Sustaining Competitive Advantage with value chain strategic fit and tradeoffs

To keep competitive advantage over rivals, companies need to constantly reinforce their strategy. This requires maintaining fit across the activities in their value chain and enforcing necessary trade-offs. Together, fit and trade-offs create a system of interconnected activities that is hard for competitors to copy. However, without focus, fit and trade-offs decay over time.

The Role of Strategic Fit

Strategic fit refers to how activities within a company’s value chain enhance each other. The connections create advantages. One activity improves the uniqueness or lowers the cost of another activity. This makes the total system greater than the sum of its parts.

Fit starts with choices that match over time. It develops as interconnections are strengthened. This creates complex systems competitors struggle to replicate. There are several ways companies can maintain fit:

• Coordinate activities through cross-functional workflows. Smooth flows between activities like design, production, and sales boosts efficiency.
• Develop processes and tools to share key data between activities. Information exchange enhances connections.
• Invest to upgrade interdependent activities in parallel. Piecemeal upgrades often erode systemic advantages.
• Hire managers who grasp the linkages between activities. Rotate staff to build this understanding.
• Create incentives tied to collaborative goals across activities. Appropriate performance measures reinforce interdependencies.

Sustaining fit requires commitment over time. The advantages come from years of reinforcing interconnectivity through decisions large and small.

Why Trade-Offs Matter

Trade-offs mean setting limits. They involve choices to only focus on some product features, activities, or customer groups. Trade-offs arise because of incompatible choices between:

• Product or service attributes that force choices between level of features, quality, customization.
• Configuration of activities tailored to a strategy makes altering them penalize performance.
• Brand reputation mismatches where new offerings would confuse or dilute image.

Trade-offs prevent rivals from easily copying a strategic position. Adopting incompatible activities disrupts their own value chains. In order to maintain trade-offs:

• Instill company culture and norms that reinforce chosen trade-offs. This ingrains strategy into everyday behaviors.
• Establish clear rules on what activities and offerings are off-limits based on strategy. Boundaries protect differentiation.
• Benchmark competitors to identify weaknesses from straddling positions. Targeting these gaps reinforces trade-offs.
• Design incentives that reward employees for upholding trade-offs. This keeps decisions aligned.

Saying no clarifies strategic focus. It blocks competitors from imitation. Trade-offs create lasting systemic advantages.

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Leadership Commitment

Reinforcing fit and trade-offs mandates leadership commitment. Without vigilance, fit and trade-offs inevitably weaken. Priorities shift. Resources move to other areas. Maintaining advantage requires revisiting strategic choices again and again.

Leaders must be willing to uphold trade-offs despite internal objections. Short-term gains may be sacrificed, but the long-term payoff is sustainable competitive advantage.

Sustaining competitive advantage is a constant battle. Fit and trade-offs must be reinforced through decisions, investments, and culture. This sustains systemic advantages that cannot easily be matched. It enables continuous improvement over time.

Conclusion

In today’s dynamic business environment, competitive advantages are fleeting without ongoing reinforcement. Leaders must be steadfast in upholding their strategy’s underlying logic. This means continually strengthening fit, enforcing trade-offs, and reinvesting in sources of uniqueness.

Through vigilance and commitment, companies can sustain systemic advantages rooted in a cohesive activity system that competitors struggle to replicate. However, without discipline, fit and trade-offs inevitably decay.

To compete on uniqueness rather than imitation, managers must keep advancing their strategy even after initial success. Reinforcing fit and trade-offs is essential to maintain competitive advantage over the long run.

ABOUT THE AUTHOR(s)

Roland Tannous is managing partner and lead strategy and digital transformation consultant at GravityThink. Roland Tannous is managing partner and lead strategy and digital transformation consultant at GravityThink.

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