I Don't Believe in a Coherence Premium

“The Coherence Premium” article by Paul Leinwand and Cesare Mainardi seemed like a rehashing of basic concepts. “A company becomes coherent only when its capabilities system is consciously chosen and implemented to support a focused strategic purpose, or way to play, and is aligned with the right product and service portfolio.” Leinwand and Mainardi make sense, however, their idea that failure in business lines is due to an incoherence of their capabilities does not check out with me.

Most would say that a company should not jump into a market where they do not have the support needed for success and if they do, the decision-making process was clearly flawed. Examples of losers, such as Sara Lee, seemed almost too obvious unless they were aiming to model the Hanes underwear on there baked buns (sorry, I couldn’t pass up a joke here). To me, this sounds more like a lack of acquisition due diligence, than not understanding Sara Lee’s core competencies.

Further, there is no acknowledgment of where capabilities start, and winners are profiled as if their capabilities appeared at the snap of a finger. Take the Walmart example. Their strategic purpose is to deliver “everyday low prices” to consumers. Why? Is it because there were already pre-existing capabilities that allowed them to do this, or did they build up these capabilities? Walmart doesn’t create the desires of consumers. So what if they have the capability to offer the lowest prices on pet food condiments; it doesn’t mean there will be any demand for it (yes, that is a real product). My point is that Walmart’s capabilities are not static but fluctuate with consumer demand.

Businesses that understand their core capabilities and utilize it to their strategic advantage undoubtedly perform better. However, I argue that companies do not understand their core competencies and fail to use them to their advantage, but have poor decision-making processes. After working for an investment bank that was spread across every possible sector of the financial market, I do not believe that coherence to only what you do best is a strategy to grow.