Blog #2: Internal Organizational Analysis and Developing Strategic Options (1)

An internal analysis of an organization is performed in order to assess its resources, competencies and competitive advantages in the market. There are multiple reasons as to why a company’s strategy should take into consideration its various capabilities. Capability is something that you do well, that customers value and competitors can’t beat. Most of the companies base their strategies on external positioning and not enough on internal capabilities. Instead, when a company, first, identifies its core competencies and capabilities and then aligns its strategy to these distinctive capabilities, it is heavily rewarded in the market. This is called “Coherence Premium”.

Consider Coca Cola as an example. It focuses on beverage creation, brand proposition and global consumer insight, which essentially constitute its capabilities system. Its strategies based on this capabilities system has enabled Coca-Cola to become a pioneer in the beverage section around the world.

There can be many reasons for the failure of a strategy, like reinvesting in the existing strategy, investing in the wrong technology, roll-ups etc. Probably the most fatal one is pseudo-adjacencies, which is a strategy to build on an organization’s core strengths by expanding into a related business. This might result in change in company’s core business, lack of expertise in the adjacent market, overestimated capabilities & hold on its customers. Companies should not fall into these traps and should strategize based on their capabilities system.

But a capabilities system in isolation is not enough. A coherent company focuses on the “way to play”, “capabilities system” and the right “product & service fit”. Such a company should be able to provide clear answers to the following questions:

    1.  How are we going to face the market?
 The company will have a clear understanding of how they create value for customers.

    2. What capabilities do we need?
  The company identifies a system of three to six capabilities that allow it to deliver effectively.

    3.  What are we going to sell and to whom?
The company builds its portfolio in such a manner that all its offerings align to one or more of the capabilities. Products that do not align to the capabilities are discontinued.

Reiterating it, companies that deepen their areas of expertise and then align their strategies and end-to-end decision making to them, gain advantage and propel in the market.  

Resources:

1.       https://hbr.org/2010/06/the-coherence-premium

2.       https://hbr.org/2008/09/seven-ways-to-fail-big

3.       https://www.executestrategy.net/blog/internal-analysis