On strategic trade-offs: does the principle of energy conservation explain the trade-offs law?

Abstract

Purpose The purpose of this paper is to reaffirm the suggestion that there are at least two distinct types of laws of trade-off that affect all firms and, in doing so, to contribute toward resolving the persistent trade-off debate in the literature. Design/methodology/approach Conceptual study using implicit deductive reasoning. Findings Two types of trade-offs are identified: “internal” can be understood following the dictates of the law of diminishing returns, while “external” can be modeled using the principle of energy conservation. Research limitations/implications New insights are provided by discussing the impact of both laws of trade-off on the resource-based view of the firm, on new capabilities such as sustainability and innovativeness and on key strategic choices. Practical implications The study explains why trade-offs occur and outlines contextual factors that determine the “strength” of the trade-offs. Originality/value To the best of the authors’ knowledge, no previous study has attempted to investigate the topic of strategic trade-offs on the basis of the principle of energy conservation.