Friday, July 29, 2011

A strategic false belief in trade-offs

In his seminal paper "What is Stragegy?", cited 4367 times on Google Scholar and included into every business strategy textbook, Michael E.Porter writes:

But a strategic position is not sustainable unless there are trade-offs with other positions. Trade-offs occur when activities are incompatible. Simply put, a trade-off means that 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.

Anyone who flew on a commercial flight recently can attest that the latter part of statement is false (italic, bold - ES). Airlines do serve meals AND they make money on this service by charging for the food. They also charge for luggage and other conveniences, more than compensating themselves for the inefficiencies.

U.S. airlines collected $3.4 billion for checked luggage last year, according to a government report issued Monday. That’s up 24 percent from 2009 and a big reason the industry made money again after three years of losses. In 2010, the major airlines made a combined $2.6 billion in profits, less than they collected in bag fees.

The trade-off once considered fundamental by the top business strategist turned out to be a false belief into what can or cannot be done - a simple lack of imagination. People believe in trade-offs because they are taught to believe in them. Once somebody figures out a way to break the trade-off - puff! - the whole business strategy based on it falls apart.

tags: trade-off, strategy, business, barrier, constraint, soft, trend, innovation, breakthrough, model, quote

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