Wednesday, April 12, 2017

Can You Have Too Much Coherence? : Lessons in Discipline and Innovation

           In “The Coherence Premium” by Paul Leinwand and Cesare Mainardi, the authors discuss how important it is for companies to assess their capabilities and build their business strategies based on the specific aspects that they excel in the most, thus making a company ‘coherent’ and subsequently, more profitable. They write that one of the main reasons why companies may fail at becoming coherent is due to the fact that they focus too much on achieving top-line growth and expand their business in markets where they do not have the core competencies to succeed.

As I was reading the article, I started to think about the discipline that it takes for a company to remain coherent and focus on what it does best and the benefits that can come from that. In a world that is fuelled by competition and gaining access to the ‘next best thing,’ I can only imagine how difficult it is for companies to resist the urge to expand into areas that they may deem worth the effort, despite not having the relevant experience for sustained success. However, as Leinwand and Mainardi have shown, if they do resist this urge, opportunities in value creation and competitive advantage abound.

Coherence also allows firms to increase their innovative potential by innovating around their core competencies. Southwest Airlines is a perfect case in point of a company’s ability to combine innovation with capabilities in order to maximize value. As mentioned in the case, Southwest identified its core competencies (low-cost, point-to-point and customer friendly service, coupled with fast turnaround times and a positive corporate culture), and focused their innovation on areas that improved upon these competencies when it came due by essentially implementing a “contrarian approach to air transportation.” [1]

With that being said, one question came to mind while reading the Southwest case and the Leinwand and Mainardi article: Is there ever too much coherence? Does being too disciplined ultimately result in less innovation?

In Making Innovation Work by Davila, Epstein, and Shelton, the authors write that a company needs to find the right ‘fit’ when it comes to sticking with core competencies, such that venturing too far leads to negative results, but limiting yourself as a company can lead to a loss in value creation and opportunities for innovation. They utilize examples such as the possibility that Apple did not expand into the music business or if Amazon had stuck to selling books. [2]

Davila, Epstein, and Shelton write that it is in these situations where examining core competencies becomes crucial and considering whether or not the same competency can be used in other markets or businesses. Therefore, I think that it’s important for companies to keep the coherence premium and their discipline in mind when either creating or re-evaluating their business strategies. However, it is important to think about ways of distributing these core competencies across service lines only when the opportunities for promising innovation and value creation arise.

[1] Heskett and Sasser, “Southwest Airlines: In a Different World” (2013).
[2] Davila, Epstein, and Shelton, Making Innovation Work (2013).

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