Blog #2: Coherence

At first glance, coherence looks like an obvious strategy. What corporate executive would question figuring out what a company excels at and then focusing on that strength? Aligning both your company's value proposition for consumers and key capabilities with each service or product your company provides seems like common sense for running a successful business. Why then do so many companies struggle with coherence and stray from focusing on only what they do best?  Coherence is a straightforward concept, but must be difficult to execute effectively. This strategy needs to be applied within an increasing complex, global and fast paced business environment. In addition to these factors, our system for evaluating companies seems to care more about the short-term perception of growth and less about consistent above average profitability in the long term. I understand why corporate executives are so focused on expansion when growth is such an important metric for assessing the value of a company. Acquisition announcements often lead to increases in a company’s stock price; it must be tempting to close a deal quickly and sort out the details later. I can see how the constant pressure for growth, combined with this narrow view of success, would lead to people making decisions that reduce coherence.

This week’s readings were full of examples of companies like Avon, Laidlaw, Oglebay Norton, and Anheuser Busch that failed to see key issues in making acquisitions. Often a company entered into what they believed was an adjacent industry and struggled because they did not realize that different capabilities were required for success in the new industry. In my experience, business leaders are often shown as men who act quickly and decisively. They react quickly to new opportunities and make decisions based on incomplete information. While I know someone will likely not have access to all the information they would like before making a decision, it was nice to read about strategists who prioritize a more thoughtful, methodical approach of not only thoroughly understanding your own company, but also whatever industry and company you are targeting.

I tried to use the principles of coherence to figure out what industry Avon should have gone into if the company wanted to expand and was a bit at a loss. One of Avon's key assets is its door-to-door sales people. These sales people are primarily women and their customers are women as well. They sell aspirational products that make people feel better about themselves and the company aims to give off the perception of caring. Could products that represent self-care like candles, bath bombs and face masks resonate with customers and sales people the way cosmetics did? Even if that were true, factors like distribution, sourcing, regulations, competitors, cost structure and vendor relationships likely differ between these industries. It must be incredibly difficult to determine what companies and industries align with your capabilities, especially when under pressure to deliver growth. While coherence is easy to grasp, it is difficult to execute effectively.