What are strategic tradeoffs?
Tradeoffs are an inherent part of strategic decision-making. Making one decision will often inherently rule out a different decision. You can’t for example be everything to everyone, and attempts to do so will likely result in you not being competitive with any customer group.
Breaking strategic tradeoffs
While strategic tradeoffs are inherent within decision-making, and can’t be entirely ignored, there may be opportunities to break certain tradeoffs. While it may be common wisdom that you can’t succeed on two different dimensions – having to pick one or the other – there may be a way of reconfiguring how the activities are approached to allow you to break the tradeoff.
Breaking strategic tradeoffs typically requires you to approach the problem in a different way. If you approach it how everyone else has been doing so, you likely will face the same difficulties that they do – either forced to choose between the two options or settling for a sub-optimal compromise that doesn’t meet either needs.
The key to breaking strategic tradeoffs requires you to think creatively – to for example identify a different way of configuring your resources that doesn’t suffer from the limitations typically suffered when firms try and do both things at once.
Example: The cost-leadership, differentiation tradeoff
A good example of an attempt to break a strategic tradeoff is the blue ocean framework – developed in part to break to cost-leadership, differentiation tradeoff. This tradeoff recognizes that successful firms either tend to be cost-leaders, pursuing very price-sensitive customers, or they are differentiators, adding additional features to their goods to increase a customer’s willingness to pay. Succeeding as a cost-leader requires all decisions to be made that eliminate cost – succeeding as a differentiator requires a different mindset that prioritizes meeting elevated customer demands beyond cost. The wisdom is that you can’t be both – you risk being stuck in the middle, not as competitive as a cost-leader, nor with the features of a differentiator.
The blue ocean framework in part looks to challenge this. It seeks to see if there is a way of reconfiguring the activities that a firm undertakes – changing the configuration by both eliminating or reducing certain dimensions while increasing or creating new dimensions to compete on. By identifying a new way of competing – with different dimensions relative to existing firms, this approach seeks to simultaneously allow cost-leadership to be pursued (by removing or reducing some costly features), while also providing additional value for customers by adding or raising other dimensions.
While there are certainly challenges with implementing a blue ocean strategy, the approach can yield creative solutions, allowing the cost-leadership, differentiation tradeoff to potentially be broken.
Final thoughts: Don't always accept tradeoffs at face-value
While there is no doubt that strategic tradeoffs do exist, it is also important not to simply accept all conventional wisdom regarding the tradeoffs at face value. While conventional approaches may yield the tradeoff, there may be a creative new way of approaching the situation that is less susceptible to the tradeoff – potentially allowing you to do two things well at once. The key is to think creatively – to try and envision a different way of configuring your firm that steps away from conventional wisdom.
A key benefit of approaching the problem with a creative solution is that it may give you a new basis to compete – different from other firms in the market. Provided there are some mobility barriers that make it difficult for other firms to move to your position, you may be able to maintain your unique position with limited direct competition.