In “The Coherence Premium”, featured in the June edition of the June Harvard Business Review, Booz & Co’s Paul Leinwand and Cesare Mainardi advance the idea that strategy should start with recognizing what your firm does well that customers value and that competitors can’t eclipse and then building a core set of best-in-class capabilities to uniquely deliver on those products/services. If done well, the authors contend, the market will reward the company with higher growth and returns.
The three elements to deriving a company’s “Right to Win”:
- Way to Play – organizational alignment around the company’s value proposition
- Product and Service fit – portfolio alignment around the enabling core capabilities
- Capabilities System – the “engine of value creation is the 3 to 6 capabilities that allow companies to deliver their value proposition”
Great examples are provided in Walmart and the consumer health business of Pfizer (positive examples) as well as Anheuser-Busch and ConAgra Foods (not so positive). Interesting chart correlating their “Capabilities Coherence Score” and EBIT.
It’s a very clean approach which is intended to create value for the corporation in the following four ways:
- Strengthens competitive advantage by continually enhancing capabilities (employees and systems)
- Focuses strategic investment (organic and inorganic)
- Produces efficiencies of scale, leveraging capabilities across a “coherent”portfolio
- Creates alignment between strategic intent and day-to-day decision making
“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 intense pressure for top-line growth and chase business in markets where they don’t have the capabilities to sustain success. Their growth emanates not from the core but from the acquisition of apparent “adjacencies” that are often anything but…”
Powerful idea, aligning your company’s “strategic capabilities system with the right marketplace opportunities”.