Starting a business and developing a strong strategy is no easy task. Many businesses enter their respective markets by looking at the companies that succeeded and ignoring the companies that failed. They look externally and forget to look internally. This tends to be a mistake as there is much to be learned from mistakes and focusing on what it does best. As Paul Carroll and Chunka Mui observe in their article Seven Ways to Fail Big, companies are capable of learning from failure when provided with the right incentives.[1] It seems like taking an internal look at your organization is one of the most beneficial things a company can do because it helps to determine core coherence capabilities and avoid costly mistakes.
An internal organization analysis can help a company get a better grasp on their coherence capabilities leading to a more effective strategy. Many companies get too wrapped up in the external. Paul Leinwand and Cesare Mainardi write, “most companies don’t pass the coherence test because they pay too much attention to external positioning and not enough to internal capabilities. They succumb to pressure for growth and chase markets where they cannot sustain success.”[2] When a company is more in tune with their coherence, this can often lead to greater success. One interesting example of this is Kingsford Charcoal. When sales of charcoal became stagnant due to its seasonality, Kingsford de-emphasized its product innovation and traditional marketing. Instead, Kingsford opted for consumer events, promotions, and partnerships with other food and beverage companies.[3] As a result, coherence increased, and the company grew. It can be difficult to make a decision about what not to do but this can help lead to more success.
Taking an internal look at the organization can also help to avoid costly mistakes. When a company has strong levels of coherence, they know what they do best, design three to six core capabilities, and are disincentivized from making costly mistakes such as the synergy mirage, wrong bets on technology, roll-ups, and entering markets where the company cannot succeed. This idea of coherence is critical to having the ability to craft an effective and strong strategy. When a company has reached a significant level of coherence, strategy tends to align with the distinctive capabilities and the right market opportunities.[4]
An important aspect of any company’s strategy should be taking time to conduct an internal organizational analysis. When this is conducted effectively, a company can better determine what is does best and what it should no longer do. It will also help a company avoid mistakes that could be costly and, in some cases, cause a company to fail.
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