In this article, we focus primarily on operational capabilities, developing the concept in a way that is easy to understand and visualize. We then briefly differentiate between operational capabilities and other closely related concepts, focusing on implications for managers.

This is an MIT Sloan Management Review article. Managers are increasingly recognizing that the benefits of traditional supply chains - reduced cost, faster delivery and improved quality - are no longer sufficient by themselves for the modern marketplace. A new paradigm is emerging of a more sophisticated supply chain, one that also serves as a vehicle for developing and sustaining competitive advantage by delivering specific outcomes. So concluded participants in the Supply Chain Management 2010 and Beyond research initiative - a four-year set of surveys and workshops on which this article is based. The authors report that the "supply chains of tomorrow" should achieve varying degrees of six basic outcomes, depending on their specific customer base and its set of needs. The first of these outcomes is "cost" (a composite of the heretofore sole objectives relating to monetary cost, delivery and quality). The others are responsiveness (the ability to change quickly in terms of volume, mix or location as a function of changing conditions), security (assurance that the supply chain's products will not be contaminated or otherwise unsafe), sustainability ("greenness," or environmental responsibility), resilience (the ability to recover quickly and cost-effectively from disruptions) and innovation (the supply chain as a source of new products and processes or improvements in existing ones).

Must firms compete on all dimensions of value simultaneously? Or can managers pick and choose among market segments and deploy a variety of strategies to meet customer needs? Operational systems cannot simultaneously excel on all dimensions of value--cost, lead time, quality, and flexibility. The authors examine three companies similar in product, geographic location, shop floor equipment, employee skills, and customers; all three firms have survived for at least 20 years and are among the top 25 companies in their industry group. Comparing the three in terms of key strategic advantages, disadvantages, fixed costs, lead time, and employee commitment strongly supports the need to make trade-offs in competing dimensions of value in operations (although all three realize they must satisfy certain industry norms, such as quality and on-time delivery). Thus, not only do trade-offs exist, but they have significant competitive implications--trade-offs are strategic in nature. Eventually a firm hits the "productivity frontier," beyond which it cannot continue to improve all dimensions of performance simultaneously.