Wednesday, November 13, 2013

A Coherence Test: Amazon Meets USPS



Amazon announced on Monday that it is teaming up with the U.S. Postal Service to begin Sunday deliveries. Hailed by the Washington Post as brilliant, disruptive, and a rare instance of reverse contracting, the partnership illustrates an example of two parties aligning their internal capabilities with an external market position—Leinwand and Mainardi’s very definition of coherence. Moreover, the partnership demonstrates Amazon—and perhaps USPS as well—moving to close a strategic capability gap, as discussed by Donlon and Walmer.

Let’s begin with the idea of coherence.  Leinwand and Mainardi suggest that companies “start [by] figuring out what they’re really good at and then developing those capabilities until they’re the best-in-class and interlocking. From there, strategy becomes a matter of aligning that distinctive capabilities system with the right marketplace opportunities,” (2).  Among Amazon’s capabilities are its comprehensive product distribution system, online point-of-sales interface, and robust data analytics. In short, its distinctive capabilities systems allows customers anywhere in the world to purchase just about anything in the world and have it delivered to their doorstep through a simple series of clicks. Clearly, and as many others have analyzed, Amazon has done a superlative job of focusing on what it is really good at, joining those strengths into a powerful interlocking and system, and leveraging that coherence strategically.


Can We State It?
Do We Live It?
WAY TO PLAY
Are we clear about how we choose to create value in the marketplace?

Are we investing in the capabilities that really matter to our way to play?
CAPABILITIES SYSTEM
Can we articulate the three to six capabilities that describe what we do uniquely better than anyone else?
Have we defined how they work together in a system?
Do all our businesses draw on this superior capabilities system?
Do our organizational structure and operating model support and exploit it?
Does our performance management system reinforce it?

PRODUCT & SERVICE FIT
Have we specified our product and service “sweet spot”?
Do we understand how to leverage the capabilities system in new or unexpected areas?

Do most of the products and services we sell fit with our capabilities system?
Are new products and acquisitions evaluated on the basis of their fit with the way to play and capabilities system?

From Leinwand and Mainardi, “The Coherence Premium,” Harvard Business Review, June 2010.

While competitors in the field, namely Ebay and Wal-Mart, develop methods to deliver products to consumer households as quickly and efficiently as possible, Amazon is taking advantage of the opportunity to exploit its capability system by introducing a new service that fits well within the strengths of the company and the value it seeks to deliver. By partnering with USPS, it will be able to deliver packages to online customers on the one day of the week that most other shipping services do not (without paying a premium): Sunday. This move effectively enables Amazon to close a strategic capability gap, perhaps best exemplified by the scenario of its Amazon Prime members who, despite paying an annual fee for unlimited two-day shipping, currently wait an extra day for items ordered on Friday to arrive. The gap for Amazon was to find a shipper that could offer delivery on Sunday, thereby executing its strategy of unlimited two-day delivery no matter what day of the week an online purchase is made. Thus, enter USPS, which has the internal capabilities to do so and sorely needs the business.










From Donlon and Walmer, “Does Your Organization Have the Capabilities to Execute Its Strategy?”
Balanced Scorecard Report, November/December 2011.


Ruth McCambridge at Nonprofit Quarterly picked up the story as quickly as her daily news counterparts, recognizing the lessons the new partnership potentially holds for the nonprofit sector as well. “Sometimes,” she writes, “good strategic decisions are less about survival of the fittest and more about survival of the fitting.” Whichever industry you occupy, the goal is to focus on those products and services that fit within your organization’s capabilities, to be able to articulate and analyze those capabilities, and then to fill in the gaps. Which in turn raises the question for the Amazon/USPS partnership: How coherent is the U.S. Postal Service? While the arrangement introduces a new revenue stream, does it truly give USPS a competitive advantage? Does it capitalize on an existing strategic capability of USPS and close a gap or does it incentivize USPS to create that capability?

Sources:

Donlon, Barnaby S. and Zack Walmer. “Does Your Organization Have the Capabilities to Execute Its Strategy?” Balanced Scorecard Report, November/December 2011.

Fung, Brian. “Amazon’s Brilliant Plan to Rescue the Postal Service and Disrupt the Shipping Industry,” The Washington Post, November 11, 2013. http://www.washingtonpost.com/blogs/the-switch/wp/2013/11/11/amazons-brilliant-plan-to-rescue-the-postal-service-and-disrupt-the-shipping-industry/

Kucera, Danielle. “Amazon, Postal Service to Start Sunday Deliveries,” Bloomberg News, November 11, 2013. http://www.businessweek.com/news/2013-11-11/amazon-introduces-deliveries-on-sundays-with-u-dot-s-dot-postal-service

Leinwand, Paul and Cesare Mainardi. “The Coherence Premium,” Harvard Business Review, June 2010.

McCambridge, Ruth. “What Should Nonprofits Learn From the Amazon/USPS Deal? Collaboration,”  Nonprofit Quarterly, November 12, 2013. http://nonprofitquarterly.org/policysocial-context/23227-what-should-nonprofits-learn-from-the-amazon-usps-deal-collaboration.html


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