Companies urged to concentrate on capabilities
Manama, July 22, 2010
Companies that concentrate on their capabilities rather than just follow what they think the market demands tend to reap outsized returns, according to a report by management consultants Booz & Company.
Generally, strategy development follows a well-worn path from the market back to the boardroom, focusing first on external positioning and opportunity, as opposed to internal capabilities.
The results are often disappointing, argue Booz & Company's Paul Leinwand and Cesare Mainardi in a Harvard Business Review article The Coherence Premium.
'Companies succumb to intense pressure for top-line growth and chase business in markets where they don't have the capabilities to sustain success,' they said.
'Their attempts at growth emanate not from the core but from the acquisition of adjacencies and the exploration of market opportunities that don't align properly with their central strengths.
'Many of the world's market leaders - from Procter & Gamble to Coca-Cola to Mars and its Wrigley division - wind up benefiting from a coherence premium, which is measurable and proven,' they said.
'Stand-out performers start from the opposite direction when it comes to strategy.
'They figure out what they're really good at and then develop those three to six capabilities, which can involve anything from knowledge to processes to tools, until they're interlocking and best in class - and thus form a powerful capabilities system.
'From there, strategy becomes a matter of aligning the distinctive capabilities system with the right marketplace opportunities.
'It sounds simple, but it's extremely hard to internalise. Yet the rewards for this discipline are huge.
'Unfortunately, many companies don't have a clear capability agenda at all. And those that do, often pursue capabilities, or competencies, separately from the strategy itself.
'They then wind up with a long list of competing priorities - and aren't able to support the business with the right capabilities system that is required to win,' they said.
'This phenomenon is very common within many GCC companies and was particularly apparent in the last few years,' said Booz & Company Dubai principal Ahmed Youssef.
'In pursuit of top line growth, many GCC companies have ventured into many different businesses that are not coherent with their traditional capabilities.
'As an example, a review of leading conglomerates has shown that most were involved in three or more unrelated sectors.
'Executives and shareholders of these companies were taken by the abundance of market opportunities.
'They focused on entering new sectors instead of scaling the businesses, where they have the right to win,' he said.-TradeArabia News Service