The “Trade-Off”

Chapel Hill, North Carolina

Life is full of trade-offs. So, apparently, is business.

This morning, as part of Arv Malhotra‘s “Managing Innovation Processes” class, we had accomplished tech journalist Kevin Maney speak as a guest lecturer. Maney is author of the recently released Trade-Off, and presented the book’s namesake framework to us. Essentially, Maney has identified two conflicting forces in business: fidelity, which he defines as the total experience of something; and convenience, or how easy it is to get or do something. All products in today’s economy, he argues, can only be high in fidelity or convenience — not both.

Take music. A U2 concert offers consumers high fidelity — the music, lights, 360 degree stage, the bragging rights to friends — but generally low convenience, like traffic, parking, ticket price, even Bono espousing Africa. On the other side of the spectrum sit MP3s, iTunes and iPods. These are low cost and extremely convenient. But they offer mediocre fidelity: the sound quality isn’t great and there are no liner notes or cases to display proudly on your bookshelf.

Now, consider the compact disc. It sits smack in the middle of this spectrum. While it offers higher sound quality than MP3s, it is less convenient and provides significantly lower fidelity to consumers. Maney argues that these types of products — those trying to offer high fidelity and high convenience, end up doing neither. They fall into the “Fidelity Belly.” And there they die.

He can probably explain the concept better.

The “Trade-Off” was an interesting idea to discuss in class. Much of what we learn at Kenan-Flagler is about competitive cost advantage (essentially, Maney’s convenience) and product differentiation (his fidelity). Why can’t companies do both though? It was suggested that there are limitations on both companies and consumers. For example, as Starbucks tried to take its high fidelity coffeehouse experience to the masses, it stumbled not only because of operational growing pains (company-induced) but also marketing/brand challenges (consumers began questioning exclusivity).

There are big lessons to be learned here. Today’s companies can use the Trade-Off lens in two ways: to identify innovation and new product development opportunities and also to remain focused and disciplined at playing their own game.

Those that fail to do so run the risk of becoming obsolete.