This document discusses operational tradeoffs and sustained competitive advantage. It defines key terms and summarizes several studies and cases. The main points are: 1) Sustained competitive advantage requires making real operational tradeoffs; 2) Tradeoffs exist between dimensions of cost, quality, flexibility and lead time; 3) Firms focus on 1-2 capabilities to gain an advantage while compromising elsewhere; 4) Tradeoffs persist even with advanced technology and exist at multiple levels of operations.
2. Key Terms
Sustained Competitive Advantage:
◦ A competitive advantage that is not easily
duplicated by competitors and can be
maintained over a long period of time.
• Russell and Taylor, Operations and Supply Chain Management Eighth Edition
• "What Is Sustainable Competitive Advantage? Definition and Meaning.“ BusinessDictionary.com, Web
Finance, Inc., n.d. Web. 12 June 2014. <http://www.businessdictionary.com/definition/sustainable-
competitive-advantage.html>.
3. Operational Tradeoffs
The view that operational systems cannot
simultaneously excel on all dimensions of
value, where value is defined in terms of
cost, lead time (delivery), quality and
flexibility, and compromises must be made
on one or more of the remaining
dimensions.
Fundamental to improvement in operations.
Overcoming trade-offs requires managers to
use creativity to gain competitive advantage.• LeSeure, Michael. "Trade-offs." : SAGE Knowledge. SAGE Publications Ltd, 31 May 2012. Web. 12 June
2014.
• Slack, Nigel, Stuart Chambers, and Robert Johnston. "Chapter 18: Operations Improvement." Chapter 18:
Operations Improvement. Pearson Education, Inc., n.d. Web. 12 June 2014.
<http://wps.pearsoned.co.uk/ema_uk_he_slack_opsman_4/17/4473/1145126.cw/index.html>.
Key Terms
4. Pagell Article Main Points
The closer one gets to the productivity
frontier, the more likely one will
experience operational tradeoffs.
Looking at the entire system of a firm,
trade-offs can be seen that may have
gone unnoticed by viewing a segment of
operations.
Mark Pagell, S. M. (2000, May/June). Do Trade-offs Exist in Operations Strategy? Insights from the Stamping
Die Industry. Business Horizons, 69-77.
5. Harvard Business School Professor, Michael Porter
argues that sustained competitive advantage is gained
by:
• A unique competitive position
• Clear tradeoffs and choices versus
competitors
• Activities tailored to the company’s strategy
• A high degree of fit across activities
• A high degree of operational effectiveness
Michael Porter Main
Points
6. Boyer and Lewis Study
Study found that even in the context of
advanced manufacturing technology
and extended asset frontiers, trade-
offs still exist.
◦ Plants increasingly consider all four value
dimensions vital for competitive success,
but focus on one to two capabilities at a
time.
Kenneth Boyer, M. L. (2002). Competitive Advantage: Investigating the Need for Trade-offs in Operations
Strategy. Production and Operations Management, 11(1), 9-20.
7. Squire Study
Mass customization was assumed to
eliminate trade-offs.
The study suggests that product
customization is not “free.”
Found that trade-offs remain between
customization and manufacturing
costs and delivery lead times.
Brian Squire, S. B. (2006). The Impact of Mass Customization on Manufacturing Trade-offs. Production and
Operations Management, 15(1), 10-21.
8. Da Silveira and Slack Study
Study found that in practice managers view
trade-offs as a central part of their job.
Study concluded:
◦ Manufacturing trade-offs exist.
◦ Manufacturing trade-offs are seen as
compromises between competitive objectives.
◦ Trade-offs are easier to see in less complex
systems.
◦ Trade-offs are dynamic.
◦ Trade-offs can be improved but not eliminated.
◦ The relative importance of trade-offs will vary
between companies.
◦ The importance of trade-offs are determined by
external factors.Giovani Da Silveira, N. S. (2001). Exploring the Trade-off Concept. International Journal of Operations &
Production Management, 21(7), 949-964.
9. Klassen and Menor Study
Study explored the extent to which
fundamental trade-offs between
capacity utilization, variability and
inventory (CVI) generalize to complex
operations and business systems.
Found that CVI trade-offs occur at
multiple levels of operating and
business systems.
“…Trade-offs must remain a
management priority.”
Robert Klassen, LM. (2007). The process management triangle: An empirical investigation of process trade-
offs. Journal of Operations Management. 25, 1015–1034.
10. Coca-Cola
Consumers want more choices. Coca-Cola is committed to
generating new avenues for growth with their core brands and
throughout their portfolio. They are also committed to
continuing to expand the variety of choices to meet consumer
need.
As the world’s largest beverage company, Coca-Cola strives to
meet the highest of standards in both product safety and
product quality.
Coca-Cola works to ensure consistent safety and quality
through strong governance and compliance with applicable
regulations and standards.
Coca-Cola is the world’s largest beverage company. They own or
license and market more than 500 non-alcoholic beverage brands.
Coca-Cola is welcomed by consumers in more than 200 countries.
Focus on Quality and Flexibility with a Tradeoff of
Cost
http://assets.coca-colacompany.com/d0/c1/7afc6e6949c8adf1168a3328b2ad/2013-annual-
report-on-form-10-k.pdf
11. Walmart
• Customers choose Walmart for broad assortment at everyday low
prices.
• Walmart uses low cost with flexibility as their winning formula in
continued market share gains.
• To succeed in investing in price Walmart focuses on advancements
in logistics and store operations to continue to reduce cost and
improve productivity.
Focus on Cost with a Tradeoff of Quality
In fiscal year 2014, Walmart U.S. attracted nearly 140 million weekly
shoppers and delivered net sales of more than $279 billion, an
increase of $5 billion, or 1.8 percent, from last year. Focus on cost
discipline helped drive a 4 percent operating income growth, more
than twice the rate of sales, despite a 0.6 percent decline in
competitor sales.
http://cdn.corporate.walmart.com/66/e5/9ff9a87445949173fde56316ac5f/2014-annual-
report.pdf
12. Apple
• Apple CEO hints bigger iPhone screen may come when 'trade-
offs' can be avoided.
• To avoid poor quality Apple chose to not increase the size of the
display screen on iPhones.
• Apple’s main goal in developing the iPhone’s screen is to provide
the highest quality display for users.
• Competitors are producing jumbo-sized displays but are
sacrificing quality, color reproduction, power consumption, and
longevity.
Focus on Quality with a Tradeoff of
Flexibility
Apple designs, manufactures, and markets mobile communication and
media devices, personal computers, and portable digital music
players, and sells a variety of related software, services, peripherals,
networking solutions, and third-party digital content in applications.
http://appleinsider.com/articles/13/04/23/apple-ceo-hints-bigger-iphone-screen-may-come-when-
trade-offs-
can-be-avoided
13. Proctor & Gamble
Focus on Quality/Flexibility with a Tradeoff in
Cost
Quality of goods and different brands among product lines offer consumer
choice and flexibility of markets and brand loyalty
Supply Chain Management network is a core competency focusing on
tried and proven products that are innovative, well-established and
accepted
Company cut profit forecasts three times in 2012 as sales growth slowed,
limiting the stock’s gain in the last five years to just 2.6 percent
Recognizing the necessary and profitable trade-off, P&G
now leads the way in initiatives to trim product lines to cut
expenditures in manufacturing, distribution, and promotion
Procter & Gamble Co., also known as P&G, is an American
multinational consumer goods company with over $84 billion in annual
sales. Its products include pet foods, cleaning agents, and personal
care products with brands including Bounty, Dawn, Crest, Tide, and
Pampers.
• “How are Procter & Gamble’s Supply Chain Strategies better than their Competitors?”, THE OPERATIONS & SUPPLY CHAIN
CLUB, IIM RAIPUR, May 01, 2011; http://opepiimraipur.blogspot.com/2011/05/how-are-procter-gambles-supply-chain.html
• Bloomberg News P&G Seen Mulling Brand Sales for Better Return: Real M&A By Tara Lachapelle and Alex Barinka July 17,
2012 http://www.businessweek.com/news/2012-07-16/p-and-g-seen-mulling-brand-sales-for-better-return-real-m-and-a
• Marketing/manufacturing trade-offs in product line management. RICHARD L. DANIELS, PANOS KOUVELIS, and LESLIE OLIN
MORGAN. IIE Transactions. 33.11 (Nov. 2001) p949.
14. Conclusion:
Sustained Competitive Advantage
Does Not Eliminate Operational Tradeoffs
A company’s long term success is driven by its
ability to maintain a competitive advantage and
keep it.
Operational effectiveness means a company is
better than its rivals at similar activities while
competitive advantage means a company is
performing better than rivals by doing different
activities or performing similar activities in different
ways.
The closer one gets to the productivity frontier, the
more likely one will experience operational
tradeoffs.
Notas del editor
Klassen, R and Menor L. The process management triangle: An empirical investigation of process trade-offs. Journal of Operations Management. 25 (2007) 1015–1034.
