Page 100 - Operations Strategy

TRAdE-Offs – ARE THEy inEviTAblE? 75
over stock seven times a year, and so on. Yet in making our judgement we recognise
two important characteristics of operations performance. The first is that all measures
of performance will not have equal importance for an individual operation. Certain
aspects of performance will outweigh others – their relative importance being deter-
mined by both the competitive characteristics of the market in which the operation is
competing and, more importantly, the way in which the company chooses to position
itself within that market. The second characteristic of performance that will shape our
view of the operation is that we recognise that aspects of performance will, to some
extent, trade off against each other. So, for example, we are less impressed with the
call centre that answers our calls quickly at all times of the day or night if its costs of
running the operation make it necessary to charge us higher fees, or if the plant that
delivers within 24 hours is achieving this only by investing in high levels of finished
goods inventory. Though maybe we will be more indulgent towards the operation if
we discover it has deliberately positioned itself in the market to compete primarily on
instant response or fast delivery. Then the cost implications of high finished goods
inventory may not matter so much. The operations have chosen to ‘trade off’ higher
costs or high inventory to achieve fast response and fast delivery. However, we would
be even more impressed with the call centre if it had ‘overcome’ the trade-off and
was achieving both fast and 24-hour response and low cost levels; similarly, with the
manufacturing plant, if it was achieving both fast delivery and low inventories. In
both these examples we are using a broad understanding of the relationship between
different performance objectives to judge the effectiveness of their operations man-
agement. But we are also implying that, in order to improve, these operations must
overcome the trade-offs by changing the nature of the relationship between perfor-
mance objectives.

are trade-offs real or imagined?
Skinner’s original idea of trade-offs was both straightforward and intuitively attractive.
Essentially, it formalised the notion that there is no such thing as a free lunch. Any
operation, like any machine, is ‘technologically constrained’. It therefore cannot pro-
vide all things to all people. The trade-off relationships between competitive objectives
(cost, quality, delivery, variety, inventory, capital investment etc.) mean that excellence
in one objective usually means poor performance in some or all of the others. Opera-
tions that attempt to be good at everything finish up by being mediocre at everything.
Therefore the key issue of operations strategy is to position the competitive objectives
of the operation to reflect the company’s overall competitive strategy. Although Skin-
ner has subsequently modified his original ideas, he maintains their essential validity:
‘trade-offs . . . are as real as ever but they are alive and dynamic’.
The counter-view came from a new breed of more evangelical academics and con-
sultants inspired by the perceived success of some (mainly Japanese) companies in
overcoming at least some trade-offs – most notably that between cost and quality.
They embraced the ‘bottom-up’ improvement techniques of ‘world class’ operations.
Both trade-offs and positioning, they claimed, are illusions. Trade-offs are not real –
therefore positioning is not necessary. Citing the success of many companies that
achieved improvements in several aspects of performance simultaneously, they dismiss
trade-offs as distractions to what should be the real imperative of operations – namely,
improvement. Making choices between alternative aspects of performance leads to
‘merely good’, as opposed to ‘outstanding’, achievements. This is what some called

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