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The Essential Advantage: How to Win with a Capabilities-Driven Strategy
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16 of 16 people found the following review helpful
TOP 1000 REVIEWERon December 9, 2010
A "coherent company" is one that is resolutely focused about its "way to play", its most distinctive capabilities, and its product and service portfolio, according to this book by Paul Leinwand and Cesare Mainardi. When all three of these elements are in sync with each other and with the right external markets, the company can claim the "right to win" in the contests that matter over time.

Most companies are not fully coherent because they do not have a clearly defined capabilities-driven strategy. In response to market demands and opportunities, they start offering products and services which are not a good fit with their core capabilities, and this leads to incoherence and ultimately to reduced profitability.

The authors propose a process for an organization to make strategic choices. First, discover the available choices through market investigations; next, assess each "way to play" or market positioning option, and what capabilities are required for each to succeed; then, choose a direction, a single way to play and a capabilities system as the basis of the ongoing strategy; then, set out to transform the organization by building and deploying the necessary capabilities and divesting the unnecessary ones; and finally, evolve into an organization that can stay coherent over time.

The Boston Consulting Group Matrix divides a company's businesses into stars, cows, dogs and question marks, depending on market share and market growth. However, many companies have not found the BCG recommendations (milk the cows to fund the stars while divesting the dogs) to be entirely realistic. This book proposes that alignment with organizational capabilities is more important than relative market share or even market growth, so that it may sometimes be more profitable to keep dogs and divest stars. Many companies flourish in static markets while many others flounder in growing markets.

The book is well written and easy to read and understand. I found the authors' ideas quite compelling. I expect that most companies will ignore their advice, but those that do follow the advice may well gain a substantial strategic advantage.
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12 of 13 people found the following review helpful
on November 17, 2010
"Essential Advantage" follows the book "Cut Costs - Grow Stronger" but really expands the scope to demonstrate how identifying, honing and applying your business capabilities not only is the right way to cut costs, but also the best way to approach growth strategies and M&A. This book has been revelatory to my business, because it identifies that the steps I am now taking to reduce costs and restructuring the key business streams can later be expanded while contemplating growth opportunities. Theoretically, the book does have some parallels to "Competition Demystified" by Greenwald, but given the author's deep business experience, it is a more actionable and broader study of business strategy. I read the Kindle edition of the book and am excited to put these thoughts to work.
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8 of 8 people found the following review helpful
on February 20, 2011
In this thought provoking book, Paul Leinwand and Cesare Mainardi argue that the essential advantage in business is coherence, all other forms of advantage that a business can enjoy are transitory, and provide their prescription for how a business can become strategically coherent.

In order for a business to become strategically coherent three factors need to come together, according to Paul Leinwand and Cesare Mainardi.

1. A business must have a clear way to play i.e. a considered approach for creating and capturing value in a particular market, in a way that differentiates it.

2. A business must have three to six mutually reinforcing capabilities i.e. a capability is the ability to reliably deliver a specified outcome that is relevant to the business.

3. A businesses products and service must fit its capabilities and way to play.

In essence, a strategically coherent business identifies its underlying value creation mechanism (i.e. what it does best) and the opportunities to meet the market effectively, and makes a choice that fits them both together into a coherent strategic position.

Companies that are strategically coherent reap a coherence premium in four specific, observable, ways.

1. Effectiveness: a renewed emphasis on, and continuous improvement of, their most relevant capabilities.

2. Efficiency: they obtain more value from their products and services, as they apply their capabilities across their products and services.

3. Focused investment: more efficient use of the businesses resources, attention and time i.e. the business spends more of its effort where it is needed the most.

4. Alignment: the business commits to a strategy and articulates it clearly. This provides everyone in the business with a common basis for the day-to-day decisions that they make.

Companies that are strategically incoherent reap a penalty, in the form of poorly used and wasted resources.

I am doubtfully about the authors' argument that coherence results in an permanent advantage. The authors appear to unwittingly contradict themselves, by providing examples in the book of where changes in the environment and/or competitors actions have resulted in a business having to change its way to play and its supporting capabilities. I suspect the authors would argue that coherence doesn't mean a business adopts a single strategy forever. It means a business continually refines and amends it strategy to remain coherent. My retort is that this is argument is a fallacy, because they are equivocating about what they mean by permanent advantage. This flaw does not, however, undermine the essence of the book, which is that a business that is strategically coherent business has a significant advantage over it competitors.

From my perspective (a policy analyst in the Strategy Directorate of New Zealand's Ministry of Agriculture and Forestry) I am interested in how applicable this theory is to New Zealand's biosecurity system, food safety system and its agriculture policy. Because the theory is targeted at business, it is directly relevant to New Zealand's processing companies e.g. Fonterra, the meat companies. I can also see that much of it could be applied to the different sectors in New Zealand's primary industries. Consequently, it provides my directorate with another method to analyse the performance of processing companies and the different sectors in New Zealand's primary industries. Finally, many of the concepts are relevant to MAF as an organisation. Consequently, I recommend this book.
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6 of 7 people found the following review helpful
VINE VOICEon January 25, 2011
The Essential Advantage is a good business book, providing a different perspective on strategy, corporate development and business operations. The book ostensibly is about being capabilities driven organization, but in reality the books main theme is coherence rather than capabilities. Its central argument is that firms who are, in the author's words, 'resolutely focused and clear minded about their market position, distinctive capabilities and product and service portfolio' will outperform those that are not.

The authors use the idea of coherence to revisit major enterprise decisions ranging from corporate development to cost cutting and M&A. The book is filled with solid advice based on this idea that you need to stick with what you are good with. Recommended reading, but not drop everything and read this book, which is what someone told me to do.

This book is really about coherence and not about capability, so people looking for an update on how to apply resource based theories of competition will be misled by the title. The authors do talk a bit about capabilities and resources, but that is only as a path to achieve coherence. The principle framework is about coherence and how you align "the way you play" (read go to market) with your products and services with your capability system (read operations). I can understand that is hard to write a book, whose basic advice is be consistent and coherence, but that is the fundamental advice throughout the book.

The book is divided into four parts along the major lines of coherence.

Part 1 provides evidence that coherent companies - those with greater focus - perform better than their peers. It also talks about how you create a capabilities-driven strategy is based more on go to market strategies than a resource base.

Part 2 concentrates on elements of a capability driven strategy with particular focus on the need to know which are the four to six capabilities you use to win in the marketplace. These capabilities form the `capabilities system' that is part of the framework used throughout the book.

Part 3 Creating value discusses how to apply these systems to different growth situations including organic growth, M&A, and cost cutting/focus. The principle is the same coherence/focus wins out.

Part 4 Living coherence every day finally discusses a process by which you create a new way to play and capabilities.

Overall, this is a solid book, giving good advice, but it is a book about go to market strategies and coherence not capability. That is ok, because you need capabilities to achieve both, it is just that finding solid and actionable advice on capabilities is challenging.

The book is recommended for people who find themselves at companies doing 1,000 things and none of them very well. It is also recommended for managers who are tired of old, finance based ways of thinking and acting and want to focus more on how you actually win in the marketplace.

Strengths

* Effective use of case studies to illustrate how coherence drives financial, operational and strategic advantage. The write up regarding how Wal-mart refocused in the mid 2000's is particularly insightful. One drawback is that many of the case examples are older than 5 years suggesting that these ideas may not be current best practice.

* The authors provide counter-intuitive advice and use the way to play and coherence to back up their thinking. This is helpful, particularly in discussions about cost cutting, market focus, etc, as for some reason executives often fail to see the capability based implications that are obvious to line management and executives.

* A consistent use the term coherence and describing things in those terms as the book could have easily chased just about every idea in strategy, but it was coherent itself.

* Focus, the book is tightly written in around 200 pages with a clear message, good stories and just enough detail to let you know that the authors how what they are talking about and the advice is sound.

Challenges

* The book honest in the fact that it borrows and recasts many ideas originally advanced by others, most notably Hamel and Prahalad. This is fine and the references are a sign of good scholarship and anchoring the reader back to other proven ideas. However, it creates a challenge regarding what is new here. Being coherent and having a strong go to market strategy are important ideas, but hardly new.

* The book makes little account of current context or the realities of current capability sets. There is no substantive mention of technology - the groundwork for much capability evolution and innovation, nor is there much recognition of globalization on the supply chain side. Given that these are two major forces influencing capabilities, they are conspicuous by their absence.

* The authors place an emphasis on chapter 10, the capabilities driven roadmap throughout the book as the place where all the how to questions will be answered. Unfortunately chapter 10 occurs too late in the book, it would have been better as part 2, so by the time you get there your expectations are so high that its bound to be ok, but not bring everything together.

Overall, this is a solid business book, good but not great. The book is helpful but a four-star business book as it is a book about coherence more than capability. The concept of capabilities and how you manage an organization based on them is powerful and this book does a good job of suggesting how they influence strategy.
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2 of 2 people found the following review helpful
According to Paul Leinwand and Cesare Mainardi in the first chapter, to achieve and then sustain a competitive advantage, a company "must be resolutely focused and clear-minded about three critical elements: its market position (it's chosen `way to play,' if you will); its most distinctive capabilities, which work together as a system; and its product and service portfolio. In a coherent company, the right lineup of products and services naturally results from conscious choices about the capabilities needed for a deliberate way to play." There are no head-snapping revelations in this book, nor do Leinwand and Mainardi make any such claim. Their purpose is clearly stated: to help their reader to take deliberate steps --- "to reconsider your current strategy, overcome the conventional separation between your outward-facing and inward-facing activities, and bring your organization into focus." After briefly identifying the "what," they devote most of their attention to the "how" and "why" of formulating and then executing a capabilities-driven strategy.

For example, in Parts I and II, they explain:

o The essence of competitive advantage
o How to achieve it
o How to sustain it
o The three elements of coherence
o How to develop each
o How to coordinate all three
o What the "coherence premium" and why it is so valuable
o The right "way to play" (i.e. compete)
o The structure of the capabilities system
o The elements of a capabilities-driven strategy
o How to achieve and sustain a product and service fit

They continue the same approach throughout the remainder of their lively and eloquent narrative. In Part III, they explain how to create value; in Part IV, they explain how to "live coherence every day." As noted earlier, Leinwand and Mainardi establish and then maintain a direct, personal rapport with their reader. They cite dozens of real-world examples of capabilities-driven companies that include Coca-Cola, Cisco Systems, Microsoft, Apple, P&G, Herman Miller, Nordstrom, IBM, and Whole Foods. I was especially interested in what they have to say about the leadership qualities are required.

The word "coherent" is one word that comes to mind when CEOs such as A.G. Lafley (P&G) are mentioned: "They have learned to generate excitement and inspiration in a world of ruthless choice...When they go, they leave behind a company that is stronger, more capable, and more coherent than it was before; a company with a solid way to play and a capabilities system that enables people to grow; a company that is primed to create value, wealth, and quality of life for decades to come. In business, this is the most powerful legacy."

As Leinwand and Mainardi would be the first to point out, it would be a fool's errand to attempt to adopt or even adapt all of the information, insights, and recommendations they provide in this book. However, I am convinced and do not hesitate to suggest that the leaders of almost any organization (whatever its size and nature may be) can use their system framework to select a set of integrated capabilities that are most appropriate for their organization, one that will enable it to create value in the path it has chosen. Leinwand and Mainardi cannot make those decisions for them. However, they - and do, in this book - offer guidance to assist that decision-making process.

One final point I presume to add: Capabilities improvement is a never-ending journey, not an ultimate destination. An increase of capabilities must be accompanied by an improvement of the talents, skills, and resources needed to apply those capabilities. The most effective strategies are results-driven as well as capabilities-driven. If the road to hell is paved with good intentions, the road to failure in business is paved with "nice tries." I agree with the Jedi Master, Yoda: "Do or do not. There is no try."

If you visit [...]t, you can to check out a wealth of resources that include a BBC World Business recording of a conversation during which Paul Leinwand and Cesare Mainardi talk to Peter Day about their book, The Essential Advantage.
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1 of 1 people found the following review helpful
The Essential Advantage: How to Win with a Capabilities-Driven Strategy, by Paul Leinwand and Cesare Mainardi, partners at Booz & Company (the publisher of this magazine), provides a solid overview of current strategic thinking. The two consultants open the book by introducing the intriguing concept of "the right to win." At first glance, the phrase makes no sense: A company may have a right to compete, yes, but surely not a right to win. Success is earned; it's not an entitlement. But that's the point. The phrase forces us to ask: Does our strategy, along with the resources and capabilities that back it up, give us a reasonable chance of success? Are we just playing the game, or do we have what it takes to win?

When Leinwand and Mainardi write, "The essential advantage in business is coherence. Our insight is that simple," they take their place in the line of strategic thought that stresses not a single part of the organization, but how all the parts work together -- a notion sometimes called fit or alignment. Coherence, they say, means that a company must be focused and clear-minded about three elements: its market positioning (or "way to play"), its most distinctive capabilities, and its product and service portfolio. "In a coherent company," they argue, "the right lineup of products and services naturally results from conscious choices about the capabilities needed for a deliberate way to play."

The authors ground their argument by showing a correlation between recent financial performance and coherence in the consumer packaged goods industry, and claim that the same relationship holds true across industries, whether financial services, telecommunications, healthcare, or something else. They contend that a premium "accrues to any company that moves along the continuum to align its way to play, capabilities system, and product and service fit." Perhaps so, yet even if there is a correlation, the direction of causality isn't clear. Are coherent firms more successful than others, or do successful firms remain coherent? (One of the books the authors cite, Profit from the Core [Harvard Business School Press, 2001] by Chris Zook, a partner at Bain & Company, has the same problem: Are focused companies the most profitable, or do profitable firms remain focused while less-profitable ones feel compelled to diversify?) These questions, although fundamental in any empirical examination of company performance, remain unanswered.

To capture the benefits of coherence, the authors advise the reader to take a series of deliberate steps "to reconsider your current strategy, overcome the conventional separation between outward-facing and inward-facing activities, and bring your organization into focus." The Essential Advantage goes on to examine each of these steps in some depth, beginning with an exploration of external forces, and then shifting toward a consideration of internal resources and capabilities. Along the way, the authors set forth the notion of the "capabilities-driven portfolio," which is evaluated on two dimensions, financial value (from attractive to unattractive) and strategic value (which considers the portfolio's alignment with the organization's capabilities system). The implication is that we should think of a portfolio of activities not merely in terms of growth and profit, but in terms of how they fit together and contribute to the overall performance of the company. The final section addresses the process of developing a strategy that is based on "what you do, not what you have," and the organization design and people issues that accompany it.

For the practitioner who wishes to take concrete steps toward sound strategic decisions and ensure that they are aligned with the necessary resources, The Essential Advantage is a solid and practical book. It provides managers with a framework to follow, while always keeping in mind the question, Do we have the right to win?
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1 of 1 people found the following review helpful
on March 17, 2011
The title provided excellent input on the positioning of an organization's in place and natural competitative resources on which to build for the future. By stressing organizational coherence, distinctive capabilities, and products and services provide a clear pathway to success.
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1 of 1 people found the following review helpful
This business book is well worth the read, helping to identify what can really help a business succeed or fail.
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8 of 12 people found the following review helpful
Disappointed.

Bucket load of theory. Read through a pile of useless information to find a gem of advice. Never found it. In my opinion to operate a successful company you need to fully understand your own business, the market you operate in, your competitors, and then structure your marketing campaign to your target audience. This book took me on a fantasy ride of the writers ego. No value.
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on January 19, 2014
Talks about very strong concepts that we usually don't pay attention to when it comes to business strategies.

Recommended for high level managers and directors.
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