Blog #2 – Internal Organizational Analysis and Developing Strategic Options (Part I)

As argued in The Coherence Premium, “sustainable, superior returns accrue to companies that focus on what they do best.”[1] In other words, companies that maximize and aggressively pursue their own areas of competitive advantage are often those companies that perform the best in their respective markets. The article mentions Wal-Mart as a prime example. According to the authors, “Every one of [Wal-Mart’s] capabilities reinforces the others and supports the company’s strategic purpose to deliver “everyday low prices” to consumers.”[2] Wal-Mart knows what it does best, focuses on maximizing its competitive advantage in those areas, and aligns those areas with other focus points to help form its overall strategy.

At the same time, the authors warn against companies becoming incoherent in their strategic approach and targeting different market sectors that do not align with their competitive advantages. ConAgra Foods is mentioned as an example of a company whose product line requires the company to focus on multiple different capability sets.[3] Since these capability sets were incompatible with each other, the company struggled to compete against other corporations that focused their attentions on superior performance with a select few capabilities.

However, this strategy of congruence is sometimes ignored when dealing with large conglomerates. Alphabet, for example, holds many subsidiaries that deal in different markets that have a need for different capabilities. While Google serves as an internet search engine and advertising company, Alphabet also controls subsidiaries that focus on healthcare research, venture capital, and automobiles.[4]

While many of these companies were acquired or started for the purpose of branching into a new market, Alphabet has worked to change the focus of its subsidiaries to align with its strengths in the technology sector. Waymo, Alphabet’s self-driving car project, has turned away from building out a new car company in favor of focusing on the technology used to build autonomous vehicles.[5] Chronicle focuses on helping companies prevent cyber attacks.[6] The company still holds interests in other sectors, but is slowly realigning those interests to focus on its core capacities.

---

[1] Leinwand, Paul and Cesare Mainardi. The Coherence Premium. Harvard Business Review. June 2010.

[2] Ibid.

[3] Ibid.

[4] Hartmans, Avery. All the Companies and Divisions Under Google’s Parent Company, Alphabet. Business Insider. December 13, 2018.

[5] Ibid.

[6] Ibid.