When trade-offs have to be made between achieving long-term and achieving short-term objectives

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.

Why do Trade-offs arise?

Trade-offs arise for a number of reasons. Porter highlights three.

First, product features may be incompatible. That is, the product that best meets one set of needs performs poorly in addressing others. Second, there may be trade-offs in activities themselves. In other words, the configuration of activities that best delivers one kind of value cannot equally well deliver another. Another source of trade-offs is inconsistencies in image or reputation.

Trade-offs are pervasive in competition and essential to strategy. They create the need for choice and protect against repositioners and straddlers.

New CEOs with a fresh vision for the company or established leaders who are charting a new course face a common problem: How do you get the executive team to agree on strategic trade-offs when deciding which investments to make? The remedy is to create a calculus that assigns weighting to conflicting objectives.

When CEOs lay out multiple high-level objectives, like increasing market share, entering new markets, and pursuing innovation — all at the same time — they enthusiastically tout the advantages of each. They set ambitious numerical targets. They rally the troops behind the vision. But they rarely talk explicitly about how much value they are willing to sacrifice in one of those objectives to achieve more value in another. When it comes to their strategic objectives, they naturally “want it all” and resist talking about sacrifice. In the absence of explicit guidance, executives and the managers beneath them substitute their own judgment for the CEO’s, weighting conflicting objectives differently and, by doing so, pull the organization in many misaligned directions at once.

Strategy Planning and Execution Course