Revisiting the Hedgehog Concept

????Q: Can we talk about the Hedgehog Concept and its importance in the context of Chinese companies?

????A: Let's first review the essence of what it is. Our research showed that companies which made the good to great transition were very clear on how to channel their energy right into the middle of three intersecting circles.

????First, they had great passion. Second, they understood what they could be the best in the world at. Third, they understood what the key driver of their economic engine was.

????If you think about this on an individual level, when you do something that you really love and are passionate about, and you're really good at it, and you add value for which people will pay you, that's a winning combination. I don't think this will ever change over time. Whether 200 years ago, 200 years from now, in the U.S. or a different part of the world, the same principle will likely apply.

????Nothing great happens without passion, and combining this with doing something which you have a distinctive ability to be exceptionally good at, and which the world will compensate you for -- this is what turns the flywheel.

????I still absolutely believe in passion. If you don't have a deep reservoir of passion for what you're doing, an incredible sense that no matter how hard it is, you still believe in it and really like it, you're going to get destroyed because you simply won't have the endurance. The world is too uncertain, unstable, out of our control and increasingly exhausting to succeed in a sustained manner without passion.

????And in today's increasingly brutal world, if you don't have a distinctive and unique capability, you're going to get beaten. I think that is even more true today, so in a way that makes the Hedgehog Concept even more important.

????And the third is adding value that drives your economic engine. It's increasingly difficult to build an economic engine, and it changes in so many ways, and gets ripped away by global forces, or technology changes, or other forces. And yet, you have to be able to go back and find the real economic engine, or at some point you'll perish. So you can't just have the two circles of passion and what you can be best in the world at. You need to find all three, one way or the other.

????I've started thinking about what might happen when you go into other cultures. This is purely speculative, and I don't yet know if it's true, but it may be that there is a 4th, culture-specific circle, relevant to that particular cultural environment. It could be, for example, that in a given country the 4th circle is your relationship to government, or it might be relationships with people.

????My friends from India have described for me the fact that very longstanding personal and family relationships spanning many generations may trump economics there, for example. So this could be a 4th circle.

Maintaining Core Values: Yin and Yang

????Q: You have observed that enduringly great companies manage to preserve core values while adapting business strategies over time in changing environments. Which global companies have been especially good at this?

????A: Some companies which come to mind would be Proctor & Gamble, Johnson & Johnson, and Coca Cola, all of which have operations across the globe.

????The concept, if you think about it, is like yin and yang. You have something that's about continuity and something that's about change; something that's preserved and something that's going forward; something that's about values which hold constant and something about practices and strategy and structures that change.

????For companies going global, and I think this applies to Chinese companies as well, you bring the same values with you but adapt to different practices when you go to a different local setting.

????One of the ways in which organizations -- companies, societies, universities, religions -- get tripped up is by confusing traditions with values. Traditions are important, but if we start to think that traditions are the values, it interferes with the ability for self-renewal. Traditions need to change, to evolve, while values remain constant.

CSR in China

????Q: Through our annual survey of Chinese business leaders' attitudes towards CSR over the past nine years, we have seen a significant growth in the perception that embracing CSR yields improved corporate results. Do you think this may be an advantage for Chinese companies as they go global?

????A: First, an empirical finding from "Built to Last" is that not all great companies have a sense of social responsibility as part of their value set; but some do.

????You look at one of my favorite companies here in the U.S., Patagonia, whose founder, Yves Chouinard, is a really interesting guy. Back in the 1960s and 70s, rock climbers used pitons. They carried these metal spikes and a hammer. I recall my first climb, in 1974. We used pitons and you'd bang them into the rock: ping-ping-ping-ping-ping. If the pitch kept getting higher as you banged, you knew you had a solid piton; and you'd feel very good because as you clipped the rope on, it felt very solid.

????Well, the problem is, over the course of 1,000 or more ascents of a popular climb, you'd end up with a whole lot of pitons banged into the rock, and even when the next person banged them out, you'd end up with a lot of scars on the rock face.

????Yvon Chouinard, whose company made pitons, looked at this situation and he said "This is wrong." In the early 1970s his company came out with a Declaration of Clean Climbing, and a set of new devices which could be slotted into the rock face solidly, with no scarring of the rock face. Then a group of rock climbers, lead by Chouinard, began to change the way that rock climbing was done. After my first two years of climbing, I never placed a piton again. Today, we largely have clean climbing, with very little scarring of the rock.

????If you had asked Yvon whether he was doing this as a business strategy, he would have answered, "No. It was just wrong." He also took the next step, of creating a solution and helping people to see that solution.

????Patagonia then went on to become one of the most successful outdoor sports companies in the world.

????With corporate social responsibility, if you do it because everybody's doing it, you're missing the point. If you're doing it because you have a sense like Yvon did, that something's wrong, then it becomes very powerful because it is real. And there is zero trade-off between economic success and looking at the world that way.