Tuesday, April 11, 2017

Coherent Organizational Strategy - A Recipe for Success

The article - “The Coherence Premium” by Paul Leinwand and Cesare Mainardi, gave me an insight into how organizational strategies should be based off one’s internal capabilities. While it is true that organizations are born with specific goals in mind, they tend to lose focus when they are established in their market. The paper talked highly of how an organization should first figure out what they are good at, what their capabilities are and then align those capabilities with market opportunities. The coherence of these capabilities with the strategy and the right market portfolio leads the company into a long-term success.

In my opinion, “Coherence Premium” has to be achieved by startups if they aim at being market leaders in the near future. Achieving this coherence also acts a differentiator from competitors. With this regard, I would like to delve into the organizational strategy of my previous place of employment - a Pharma retail startup. For any retail company, an important goal to achieve would be operations efficiency. This would mainly involve streamlining by cutting down non-essential functions. Our strategy was to design robust, reliable technology at every phase product-human interactions. This involved designing and using technology in areas such as orders placement and tracking, inventory management, packing and processing orders, etc. The differentiator for us was the use of technology to collect and analyze data in the retail space. Further, these were also the capabilities that we honed and developed. Thus, the goals were in-line with the leadership’s vision which was in-turn bridged by the skills and expertise available in the company.

With this regard, Southwest Airlines is a good example to study and analyze. They have been able to understand their capabilities, their target market and then align their internal organization and strategy to it. They have a simple core strategy of “getting passengers to their destination on time and at the lowest fares possible”. They have thus been able to have a synthesis between - everyone at the company understanding how they create value, understanding their internal capabilities to deliver those values and finding the right product/service offering to leverage those capabilities. Looking at the differentiation strategy we can observe that: Southwest focusses mainly on short route journeys, fun in-flight entertainment, allowing pets on board, low-cost meals, ticketless travel, minimum turnaround time and their famous policy of “Employees first, Customers second.” Further, they used internal capabilities to make organizational strategies of hedging, operating a single type of aircraft, minimum crew members, and low-cost pricing. Thus, using these internal capabilities in coherence with the organizational strategy, they were able to target a sizable unique market of two types of travelers: Price sensitive leisure travelers, and convenience, time-conscious travelers.

With all the talk on coherence, I also have my doubts if this synthesis of capabilities-strategy-market alignment is the way forward. It is true that companies have to focus on what they do best based on the capabilities they currently have. But, one has to wonder if this attitude could reduce the rate of innovation? Innovation involves taking risks, exploring the unexplored, and shooting arrows in the dark; all of which does not define the skills required or the strategy to follow. In this sense, I think we should tread carefully on limiting ourselves to the skills we possess and strategy we make. 

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