The Times article, “G.E. Goes With What It Knows,” reads like an accompanying case study for the principles outlined in “The Coherence Premium.” Leinwald and Meinardi advocate for companies aligning their distinctive capabilities system with the right marketplace opportunities. Of course, the difficulty comes in with leaders identifying exactly what those optimal capabilities are. The authors define them as beyond “an activity or function [and as more] the interconnection of people, knowledge, IT, tools, and processes that enable a company to out-execute rivals on some important measure.” (3) This is an important idea, because when (or if) leaders achieve such coherence, it informs the leadership agenda, empowers employees’ decision-making at all levels, and guides the company’s product and service portfolio.
Under GE CEO Jeff Immelt’s leadership, the company is reinvigorating its physical products and technology-based manufacturing activity. The financial crisis hit GE particularly hard, as its huge financial services division, GE Capital, operated its commercial business on anticipated returns over market expertise. At different points in the same article, Lohr describes Immelt’s leadership strategy as “back to basics” and “back to the future,” indicating a concerted effort to re-focus GE’s attention to its core competencies. His R.&D. spending, large-scale investments in manufacturing in emerging markets, and domestic manufacturing efforts reflect this direction.
In some ways, the Coherence Premium reminds me of what I learned about startup management strategies in a Lean Entrepreneurship course I recently took at Heinz. It seems weird to apply Lean methods to a 138-year old corporation, but start-ups, especially at their inception, require leaders to exercises a “bare bones” approach to vision and self-definition, disruptive thinking, and innovation. For larger companies, focusing on core capabilities often only becomes a necessity when large-scale external forces dictate change, such as the financial crisis or technology shifts in the market.
Startups begin with a vision that at first consists of a group of untested hypotheses. The founders should ideally identify the target customer, define a product’s value proposition, scale the market, and develop minimally viable products. This way of thinking makes leaders constantly search and refine that perfect product-market fit. Incidentally, these founding principles also jibe with the steps outlined in the Coherence Premium, which encourage leaders to state their value in the marketplace, articulate the three to six capabilities that describe what they do uniquely better than anyone else, and specify the product and service “sweet spot.” Through this lens, it seems like Immelt is actively striving to (re-)introduce elements of innovation and entrepreneurship to GE’s corporate strategy. He is achieving this through a newly focused portfolio management strategy that integrates the company’s capabilities system with smart marketplace opportunities.