A great business is one that out performs is direct competitors in terms of the profit it provides to owners. Because profit is a lagging indicator of customer satisfaction it goes without saying that a great business is doing a lot of things right for its customers.
In Good to Great, author Jim Collins describes 7 characteristics required for a business to progress from being good, to being great.
I am going to examine one of those characteristics in this presentation.
It is the Hedgehog Concept, a term Collins uses to describe the ability of the business to focus their scarce resources on areas where they have the greatest competence, and therefore impact.
In short this means don’t try and be all things to all people.
To achieve this Collins suggests we should all have a “stop doing list.”
Most of us have action lists, or lists of tasks to attend to.
Not many people have a stop doing list.
Good to Great leaders distinguish themselves by their unyielding discipline to stop doing anything and everything that doesn’t fit tightly within their Hedgehog.
The main focus of your attention, your hedgehog, is at the intersection of 3 circles. One circle represents things you are deeply passionate about. A second circle represents what you can be best at, and the third circle represents the things your business does that are profitable.
The idea is to focus on areas where your scarce resources, things like labour hours, machine hours, factory or showroom space etc. are going to give you the best return.
In deciding what you can become the best at you also need to understand what you cannot be the best at. These are things that are outside your core competency, or things that because the way your business is structured are not profitable for you.
If a customer wants you to work in these areas do not be afraid to say, there are other companies that can do that better than us. Your customer will appreciate your honesty and will remain loyal to you for work that you specialise in.
When you focus is only on the areas your business is good at, where it can make good profits, and where you and your people have a passion, you will soon create a great business.