‘The Coherence Premium’ by Paul Leinwand and Cesare Mainardi, Harvard Business Review, June 2010

This article is written by senior people of the well-regarded (but amusingly named) management consultants Booz & Company. As I read it I found myself agreeing with much of what was said but also thinking - haven’t we heard all this somewhere before? For instance, from Tom Peters who said ‘stick to the knitting’ and Hamel & Prahalad who said ‘focus on core competences’. My assessment of the article is therefore based on whether there is anything original, which is not too much to expect after the many articles on strategy that have been written over the years.

The basic argument is that companies spend too much time looking at their external positioning and not enough at their own capabilities. They follow market trends to achieve growth and allow this to take them into areas that are outside their capabilities; they develop strategies that do not focus on capabilities. The desire to focus on the present and future needs of customers takes them away from their core business.

At this stage the article was clearly failing the ‘what’s new?’ test and the authors confirmed this by admitting that it was merely restating Hamel & Prahalad’s core competences argument. Their allegedly new approach is based on the argument that the successful companies are those whose strategy is coherent with capabilities, who know how they create value for customers and have capabilities that are ‘what we do better than anyone’. This is the only way that a company will produce superior returns to shareholders.

The article then provides examples of winners and losers, which is usually a good test of whether thinking is clear. I was certainly convinced by the losers, companies like Conagra and Sara Lee who had tried to achieve growth through acquisitions in a wide range of unconnected sectors; but Tom Peters could have told us that this was wrong thirty years ago. The first example of a winner is Walmart who apparently have four key capabilities that they deliver better than anyone else and thus achieve the lowest everyday prices. It is hard to argue with this but you could also say that their success starts from identifying what the market demands and developing their capabilities to match; it is hard to see Walmart developing their four capabilities without looking at the market. The argument then becomes all about ‘chicken and egg’ rather than providing new insights.

At this point I finally became convinced that this article is just a recycling of old theories with different words and it surprises me that the Harvard Business Review allowed a firm of consultants to feature in this way, knowing how hard it is to find space in this most highly regarded management publication.

The ‘coherence premium’ is merely restating something that we all should know by now; that you make money by matching core competences with a need in the marketplace and this will only deliver value if you have competitive advantage.

To read this article go to:
http://hbr.org/2010/06/the-coherence-premium/ar/1