Blog 3 - Losing sight of your strategy

 

In the midst of changing market forces and external pressures, companies struggle with maintaining true to their strategy. Harvard Business Reviews articles The Coherence Premium and Seven Ways to Fail Big encapsulate this challenge. These articles also highlight the key to remaining (or becoming) successful and avoiding this pitfall is to have a firm understanding of how the company provides value to its customers, its competitive advantage, and aligning it with all internal operating decisions, across business units and product lines.

 

Reinhold Jewelers is known within the jewelry industry as the ‘house of designer jewelry’ and its founder the ‘mother of designer jewelry’. The company has fostered the growth of up and coming designers – giving them shelf space next to world renowned brands and introducing them to a large and wealthy customer base. Their competitive advantage lies in providing their clients with a jewelry selection of over 40 designers and the confidence to try new artists knowing the quality is guaranteed. While the customer base that could afford Reinhold’s jewelry was limited, the company was positioned in the market as an exclusive group which clients were excited to join.

 

As Reinhold grew and added new voices and backgrounds to its leadership, it began to delineate from its competitive advantage. The company overestimated its and became overly optimistic about their ability to perform in other market segments, a common pitfall which Seven Ways to Fail Big calls a ‘recipe for disaster’. Reinhold began selling a designer named Tous that was lower in price, slightly lower in quality, and more uniform in its designs. It sold incredibly well to a completely new customer base. The company eventually secured the franchising rights for Tous and opened up over eight stores in less than a decade. Tous had an incredibly different capabilities system. Pieces were purchased in bulk. Marketing relied on newspapers and billboards rather than VIP promotional events and high-end magazines. By acquiring Tous, Reinhold failed its coherence test.

 

There were such drastically different ways of selling, buying, and managing the different merchandise, employees, and stores, that it attracted two completely different groups of upper management with differing values and management styles. In times of economic downturn, capital was strained to invest in both Tous and Reinhold. This was exacerbated by the rise of Pandora stores on the island which ate into Tous’ customer base. Reinhold had been offered to buy the franchising rights for Pandora, but the CEO and Founder declined the opportunity, on the basis that it just wasn’t ‘who they were’, even though half of the company, was indeed just that. Eventually, the CFO of Reinhold left to later on purchase the remaining Tous stores.

 

I believe one key question, if considered seriously, could have prevented this initial divergence: “Is this a realistic strategy for long-term success?”.  In answering this question, Reinhold’s leadership team would have realized this acquisitions’ inevitable failure. The most successful companies could fall victim to the same traps, and should seriously consider its coherence premium beforehand.