Tag Archives: business strategy

The Hedgehog who got fucked or the power of probability.

I have been long intrigued by the ‘Hedgehog Concept’. Basically it is your USP which lies at the intersection of three conditions:1.What you can be the best in the world at.
2.What drives your economic engine.
3.What you are deeply passionate about.

And Jim Collins(perhaps he mooted this idea), classifies companies into two categories—Foxes and Hedgehogs. Hedgehogs are the companies who apply the above principle and foxes are companies who pursue multiple endeavors and seem diffused in their strategy.

Ever heard of Intersil? It is the name of a hedgehog which got fucked by a fox. Wi-Fi Technology was developed in the mid 90s and by the end of the decade Intersil was leading producer of Wi-Fi. At that time it was the best in the world, Wi-Fi was driving its economic engine and I am sure the Intersil guys must be very passionate about it. So, it was truly a hedgehog.Then came a fox named Intel. It started selling its own Centrino brand of Wi-Fi chips at dirt cheap prices. It wasn’t better than Intersil by a long shot, but it sure was damn cheap. In fact, Intel was selling the chips at a loss. It destroyed Intersil;Intersil, to put it mildly, got fucked.

Intel derives most of its profit from laptop chipsets rather than pc chips. So, it made sense for Intel to commoditize Wi-Fi which in turn will make laptops more popular. And hence, Intel was not running at a loss by this strategy at all, if you look at the big picture. And this tactic had the added advantage of eliminating the hedgehogs,like Intersil.

Mostly, people don’t want to believe depressing news even if the facts say so. So, after giving a bad news I practise giving goodies and solutions, and that makes the party-spoiler more palatable. So, here I present solution in mathematics to come out of this quandary. Imagine you are a hedgehog with one core competency. And let us assume the probability that a bigger rival having the same business is 0.4(and hence 0.4 chances of you being killed, to simplify things). Now imagine you have 3 core competencies tied in an intimate manner which make you distinctive, instead of one which you were doing best. So, what are the chances of your rival beating you up in that game? The probability is 0.4×0.4×0.4=0.064. So, now your chances of being killed dropped from 40 in 100 to 6.4 in 100.That is a dramatic risk reduction. So, the best strategy is to tie together a few core competencies in a unique manner, which holistically work together,even if those core competencies are not the best.

Reference:
[1] G.Carr,Nicholas, “Does IT Matter?Information Technology and the Corrosion of Competitive Advantage.”
[2]Isaiah Berlin, “The Hedgehog and the Fox .”
[3] http://tinyurl.com/27dqjo

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