonball that they’ve already calibrated.

Southwest Airlines copied Pacific Southwest Airlines. They copied their model and they fired a cannonball right at the beginning, but it wasn’t an un-calibrated cannonball because PSA had already calibrated that it would work. So by copying it, they already had their empirical validation. So you can either copy it or invent it as long as you’ve got validation.

If you fire a big cannonball, but you don’t have empirical validation, you might get lucky, sure, and it might hit. That does sometimes happen. But I don’t like to depend on luck for things to work out, and that’s the downside to that.

FELDMAN: In your newest book, you relate the hedgehog and flywheel to the SMaC concept. Would you describe what that is?

COLLINS: SMaC is a recipe of Specific, Methodical and Consistent operating practices that create a replicable and consistent success formula. The SMaC recipe is a form of discipline to really bring your particular approach to the world very much to life. Flying only 737s is a specific part of Southwest’s recipe, along with their unique seating process resulting in 20-minute turns [the aircraft’s turnaround time]. These are all part of a recipe.

 

FELDMAN: What happens is you take the broad idea of the hedgehog concept and then you translate it into these very specific things that allow you to be able to say, “So what does it mean? How do we be the best? How does that actually work? What’s the underlying transcription code that makes it work?” The hedgehog

COLLINS: concept gets translated into a set of very specific practices that allow you to make good on them.

FELDMAN: I have used your flywheel analogy with some of our clients. It is simply momentum that people can build with advertising and marketing, but it takes investment and time. There is a direct correlation to the amount of effective marketing that a company performs as to how much business it achieves . It sounds simple but it always bears out.

COLLINS: What I find very powerful about the flywheel idea is that once people understand that it’s always a cumulative process, a building process, it works. It’s never a single moment, but rather a consecutive series of moments and decisions and they add up over time.

And if you think that you can shortcut that process, you’re never going to get there. You will be in the doom loop. There has to be a consistency about brands. How does a great brand get built? By cumulative consistency over time. You don’t build a great brand overnight. You build a great brand over a very long time by making a whole series of very good decisions that are consistent with that. The same with relationships. The business you serve, insurance, is all relationship business.

FELDMAN: Why do people lose momentum and go into what you describe as the doom loop?

COLLINS: I think if you’re going to sustain yourself over a very long time, which all of us struggle with, how do you keep yourself renewed? How will we keep ourselves going and keep the energy really vibrant? All of our great leaders were very much in service to something. It might have been in service to what software could do for people. It might be in service to what biotechnology products could do for people. It might be in service to a culture that they are trying to build, as they did at Southwest Airlines, to serve customers and employees and do it very well.

But whatever it was, they were in service to it. So when they woke up in the morning the question wasn’t, “How do I make myself more successful?” The question was, “How can I be of better service? And how can I be of better service to the cause that I’m engaged in?”

I think one of the things that’s very interesting about great entrepreneurs over time is you think about four phases of an entrepreneurial thing. One is you have an idea, that’s phase one. Phase two is you convert that idea into a business. So now you have a business.

Then you might actually convert that from a business to a company. It doesn’t have to be a big company, but it’s a company. Then finally, you might actually create a movement. That’s the idea of, “Hey, there are a lot of people who need what we do.” That’s a movement. Or, “The world will be better off because of what we do.” That’s a movement. I think that when you have that orientation it just allows you to be self-propelled for a very, very, very long time.

That’s essentially how these entrepreneurs were different.

FELDMAN: People who aren’t familiar with your work might pick up one of your books and assume it’s all about big corporations, but there is quite a bit that entrepreneurs can get out of your work.

COLLINS: Exactly. I have great passion for the entrepreneur and the small business person.

FELDMAN: Well you’re a fantastic entrepreneur yourself. You’ve created a great company and a great brand for yourself as a very well-respected expert. And you don’t have 800 people working for you. How do you do that?

COLLINS: Well you’re a fantastic entrepreneur yourself. You’ve created a great company and a great brand for yourself as a very well-respected expert. And you don’t have 800 people working for you. How do you do that?

Also, when you think about the idea of having a distinctive impact, that doesn’t mean that you have to have a really large company. That’s one of the things I would really pass along to your readers, “What does it mean for us to have distinctive impact? If my agency went away, who would really miss me? Who would really miss us? Who would miss what we do and why?”

That answer could be that maybe other people could offer the same products as you, but maybe they can’t offer the same distinctive service that you do or the same feel that you do or the same broader horizon that you bring. That’s the question of what distinctive contribution are you making to your customers? Truly, if you went away they could still get insurance products somewhere, but they couldn’t get what you provide them. That’s what distinctive for us means.

It’s like a great restaurant in your town. You can go to another restaurant, but if that restaurant went away, it’s irreplaceable because it’s so distinct in what it does.

I would challenge every one of your readers to say, “How am I like that restaurant? If it went away, sure, people could get food. But they couldn’t have the experience of that restaurant and that’s what they would really miss.” That’s an achievable kind of distinctive impact that has nothing to do with being big.

I think people confuse big and great all the time. There are a lot of big things that aren’t great, and there are a lot of small things that are.

Founder, President, Publisher InsuranceNewsNet.com [email protected]edback.com.