Is Your Firm Competing with Itself?
By Tim Williams
Unless your firm has a business strategy that is crystal clear to every single associate, you are likely wasting valuable resources supporting multiple competing directions.
As the iconic David Ogilvy observed decades ago, a brand is meant to stand for one thing. The strongest brands don’t have a “multi-directional strategy” — they have a laser-like focus that features a well-defined product or service targeted to a well-defined market. This applies not only to consumer-facing brands, but to professional service brands like yours.
Rowing in different directions
Contrast this fundamental aspect of brand strategy with the way most agencies define themselves: “Full-service, serving a wide variety of clients.” The problem is, a firm that works in many different business segments not only lacks deep expertise in any one of them, it is also obliged to devote talent and money in many dissimilar directions.
While one internal team is trying to build a reputation in healthcare, another team is trying to do the same in retail. These teams compete for the attention and support of top management. They each are trying to build sector knowledge through subscriptions to databases and research resources. And they each complete for internal resources, most notably help with new business. In some cases, these groups even have their own workflow systems and software solutions.
The immense value of coherence
Organizations that lack a coherent business strategy are paying a huge complexity tax — money that would otherwise go straight to the bottom line. This phenomenon plays out in corporations of all types. Companies that are essentially conglomerates (many different unrelated business lines) are subject to what the investment community calls the “diversification discount,” meaning their stock is often worth up to 10% less than other companies who are focused on a core business. PepsiCo sells soda, snack foods, prepared foods, and even oatmeal. Their pre-Covid market cap was USD 133 billion. The Coca-Cola Company, focused exclusively on beverages, is worth 222 billion.
The opposite of the “diversification discount” is the “coherence premium.” Authors Paul Leinwand and Cesare Mainardi point out that “Coherent companies earn twice the profit of those that are diversified.” They go on to observe that “When your company is coherent, you don’t have to struggle to overcome the strategy-to-execution gap. There is no gap. All your products and services are supported by the same group of distinctive capabilities, serving the same value proposition.”
Beware of bloat
The goal is to ceaselessly avoid what technology companies call “feature creep” — the ongoing expansion or addition of new features in a product or service, resulting in bloat and over-complication.
Companies like Apple try to do just the opposite. Based on the theories of design developed by Steve Jobs and design director Jonathan Ives, Apple not only resists adding features to its products, it actively tries to subtract features. Today's Macbooks may be more powerful on the inside, but on the outside they have many fewer ports and plugs than their predecessors. On the newest models of iPhones and iPads, even the “home” button has disappeared.
The unfortunate truth is that just like most products today are over-engineered, most professional firms are over-designed and over-diversified. Remember, “augmentation” is just an expensive route to commoditization.
