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

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.

Conceptual study using implicit deductive reasoning.

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.

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.

The study explains why trade-offs occur and outlines contextual factors that determine the “strength” of the trade-offs.

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.