Tuesday, November 17, 2015

The Coherence Premium and the demise of a few “big box stores”




The article by Paul Leinwand and Cesare Mainardi, The Coherence Premium, describes how companies should focus on what they do best and then align their capabilities with the right market position.  Examples given in the article were companies that utilized capability-driven strategies.  Wal-Mart and Pfizer were examples of companies that aligned with the right marketplace opportunities and are very successful.   However companies that didn’t follow the coherent path and fell into bankruptcy or just closed their doors are the likes of Circuit City along with Hechinger’s and Builders Square.

Circuit City was founded as a family business in Richmond Virginia in 1949 according to an article in the Wall Street Journal.  Along the way they grew into a national big box chain that sold electronics along with small and large appliances.  The original name was WARDS named after family members and in 1984 changed the company name to Circuit City.  If this company had analyzed their business before expanding into the big box store and developed a strategy to move forward with what they did best, they may have been able to see that the road they were about to embark was the wrong road and they should continue to do what they had been doing for thirty plus years, small electronics at a reasonable price to the consumer. 

The other two companies that I indicated that did not align their distinctive capabilities were home building supply stores Hechinger and Builders Square.  Hechinger’s and Builders Square, a subsidiary of Kmart, merged in 1997.  The competition, Lowes and Home Depot, built larger stores, carrying similar items as Hechinger’s and Builders Square but were able to leverage their size and utilize their purchasing power to provide the consumer with a better value than the merged home improvement stores.

When a company develops a planned strategy to develop their business, they need to review all of their capabilities, promote what they do better than their competition and then leverage those capabilities to excel in their specific marketplace.

 

Hancock, J. (1997, June 22). Hechingers. Baltimore Sun.

Wurtzel, A. (2012, 10 25). Lessons from the Death of Circuit City. Retrieved from Wall Street Journal.

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