A Sustainable Strategic Position Requires Trade-Offs
Choosing a unique position, however, is not enough to guarantee a sustainable advantage. A valuable position will attract imitation by incumbents who are likely to copy it in one of two ways. First, a competitor can reposition itself to match the superior performer. Second, the competitor can straddle, or in other words, seek to match the benefits of a successful position while maintaining its existing position. This would mean creating new features, services, or technologies onto the activities it already performs.
Continental Airlines saw how well Southwest was doing and decided to straddle; while maintaining its position as a full-service airline, Continental also set out to match Southwest in terms of meals, service, departure frequency, fares, and turnaround times. However, a strategic position is not sustainable unless there are trade-offs with other positions. More of one thing necessitates less of another. An airline can choose to serve meals — adding cost and slowing turnaround time at the gate — or it can choose not to, but it cannot do both without bearing major inefficiencies.
Different positions, with their tailored activities, require different product configurations, different equipment, different employee behavior, different skills, and different management systems. In general, value is destroyed if an activity is over designed or under designed for its use. Moreover, productivity can improve when variation of an activity is limited. By clearly choosing to compete in one way and not another, senior management makes organizational priorities clear. Companies that try to be all things to all customers, in contrast, risk confusion in the trenches as employees attempt to make day-to-day operating decisions without a clear framework.
Continental tried to compete in two ways at once. In trying to be low cost on some routes and full service on others, Continental paid an enormous straddling penalty. If there were no trade-offs between the two positions, Continental could have succeeded. But the absence of trade-offs is a dangerous half truth that managers must unlearn. Quality is not always free. Southwest’s convenience, one kind of high quality, happens to be consistent with low costs because its frequent departures are facilitated by a number of low-cost practices — fast gate turnarounds and automated ticketing, for example. However, other dimensions of airline quality — an assigned seat, a meal, or baggage transfer — require costs to provide.
Simultaneous improvement of cost and differentiation is possible only when a company begins far behind the productivity frontier or when the frontier shifts outward. At the frontier, where companies have achieved current best practice, the trade-off between cost and differentiation is very real indeed. For the past decade, as managers have improved operational effectiveness greatly, they have internalized the idea that eliminating trade-offs is a good thing. But if there are no trade-offs companies will never achieve a sustainable advantage. They will have to run faster and faster just to stay in place.
Strategy is making trade-offs in competing. The essence of strategy is choosing what not to do. Without trade-offs, there would be no need for choice and thus no need for strategy.
