the quality of being logical and consistent.
"this raises further questions on the coherence of state policy"
the quality of forming a unified whole.
"the group began to lose coherence and the artists took separate directions"
The article ‘The Coherence Premium’ by Paul Leinwand & Cesare Mainardi focuses on important factors as to why some companies often see success with their growth initiatives and become profitable even after cutting costs within operations. Defined specifically, Coherent Companies are those which have a clear set of differentiating internal capabilities that are in line with their respective strategy and helps align them with the right external market position.
I would like to start by writing about the Coherence Profiler, a test designed by Leinwand, Mainardi and a Booz & Company team. Answering the questions within this test, I realized that there were two major objectives being accomplished:
Firstly, the test provided a real-time analysis of the coherence level within the test-giver’s organization. It provides the test-giver with a sense of where the company stands in terms of strategy and its competitor’s coherence levels. Secondly, because the test is on a large scale across many test-givers across many companies, the test acts as a database of results on different company choices. The authors link coherence with performance in this article and this test provides results on this relationship.
All in all, the authors state within this article that coherence within any organization would provide it with value in four different ways:
1. Companies identify what is most important to them, either from an operations point of view or a strategy point. By doing this, they identify processes which need further improvisation and development and thus, perform better than their rivals.
2. Companies identify what capabilities can be applied on their various product offerings. By doing this, they can make better decisions and continue to refine these capabilities. They start pursuing those capabilities which provide the most benefit and thus, perform better than their rivals.
The Raspberry Pi is a good example for the above points. Not only has the company identified all the processes important to their product offerings but also implemented their capabilities on a holistic level. This has resulted in the company capturing most of the market and seeing its profits grow rapidly.
3. Companies identify which capabilities can be deployed on a larger scale across their service and product offerings. By doing this, they spend more wisely and grow more easily and thus, help themselves go past other companies.
Apple Inc. applied the above point to its advantage really well. By observing that the labor costs in China were very cheap compared to the rest of the world, it started manufacturing all of its iPhones abroad. This strategy worked really well with the company, something that was not implemented upon by any other company, and generated massive profits overall with each model launch.
4. Coherence helps companies understand its strategy and simplifies the way they take day-to-day decisions. Once the companies reach this level, they implement decisions better and faster as the company has now understood the strategy and its alignment along with it.
Tesla Motors qualify for the above value source really well. The employees at Tesla Motors know exactly what the company does and how it has to do it. This has helped them strategize and implement each of their projects with precision and timeliness. By doing this, they have widened the development gap between themselves and other rivals within the electric motors market, thus capturing most of the target audience already with their Tesla 3 product offering.
Concluding, connecting the dots across the points described above, we see that all these questions and answers go hand-in-hand with each other. Once all of these are streamlined, it is imperative that the company will only grow, not only within a more rapid timeline, but also at a comparatively low financial expense.
‘The Coherence Premium’ by Paul Leinwand and Cesare Mainardi