An empirical investigation of the combinatorial nature of operational practices and operational capabilities : Compensatory or additive?

Purpose – Operational practices and operational capabilities are critical yet distinct elements in operations strategy. The purpose of this paper is to examine their conceptual differences and explore how they are developed in a portfolio, considering the potential for practices and capabilities to be either compensatory or additive in nature. Design/methodology/approach – The compensatory model argues that the lack of investments in certain practices or capabilities can be offset by higher level of investments in other practices or capabilities. In contrast, the additive model argues that the firm must invest in certain practices or capabilities and that trade‐offs are impossible. The authors examine evidence for these two competing models using an approach borrowed from studies of multi‐attribute consumer preference models and statistical comparisons of non‐nested models. Findings – Data for the study were collected from operations managers who were members of a large professional organization. The findings indicate that the effects of operational practices are additive for some operational outcomes and compensatory for others. However, the combinatorial nature of operational capabilities is purely compensatory. Practical implications – The results imply that adequate investment in a wide range of operational practices is necessary to enhance operations performance. However, operations units appear to have more flexibility in choosing to develop a distinctive operational capability set. Originality/value – The study clarifies the different orientation of operational practices and operational capabilities as they contribute to operations strategy. The findings provide guidelines regarding the combinatorial natures of operational practices and operational capabilities. These guidelines have critical strategic implications for resource allocation schemes and how these schemes affect operational performance.