Why Do Firms Trade-Off Or Accumulate Operations Capabilities?: Competition Based Explanation.

Abstract

A major question that exists in the operations strategy area is what firms should do with their core operations capabilities of cost efficiency, quality, delivery and flexibility. Two competing views have been proposed: (1) to focus on a single or limited set of capabilities (“trade-off” model); or (2) to compete on multiple capabilities simultaneously (“cumulative capabilities” model). While both views have some empirical support, the broader question as to why firms would trade-off or accumulate capabilities has not been adequately addressed. This paper addresses this question by proposing that firms choose between trade-off and cumulative capabilities strategies, depending on the level of competition they experience in their business environment. This suggestion is based on the dynamic capabilities view. This explanation was empirically tested with data from the Australian airline industry. The results suggest that competition, measured as inter-firm rivalry, is a potentially significant explanation of firms’ choice. Specifically, firms trade-off capabilities when competition is high, and accumulate capabilities when competition is relatively low. This paper, therefore, provides a new theoretical perspective and an improved explanation as to why firms trade-off or accumulate capabilities.