Understanding and maintaining business coherence across these different aspects can help companies strengthen their competitive advantage.
Business Model Coherence: This refers to a company's adherence to a certain business model type that logically connects strategic resources with a specific market position. Business model coherence refers to how well a company aligns its internal capabilities with its external market position and adheres to a specific business model type. It's important to note that business model coherence is positively associated with firm performance. Companies with higher business model coherence tend to perform better than their industry peers.
Business Capability Coherence: This involves aligning a company's differentiating internal capabilities (strategic resources) with the right external market position (strategy). Companies that focus on developing best-in-class, interlocked capabilities can achieve sustainable, superior returns. So the business management should make an assessment, and develop a coherent set of necessary and unique capabilities, and each of these capabilities may be combined in different fashions to yield multiple competencies based on multilayered and integral business capabilities.
Strategic Coherence: This type of coherence creates alignment between strategic intent and day-to-day decision-making, enabling companies to execute better and faster because everyone in the organization understands what is important. Digital coherence is the decisive factor for the success of business strategy implementation and how well organizations can take the step-wise approach to make the digital change, continual renewal, and build a long-term winning position of the business.
Operational Coherence: This refers to the efficiencies of scale a company can achieve when it deploys the same capabilities across a larger array of products and services.
Investment Coherence: This type of coherence focuses strategic investment on what matters, enabling companies to make better investment decisions and pursue acquisitions that are in line with their capabilities.
In the context of mergers and acquisitions (M&A), companies with high coherence scores tend to be more deliberate in their acquisition strategies. They often identify potential incoherence issues early in the acquisition process and establish mitigation strategies to maintain or create coherence after the acquisition. Understanding and maintaining business coherence across these different aspects can help companies strengthen their competitive advantage, focus their strategic investments, produce efficiencies of scale, and create better alignment throughout the organization.
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