Tuesday, November 12, 2013

Next Steps After Applying "The Coherence Premium"

Leinwand and Mainardi's "The Coherence Premium" detailed the benefits that come to companies who identify, align, and support their differentiating capabilities. The authors argue that those companies who follow the process integrate their capabilities thus making it extremely difficult for competitors to fully replicate. As a result, "sustainable, superior returns" accrue to these companies. Throughout the course of this mini-semester we have examined companies such as Dell and Walmart who have structured their business processes so that they receive this coherence premium.

However the article does not outline what a company is to do after it establishes the capabilities system, selects products and services that leverage the aligned capabilities, and educates employees of all levels on the capabilities and their relation to customer satisfaction. Surely it can't be happily ever after following a company's switch to this framework? It seems reasonable that after a sizable amount of time has passed competitors are able to replicate a certain extent your capabilities.

Yet I could not find a single article that either shared my concerns or proposed next steps. Instead I found a study report that continued the support of coherence theories. Booz & Company recently completed a study of publicly traded industry leaders in which they focused on the drivers of success. Success drivers were split into two large umbrella categories: assets-based and identity-based. Asset drivers of success included brands, facilities, scale, and holding a diversified position while identity drivers included capabilities, coherence, and holding a distinctive value position. For example, study participants categorized Microsoft as asset-driven success and Apple as identity-driven success.The results found that those companies "whose success was seen to be linked to who they are (i.e. their identity) had a measurably higher three-year total shareholder return (TSR) record than those perceived as competing on just what they have.,"[1] further solidifying the importance of capabilities and cohesion in business.

Nonetheless I still hold that there must be more beyond simple checking along the way that your way to play, capabilities system, and fit of products and services are all aligned. I believe that, at minimum, in order to for a company to gain success it must continuously assess its 3-6 select capabilities to see if:

  1. all current capabilities are still relevant for the company's uniquely successful position
  2. the company has began to cultivate a new capability that was not previously recognized and currently contributes to their unique position
  3. consumer trends indicate an existing capability will soon be obsolete or incompatible with customer preferences for offered goods and services

What are the implications of not developing or providing supporting next steps to guide companies into a future of continued coherence premiums?

[1] http://www.marketwired.com/press-release/for-big-companies-first-class-assets-dont-mean-first-class-performance-according-booz-1851033.htm

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