Organizations, like people, are creatures of habit. There’s something comforting about doing the same thing day in and day out. But if you put off until tomorrow the changes you ought to have made today, you inevitably fall out of step with your surroundings and suffer the consequences.
We all know people who seem as though they’re stuck in a time warp—and the history of business is littered with companies, like Kodak and Palm, that were unable to break with their own past, especially in cases where that past has been successful. It’s not that they didn’t try. They just couldn’t make it work.
Paul Leinwand and Cesare Mainardi, two partners at Booz & Company, suggest that these companies fail because they try to change what they do, and not who they are. They fault them for paying “too much attention to external positioning and not enough to internal capabilities.” In other words, even though Kodak introduced digital cameras, at heart it remained a film company with the capabilities of a film company.
This insight, developed in their Harvard Business Review article, “The Coherence Premium,” published in June 2010, has been useful to me as we think about our future. And it’s worth sharing.
Building Our Core
The insight that Leinwand and Mainardi bring to the table is straightforward. They write: “The pressure to grow the top line is so intense that most companies pay too much attention to expansion and not enough to building differentiating capabilities. A few companies start from the opposite direction: They figure out what they’re really good at, then develop those capabilities (three to six at most) until they’re best in class. For them, strategy becomes a matter of aligning what they do well with the right marketplace opportunities—and the market rewards them with sustained superior returns.” They call this the “coherence premium.”
There are a number of lessons I took from these observations as we developed our latest strategic plan at XO. Our core capability, of course, is technological expertise. A decade ago, our customers wanted wireline TDM technology, and we supplied it. But at the time, we also had the foresight to build an IP-based infrastructure to support a future where all services would be IP-based. Now that customers want wireless, IP, intelligent networks and cloud-based solutions, we have the expertise to deliver those services. As the great one, Wayne Gretzky said “I skate to where the puck is going to be, not where it has been.” It’s been useful for me to be reminded that expertise, not a specific technology, is what is critical to us.
Another capability—one that we must consciously develop—is customer service. Our goal is to deliver the greatest level of service available in the telecom industry. We see this as a differentiator because, as most telecom customers know, delivering an exceptional customer experience is difficult to achieve. Also, many of the services in our industry are commoditized, so you have to compete beyond just price and differentiate through customer experience. “Being easy to do business with” is how we define operational excellence, and our challenge is to figure out how to convert aspiration into action.
A third capability is marketing excellence. Our goal is to have the tools in place that will help us understand our customers’ requirements at a deeper level and deliver high-value solutions. Put these three related capabilities together, and we have the framework for a coherent organization.
Focus, Discipline, Simplicity
Everyone in business knows that creating a coherent company isn’t always easy. To do that requires focus on our core capabilities, taking a disciplined approach to the market (i.e. what you sell, how you sell, to whom and at what price), and a willingness to simplify, which makes it easy for customers to do business with you.
At the same time, we also know that coherence gives us staying power. Any company has, at best, a limited view into the future. By developing an interlocking system of capabilities—by building our core—we maximize our flexibility to adapt to whatever the future brings.
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