Wednesday, April 12, 2017

The Coherent Premium: Apple and Microsoft Example

According to Paul Leinwand and Cesare Mainardi, the coherent premium is when a company or organization align its internal capabilities with the right market opportunities to gain its competitive advantage. For me, it seems like inside-out approach strategy [1], where an organization started with its internal strengths and use it to drive its business value. Probably, people will think that it is a bad idea because we also need to care about the external factors. However, the keyword is in "aligning," and it is different with ignoring external market signals. To give you more idea about how the coherent premium is crucial for company's success, here is an example of Apple and Microsoft.

Apple and Microsoft are two giants in the technology industry. Although it looks like they are competing, they have different capabilities that make them having different positions in the market. Apple, from the beginning, stated that it would focus on end-to-end user experience [2]. Therefore, Apple is really good at product design in both hardware and software to make sure its products have a good performance and easy to use. Microsoft, on the other hand, is great in software and operating system.

Entering hardware business was out of Microsoft’s capability several years ago. Even though it didn't cause them to bankrupt, Microsoft experienced big losses when trying to expand their business to other areas that beyond their capabilities. For instance, when Microsoft tried to get into mobile business by acquiring Nokia mobile phones in 2013, they lost at least $8 billion. Microsoft could not see that at that time, mobile phone industry has a strong network effect in the way that customers demand many popular applications available on their phone. Other competitors such as iPhone and Android already had many developers and popular applications in their application store; while Microsoft was just too late to build that capability.

While Apple already knows about their capacities and becomes the leader in their market, Microsoft is still trying to expand its business to another market and expanding its capabilities. Currently, they have Microsoft Surface as an end-to-end product that using Microsoft’s hardware and software. Surface sales were struggling in its first two iterations. However, as Microsoft is getting better in adding its capabilities in hardware and they have a strong position in the desktop operating system, Surface has a better position in the market now [4]. Combining their strong capability (desktop operating system and software) and improvement in their hardware can make them align their internal capabilities with the external market. Let's see what will happen next to the Microsoft Surface as it keeps getting better in both areas!


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