The coherence premium

Main idea

The superior returns achieved through a strategy that matches the company’s core competencies with the right market opportunities. The main message: Companies should focus more on what they do best and match these capabilites with market opportunities. Often, they pay too much attention to external positioning and not enough to internal capabilities

Coherent company

A company that successfully aligns its internal capabilities with correct market positioning.

Capability

Something you do well that customer value and competitors cannot beat

Coherence

A Coherent company is a company that successfully aligns its internal capabilities with correct market positioning. Capability is something you do well that customer value and competitors cannot beat. Most companies, however, are not coherent and it is rare for a strategy to even mention internal capabilities. Although reading market signals and identifying market opportunities is critical, the marketing strategy should be in correlation with internal capabilities.

However, individual capabilities cannot generate the coherence premium. In order to become coherent, a company needs to choose its system of capabilities, implement these capabilities to support the strategy, and align the systems with a suitable product and service portfolio

Coherency can provide clear answers to the following questions

• How to face the market?

  —> In a coherent company, executives, managers and employees at every level understand how the company creates value for its customers. They are broad enough to allow flexibility and growth and narrow enough to focus strategy and decision-making

• What capabilities are needed

  —> The value creation system should have 3-6 key capabilities

  —> Mutually reinforcing capabilities are desireable

• What to sell and to whom?

  —> Product/service offerings, capabilities and the strategic purpose, also known as “the way to play” are aligned

  —> Products that require different capabilities are terminated

  —> The external market is continually scanned for new opportunities that leverage the capabilties’system

  —> In-depth expertise in just a few areas is supported by everyday decision-making

Coherence leading to high profit

1. Coherence helps to build competitive advantage

2. Coherence focuses strategic investments on the right target and reduce waste

3. Coherence builds efficiencies of scale. This means that companies can spend more wisely and grow more easily when they deploy the same capabilities across a larger array of products and services

4. Coherence helps to align decision-making processes with strategic intent, causing companies to execute better and faster during chaotic times as everyone understands what is important