Wells Fargo and the Hedgehog Concept: Leadership Failures
This paper critically evaluates Jim Collins's application of the Hedgehog Concept to Wells Fargo in his book Good to Great, arguing that while Collins's framework was sound, his research methodology relied too heavily on newspaper articles and interviews rather than empirical data. The paper contends that Collins misinterpreted Wells Fargo's past performance as a reliable predictor of future success and failed to foresee how the company's "run it like you own it" mantra would create unsustainable employee pressure. It further examines how decentralized management, an obsessive focus on shareholder returns, and a lack of executive oversight enabled fraudulent account practices dating back to 2002, ultimately revealing a fundamental leadership failure at the organizational level.
- Collins's Research Methodology and Its Limitations: Critiques Collins's reliance on interviews and articles
- Misreading Past Performance as Future Success: Collins misjudged past results as future indicators
- The 'Profit Per Employee' Strategy Gone Wrong: Cross-selling pressure drove employee misconduct
- Leadership Failures and Organizational Consequences: Decentralization and shareholder focus enabled scandal
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What makes this paper effective
- The paper maintains a clear, consistent critical stance throughout — acknowledging what Collins did well while systematically identifying the gaps in his methodology and conclusions.
- It moves logically from research design critique to strategic analysis to organizational consequences, building a coherent argument rather than presenting isolated observations.
- Concrete details — such as the "run it like you own it" mantra, the Norwest merger, and the 2002 scandal timeline — ground the analysis in specific evidence rather than abstract claims.
Key academic technique demonstrated
The paper demonstrates evaluative analysis by distinguishing between the validity of a theoretical framework (the Hedgehog Concept) and the quality of its application. Rather than dismissing Collins outright, the author separates methodological shortcomings from interpretive failures, showing that a good theory poorly researched still leads to flawed conclusions — a nuanced critical move appropriate for business and leadership studies.
Structure breakdown
The paper opens by questioning Collins's data collection approach, then transitions to his misreading of Wells Fargo's trajectory, before examining how the profit-per-employee strategy created damaging pressure on frontline workers. It concludes by attributing the scandal to top-level leadership complacency and excessive decentralization. Each section builds on the previous, moving from research critique to operational failure to governance breakdown.
Collins's Research Methodology and Its Limitations
Collins was not entirely incorrect in the way he described leadership at Wells Fargo. When Collins and his research team conducted their study, they relied on interviews, newspaper articles, and the company's performance on the stock market. All of this combined led to their assumption that leadership changes and strategic shifts at Wells Fargo were responsible for the rise in stock price. It is true that for a company to become great, it must identify the three things Collins (2001) outlined in Good to Great: what the company is best at, what drives it economically, and what its employees are passionate about. Wells Fargo appeared to identify all three and determined that changing its business strategy would increase investor profits. That change did produce superior results, and the company experienced strong growth.
However, all of this was based on stock exchange performance. There was no tangible evidence demonstrating that the rise in stock price was directly caused by the implemented changes. Nowhere in the book do the authors show that they conducted empirical research or captured data directly linked to the company's internal operations. All information was derived from published newspaper and magazine articles and from conducted interviews. This created a bias in the data collected, since most interviews would naturally portray the company in a positive light and the articles focused on improvements rather than underlying problems. Collins did the best he could to explain the situation at Wells Fargo, and his findings appeared accurate at the time. However, the measure he used to determine a company's greatness — stock market return — can be influenced by numerous external factors. Attributing that measure solely to the strategic transition was an oversimplification.
Misreading Past Performance as Future Success
Collins did misinterpret the company's performance from 2001 onward, primarily because the book was written about what Wells Fargo had done in the past, not what it was positioned to do in the future. The future is inherently difficult to predict, and analysis must be based on prior performance. Understanding the past is valuable for predicting and positioning a company for continued success (Ortmeier & Meese, 2010), but in this case Collins never fully grasped what was happening inside Wells Fargo. What he wrote reflected past performance, and he assumed that because the company had performed so well during the research phase, it would continue on that trajectory.
As noted earlier, the research did not involve examining actual business practices; data was drawn only from articles and interviews. This methodology was inherently skewed toward validating the Hedgehog Concept rather than scrutinizing it. Since Wells Fargo's CEO had transformed the business from a per-loan profit model to a per-employee profit model, it appeared the company was set to continue growing. The mantra embraced by the company — "run it like you own it" — meant that each employee was expected to perform as though they personally owned the business. The mantra had appeal, but it could not sustain itself indefinitely. This was something Collins had not foreseen. Had he conducted more intensive research and gathered data by directly observing how employees performed their jobs, he might have identified the warning signs. The absence of such insight contributed to the misinterpretation that the company would continue excelling in the years ahead. The pressure embedded in the mantra meant employees had to find ways to meet their sales quotas — whatever those ways might be.
References
Collins, J. (2001). Good to great (illustrated ed.). Bishopbriggs, Glasgow: HarperCollins.
Ortmeier, P., & Meese, E. (2010). Leadership, ethics, and policing: Challenges for the 21st century. Prentice Hall.
Schafer, L. (April 11, 2017). Schafer: Wells Fargo CEO didn't take 'run it like you own it' mantra to heart. Star Tribune. Retrieved from http://www.startribune.com/wells-fargo-ceo-didn-t-take-run-it-like-you-own-it-mantra-to-heart/419098944/
Staff Report. (April 21, 2017). Wells Fargo admits account scandal dates back to 2002. New York Post. Retrieved from http://nypost.com/2017/04/21/wells-fargo-admits-account-scandal-dates-back-to-2002/
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