Tuesday, July 09, 2013

Trade-off Q&A: better than optimal.

Tobias Enders (@TobEnders, one of my students in the Principles class at Stanford University CSP) emailed me a question about trade-offs in Scalable Innovation (Prologue, page xxii, figure 0.1).

In the book we argue that great innovations break trade-offs and do better than optimal. Tobias' question prompted me to explain briefly the figure. With his permission, I reproduce parts of our email exchange.

Question (Tobias):
You say that there is one optimum between in the middle between fuel efficiency and flexibility. From my understanding, the optimum can be anywhere on line that you have draw - depending on the preference of the customer. I.e. if you need more flexibility, you have to make a trade off on fuel efficiency and vice versa. I have used the same figure when I made a portfolio analysis for IBM some time ago (see fig below).

Answer (Eugene):
In your example, the customer locked into the optimized curve, either to the left or right, cannot get to a point where he has both high customization and high cost leadership. That is, the point on the left provides for high customization but low cost leadership; the point on the right does the opposite. A breakthrough would be a high-high combination, e.g. Google's large scale advertisement platform for search and other services (Company positioning).
The optimum on Fig 0.1 (Scalable Innovation, page xxii) applies when you want both fuel efficiency AND flexibility. In that case you end up with values somewhere in the middle of their respective ranges. Simply put, you can't have both high fuel efficiency AND high flexibility. 
Summary (Tobias): 
Got your point, Eugene.
If you want to have the best of 'both worlds' - i.e. fuel efficiency and flexibility - you end up [with neither, i.e.] in the middle of the line.

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