Trade Secrets: An Application of Jim Collin’s Good to Great Principles

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Introduction

There are many ways in which an organization can succeed or fail. While the success of a company cannot be boiled down to just a few factors, we can nevertheless look at the success of existing companies to find trends in what worked (and what did not). This is precisely what Jim Collins has done in his book, Good to Great: Why Some Companies Make the Leap…and Others Don’t. Collins understanding of “great” as opposed to merely “good” is an important distinction: it essentially means that they were marked by growth and sustained success in such a way as to far outpace the market average (this is the “leap” he refers to in the title).

Collins’ research indicated that this sustained success stemmed, not from inherent business qualities, but in the quality of leadership and culture found in the company. That is, “disciplined people, disciplined thought, and disciplined action” (2001: 15) were the most significant factors to greatness. While these qualities conform to seven key principles, perhaps the best way to analyze Collins's ideas is to take one of the principles in particular and apply it to a specific company. This is what follows. The Hedgehog Concept (explained below) is found in the last 40 years of Trader Joe’s existence, and this paper will examine the ways in which Trader Joe’s has manifested this concept, what it needs to overcome challenges, and how the company is strengthened by other Good to Great principles.

The Concept

While it oftentimes seems more advantageous to have the qualities and cleverness of a fox (as in the dichotomy laid out by Isaiah Berlin), Collins shows that a company benefits by having the qualities of a hedgehog. He explains that, when confronted by predators, the hedgehog’s simple but surprising response is to roll up into a ball. This uncomplicated strategy overcomes the fox’s (and other predator’s) varied cleverness. This same effectiveness can be applied to companies. Just as the hedgehog “knows one big thing”, a successful company does “one thing better than anyone else in the world” (2001: 95). This strategy is devised in three steps: 1) Determine what you can be best in the world at and what you cannot be best in the world at; 2) Determine what drives your economic engine; and 3) Determine what you are deeply passionate about (2001: 101). The clarity that ensues from this strategy far outweighs the inconsistent and scattered approach that is the alternative.

The Company

Trader Joe’s is a company long in existence but more recently in the national mainstream. According to Beth Kowitt’s article, “Inside the Secret World of Trader Joe’s”, the store chain began in the 1960s as a Mom and Pop “shop around the corner” – but it now boasts 344 stores across the nation, and over $8 billion in annual sales (2010). While experts may point to a variety of business practices that have enabled Trader Joe’s success (not the least of which being that it is owned by the famously-secretive Albrecht family), Kowitt’s article, along with an article by Steve Tobak (2010), point out the cultural principles (particularly those that reflect the Hedgehog Concept) as an additive to the recipe.

Kowitt first points to Trader Joe’s strategy for stocking the shelves. A typical grocery store carries around 50,000 items for stock. In contrast, Trader Joe’s carries about 4,000 items at any given time (2010). This scaled-down approach not only makes the stocking job easy and straightforward – it is the first signpost to the Hedgehog Principle. Trader Joe’s has found its niche: high quality, quasi-healthy and novel products. Instead attempting to cater to every single possible consumer, as most grocery store chains do, it has narrowed in on those who seek an affordable way to eat healthily with whole food meals.

While many of Trader Joe’s products are produced by larger corporations (such as Frito-Lay), around 80% of the stock in the store carries the Trader Joe’s brand – making that appearance of specialization (the picture of the “funky shop around the corner that sources its wares from local farms and food artisans”) even clearer (Kowitt, 2010). Kowitt sums up this principle by defining Trader Joe’s strategy as “staying a step ahead of Americans’ increasingly adventurous palates with interesting new items that shoppers will collectively buy in big volumes” (2010). Tobak echoes this sentiment by stating that Trader Joe’s does not follow trends – it starts them (2010). This particular application of the Hedgehog Concept, it turns out, has a big payout.

In another application of the Hedgehog Concept, Tobak’s article points to the in-store culture that Trader Joe’s has created across the nation. The store has no conveyor belts, buzzers, or scales. Instead, they mark their produce by unit, ring a bell when customer service is required, and happily check a customer out in their signature Hawaiian shirts. In a phrase, Tobak points out, this is “an in-store experience that hails to an earlier, happier time” (2010). This specialization in unique customer service makes Trader Joe’s something of a hedgehog as well. Customers leave happy and will most likely return (with friends in tow). This has allowed the slow but steady expansion of the chain.

Other Relevancies and Challenges

In addition to the Hedgehog Concept, the two articles make several points that reflect more of Collins’ assessment of success. First, Trader Joe’s maintains a culture of discipline in its employees. The company culture reflects that of the in-store experience: employees at headquarters are encouraged to wear Hawaiian shirts, and all employees, from the common crewmember to the head of a division, receive amazing employee benefits. According to Tobak, full-time employees start at about $50,000 a year, and Trader Joe’s contributes 15.4% of an employee’s salary to tax-deferred retirement accounts. This creates a bottom to top company culture, which in turn makes for better customer service.

Second, it is clear that Trader Joe’s finds itself in the “flywheel effect” discussed by Collins and is on the way up. So far, Trader Joe’s has been able to expand without compromising its core concepts. In fact, the company has made decisions and taken actions that “reinforce and affirm the company’s ‘hedgehog’ competencies”, therefore initiating positive momentum (Collins, 2001: 115). For example, Trader Joe’s opens only a handful of new stores each year, in carefully selected areas (Kowitt, 2010). Continuing on the flywheel, instead of reverting to the “doom loop”, is one of the major challenges that Trader Joe’s will have to face in the near future. Leadership will need to be cautious to maintain their carefully constructed niche if they expect to continue to reap the benefits of falling under the Hedgehog Concept.

Conclusion

Trader Joe’s may not be on the multi-national, Fortune 500 track – but it may also be an understatement to say that they are doing pretty well for themselves, especially for a privately owned company. The fact that the company has specialized in something that consumers want (and previously did not have) places them firmly in the hedgehog camp, dressed for popular and financial success.

Works Cited

Collins, Jim. 2001. Good to Great: Why Some Companies Make the Leap…And Other’s Don’t. Random House.

Kowitt, Beth. 2010. “Inside the secret world of Trader Joe’s”. CNN Money. Accessed 11-11-13: http://money.cnn.com/2010/08/20/news/companies/inside_trader_joes_full_version.fortune/index.htm#joe

Tobak, Steve. 2010. “10 Secrets to Trade Joe’s Success.” CBS News Money Watch. Accessed 11-11-13: http://www.cbsnews.com/8301-505125_162-28245442/10-secrets-to-trader-joes-success/