In my last blog, Have we become a hedgehog factory?, I opined that our schools and work environments were nurturing the hedgehog mindset so completely as to snuff the life out of the foxes in our ecosystem. I submit that this approach jeopardizes the long-term survival of our businesses.
Every successful business has its hedgehog concept, the core driving principle that enables it to leapfrog over the competition, wow its customers, squeeze out costs, deliver unique value, . . . or whatever other unique differentiation it has developed to become successful. The success of the business is a direct result of its core driving principle and hence it builds an organization and institutes processes that are tightly aligned with its core driving principle. As the business continues to grow and garner more success, the positive-feedback loop causes its organization and its processes to become more rigidly aligned with its hedgehog concept (If I am succeeding, I must be right. So I should do more of the things that align and discard ideas that don’t fit in).
In the meanwhile, the world isn’t standing still. Markets are evolving driven by the increasingly free flow of goods, services and ideas. Business models are being disrupted by application of emerging technologies. Profitability of products are being radically transformed by leaps in production efficiency. The long-standing core driving principle of your successful business will eventually be threatened, one way or another. How will your organization and its institutionalized processes respond to these threats?
Remember that in a successful business, its organization and processes are rigidly aligned with its core driving principle because of the positive-feedback loop caused by its success. A highly successful business will exhibit strong confidence in its hedgehog concept and dismiss these threats initially because they will appear weak (poor quality, less valuable market segments, etc.). There are numerous examples of this in recent times. Remember Kodak, the iconic company that coined the term “Kodak Moment”. Their competitive advantages were in their technology of film-based photography and their distribution channels. They believed that digital photos could never take the place of high quality photo prints in the lives of their customers. In hindsight, it looks like they were in denial.
Eventually as the threat gains momentum and starts to erode revenues and profits, the business will attempt to put together a response. Given that the response is being crafted by an organization steeped in the hedgehog concept, it will play to its current strengths. It will focus on either defending its current competitive advantage or on ideas that leverage it. In the case of Kodak, when they eventually got past denial, they tried strategies like smaller cameras and digitally coded films. They were just force-fitting ideas from the digital world into their film-driven, print-photo business model.
Kodak’s traditional film business yielded margins of close to 70%. Their hedgehog concept had served them well. Ironically, the first digital camera was designed by a Kodak engineer, Steve Sasson. Can you imagine what response his invention must have garnered within the company? I can imagine engineering leaders at Kodak deriding the quality of photos from his digital camera with their film-based products. I can also imagine Kodak’s marketing teams talking about the power of their distribution channels and how poorly the channels for electronic products compare with their own ability to reach the common man. Above all, I can imagine the executives at Kodak thinking about the 70% margins of their film business and pooh-poohing the cost economics of digital cameras.
Now imagine if Kodak had nurtured a cohort of foxes within their organization. These foxes would have picked up the weak signals exhibited by Steve Sasson’s invention. They would not have allowed it to be discarded on the basis of its initial sub-par performance. They would have challenged the power of Kodak’s traditional distribution channels by studying alternate digital channels that were starting to make inroads into customers’ lives. They would also have made a case to executives that market size of digital impressions on various display devices could be many, many times larger than paper prints and thus holding on to the 70% margin was nonsensical.
The more successful a business, the greater the need for a cohort of foxes in its organization. If you don’t have one, you should be worried.