Monday, June 13, 2016

Coherence Premium - Is it Worth the Investment?

The article “The Coherence Premium” (Leinwand, Mainardi), offers an interesting perspective on the rare occurrence of companies that have the ability to align what its best internal capabilities with the right opportunities in the marketplace.  The authors discuss how most companies continue to follow the same path of aligning strategy to the marketplace without a real link to core competencies that would help differentiate and sustain real strategic positioning in the marketplace.  A ‘Coherent Company’ would need to focus its attention to what it does best first and essentially propose as a first step conducting an assessment broken into three parts:  1. Way to Play? – ‘Are we clear about how we choose to create value in the marketplace and are we investing in the capabilities that really matter to our way to play?’; 2. Capabilities System – ‘Can we articulate 3 – 6 ways that describe what we do uniquely better than our competitors…and do our internal processes support it?’; and 3. Product and Service Fit – ‘Have we specified our product and service “sweet spot” and do most of our products and services fit our capabilities system…?’.    Walmart was cited as an excellent example of a coherent company.  It is not just focused on doing a few things right, but delivers real value to its customers based on a rock-solid value chain with world-class logistics, financial management, and ‘superior information’ ensure it stays constantly aligned to the market.

Pfizer was another example the authors cited as following the “Coherence Premium”principles.  It has acquired a number of different companies with its mergers & acquisitions strategy and needed to take a holistic look at how it would move forward with these new products in its portfolio.  The analysis outcome revealed that a real focus on consumer health benefits vs competing strictly in the market based upon the health product capability alone was a real value-based approach.  It devised a core system of six interlocking capabilities that was based on meeting the overall health benefits objective heavily backed by scientific research, Rx-OTC switching capabilities, regulatory influence/management, and divestiture of certain products (i.e. confectionary and personal care products).  The positive outcome to this approach paid off and in 2006 led to approximately $4 billion in annual sales with double digit industry growth.

In conclusion, there appears to be strong evidence leading to the methodology of applying coherence principles to corporate strategy.  An alignment of internal capabilities to the market coupled with interlocking processes differentiates those companies that try to do this in a non-comprehensive way.  Following examples of other company’s success stories is another way that companies can fast-track the process.  In the long-term, companies must also sustain this same process with a commitment from senior leadership (and board level) to ensure the process does not devolve to former strategies that resulted in similar market performance. 

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