Two sides of a page, two sides of strategy. Two different approaches, two very different sets of results.
That's what struck me when I was waiting for a meeting recently. I picked up a print edition of Businessweek laying in the reception area. On page 13 was "Public Flac Grounds Private Jets." A soft economy has teamed up with bad impressions of executive perks to create a huge drop in orders for private jets. French manufacturer Dassault had 27 more cancellations than orders in the first quarter. U.S. based Cessna had 92 cancellations, and was bracing for 150 more by today (7/1/09). In the meantime, the company has laid off 42% of its workforce and discountinued development of its newest jet aircraft. And the market for used aircraft is flooded, boding poorly for future sales as the used inventory seeks buyers.
Here are two companies that definitely have their "hedgehog concept" as recommended by Jim Collins. They set out to be leaders in private aircraft manufacturing, focusing on two different continents. And they are leaders. They know how to do be product leaders, and they do it well. But look what happened when the market shifted. In dramatic fashion, they go from record profits in 2007 to barely viable. Being really good at making planes doesn't matter when nobody wants them.
Turn the page (literally), and on page 14 was "Now, the Nano Home." In this short article we hear about how Tata Group, which has launched the Nano automobile for under $2,000, is entering the housing development market. While builders in the USA are failing due to the real estate crash, Tata is creating entire apartment developments. But not U.S. style. These apartments sell for as little as $7,800 and come as small as 218 square feet! (There are larger and more expensive units – up to $40,000). While this may seem crazy to Americans, it fits the market where you're trying to convince someone to leave a squatters tenement and buy something legal to live in. It's a market I've never heard of a single American company trying to develop, yet the opportunity is huge!
So here's Tata Group, the company that started as a trading company in the 1860s, that went on to become an industrial powerhouse making chemicals, steel and industrial products. One of, if not the, largest IT services companies on the planet. An auto manufacturer for India that expands into the global market with an entirely new product. Now the company enters homebuildling, but not like other companies. Instead uniquely doing what will fit market needs. There is no hedgehog concept to Tata Group. Just a company that keeps looking for market needs, then develops unique products to fulfill those needs. And builds a 150 year history of growth in the process.
Anytime you have a narrow business, focused on a single market or product line, you are at risk of market shifts that can kill you. These shifts can come from new technologies, or different production processes, or different attributes offered by competitors. But the fact is, markets shift. The better you are at focusing on your hedgehog concept, the more likely it is you will eventually fail. Just look at the companies Mr. Collins claimed were the big winners in Good to Great – Circuit City and Fannie make are good examples. You can be really, really good at something and you end up reaching the pinnacle of expertise only to be clobbered by a market shift that sends you toppling into failure.
Think like Tata Group. Keep your eyes open for market needs. Then figure out new ways to fulfill them. Especially ways that competitors won't attack. Forget about "focus." No American car company is even trying to make a $2,000 car – despite the fact that the only big growth markets today are China, India and other emerging markets where a cheap auto makes the most sense. And all those big U.S. real estate developers that are declaring bankruptcy, after building billion dollar malls, U.S. condominium projects, and office parks aren't even considering building and selling $8,000 apartments to the fastest growing middle class on the globe. They know their hedgehog concept. But they don't know how to grow. You'll do better to focus on growth and leave that hedgehog in his hole.
For more on how following its hedgehog concept led to the bankruptcy of GM download the free ebook "The Fall of GM". Learn how to avoid the hedgehog mistake and keep your business growing.