Wednesday, April 8, 2015

Coherence Premium and the Bullets Shot by Steve Jobs

This week I read the articles “The Coherence Premium” and “Seven Ways to Fail Big”. My key take-away from this week’s readings is the logic behind Coherence Premium. A company should look inwards to identify what it is really good at. The goal is to identify 3 to 6 capabilities that are valued by customers and hard to be beaten by the competition—we can even call them unfair advantages. After been identified these capabilities have to be improved, and then the company will be in good shape to look into the market’s opportunities, aligned its capabilities, and go for the prize. Simply put: first identify the company’s capabilities, then develop a strategy.

However, I found the “7 ways” article to be quite interesting as I haven’t been exposed to many business literature that focuses on failures. I am used to read about big successes, yet there is a lot to learn from failures. As the title of the article indicates, the authors gather a number of business failures under seven risky strategies referred as “Sirens”. Moreover, I see a direct link between Coherence Premium and the “Pseudo Adjacencies” Siren.

Furthermore, these linking ideas are enforced by the “fire bullets, then cannonballs” approach presented in the book Great by Choice (Collins & Hansen, 2011), which I highly recommend to read. Collins and Hansen[1] explain that a bullet is an empirical test that will allow a company to test if an action will succeed (e.g., launch a new product or enter into a new market). The bullet should not be costly, risky and distractive. Shooting a cannonball means to invest time and effort where the probability of success is high (i.e. where the bullet meets the target). Consequently, if the bullet promises to work, then the company should put forward major efforts in the targeted product or market by launching a “calibrated” cannonball.

A very good example included in Great by Choice will show how these three concepts merge together (positively). When Steve Jobs returned to Apple in 1997 the company was about to disappear. He focused on making Apple rediscover its core and unique capabilities. Thus, Apple concentrated in resurrecting and improving the Macintosh PC and discharging whatever other ventures. The company made the most of its PC and launched the PowerMacs, PowerBooks, and iMac. In the few next years, Jobs identified potential in the emerging trend of music-file sharing and MP3 digital-music devices. So, Apple shot a bullet: its own MP3 player that could only be connected to Mac and its own supporting software and music library: the iPod and iTunes (bullets). By 2002, iPod represented only less than 3% of net sales. The next bullet was to work in deals with music labels. Apple launched the iTunes Store offering songs for 99 cents (bullet). However, the majority of PCs in the world used Windows. Then, Apple was ready and launched the calibrated cannonball: iPod and iTunes for non-Mac Computers. This came only after the empirical evidence proved that iPod, iTunes, and iTunes Store were a powerful mix of products and services. In a sense, Apple aligned with patience its capability and it didn’t rushed to jump into a market in which the company didn’t had any expertise, it was a gradual and tested move that reduced the risk of failure.[2]

[1] Collins, J., & Hansen, M.T. (2011). Great by Choice: Uncertainty, Chaos, and Luck – Why Some Thrive Despite Them All. New York: Harper-Collins Publishers.
[2] Collins & Hansen. Op. Cit., P. 92-94.

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