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Strategy Diamond[edit]

The strategy diamond is a business model used in strategic management by a business to create an integrated strategy^[1]. The value of a strategy is recognized yet the ability to identify what the elements are and how they are integrated typically are not and the strategy diamond is the framework which addresses these issues. It was first introduced by Hambrick and Fredrickson in their article ‘Are you sure you have a strategy?’ which was published in the Academy of Management Perspectives in 2001^[1]. The strategy diamond as mentioned above was created to fill the gap in the field of strategic management where the ability to identify a strategy and its connected parts was rare. Hambrick and Fredrickson asserted that the meaning and use of strategy has been diluted to any decision one makes^[1]. As such they suggested that strategy should be redefined to consider the four factors of: strategic analysis, mission, objectives, and supporting organisational arrangements. The business model defines five main elements (arenas, vehicles, differentiation, staging and economic logic) which will define a strategy for an organisation with its interrelated parts^[1].

Hambrick and Fredrickson also created criteria that would evaluate the quality of a strategy which consists of these six questions:
Does your strategy fit with what’s going on in the environment?

Does your strategy exploit your key resources?

Will your envisioned differentiators be sustainable?

Are the elements of your strategy internally consistent?

Do you have enough resources to pursue this strategy?

Is your strategy implementable?

Redefining strategy[edit]

Hambrick and Fredrickson suggest that strategy should be realigned to consider the four factors of mission, objectives, strategic analysis and supporting organisational arrangements as they will aid in the creation and understanding of strategy itself and the strategy diamond^[1].

Mission[edit]

The mission includes the purpose of the organisation, the overarching reason of its existence and the values the business holds. When creating a strategy, the purpose and values of an organisation should be considered.

Objectives[edit]

The objectives are the goal of the strategy, what it aims to accomplish and is typically the main factor an organisation will overemphasize.

Strategic analysis[edit]

The strategic analysis is the research into both the internal and external environment of the business to gain a greater understanding of the situation to guide the strategy's formation.

These are examples of tools Hambrick and Fredrickson have identified that can help with strategic analysis:
Industry analysis – this analysis provides general information about the external environment such as the profitability of the industry and level of power and competition that exists within it

Customer/marketplace trends – analysing customers trends will provide more data about demographics and the target market

Environmental analysis – an external analysis about macro level factors that can impact the organisation such as economic, political, technological etc.

Competitor analysis – this analysis explores potential competition and examines the strengths and weaknesses of competitors

Assessment of internal strengths, weaknesses and resources – an internal examination of the organisations strengths which can utilised, weaknesses that should be minimised and resources that can be exploited.

Supporting organisational arrangements[edit]

As Hambrick and Fredrickson define strategy as how the business should act externally, the internal decisions are supporting choices which reinforce the overarching strategy^[1].

These supporting organisational arrangements that Hambrick and Fredrickson listed as examples were:
Structure – this refers to the overall structure and management style of the organisation which will direct the flow of strategy

Process – the process is the way decisions are made and how employees are incorporated in the procedure

Symbols – a representation of the business

Rewards – the way in which employees are rewarded

People – the type of employees that work in the organisation and the culture they create

Activities – the day to day operations of the organisation

Functional policies and profiles – The rules and guidelines that govern the culture and environment in the organisation

Main components of the strategy diamond[edit]

The five components that make up the main portion of the strategy diamond are:

Arenas
Vehicles
Differentiators
Staging
Economic Logic

Arenas[edit]

The arenas to a strategy diamond are where the organisation will be active and with how much emphasis. This can help those in strategic management decide where the focus of the organisation will be and to what extent. Hambrick and Fredrickson also note that it is important to be as specific as possible when deciding the arenas as this allows the managers to determine the importance of the arena^[1].

Hambrick and Fredrickson provided questions that would help with identifying the arenas, and these are:
Which product categories?

Which market segments?

Which geographic areas?

Which core technologies?

Which value creation stages?

Vehicles[edit]

The vehicles of a strategy diamond describe what methods the organisation will use to achieve its strategy. The vehicle is important to the strategy diamond as there can be many potential choices when deciding the best course for an organisation and depending on the vehicle this can lead to the success or demise of a business.

When deciding how to approach the strategy Hambrick and Fredrickson have highlighted these examples of methods that could be considered:
Internal development

Joint ventures

Licensing/franchising

Acquisitions

Differentiators[edit]

The differentiators in the strategy diamond are the ways in which the organisation will succeed in the marketplace, how they separate themselves from the competitors. Differentiators should be created and focused on, they can be narrowly focused on one factor or they may be evenly spread out to create an overall differentiation.

Examples of factors to compete on differentiation that Hambrick and Fredrickson discussed are:
Image

Customisation

Price

Styling

Product reliability

Staging[edit]

In the strategy diamond staging is the speed at which the strategy diamond occurs and in what order. There is no universal guide to decide the order of the strategy, it is up to the managers to decide the most optimal order. Proper execution of a strategy will result in smooth transitions between each activity, however with poor staging this can lead to bottlenecks which limit the organisation due to poor arrangements in the order of execution.

Hambrick and Fredrickson also highlight four factors which will influence the decisions and executions of staging:
Resources – An organisation may not have the required resources for all aspects of the strategy initially

Urgency – Some aspects of the strategy are time limited and must be achieved as soon as possible while some may not

Credibility – Attaining a certain level of accomplishment may be necessary to gather funds or may be pre-requisites to other parts of the strategy diamond

Pursuit of early wins – Completing parts of the strategy which may be familiar or easy will be optimal before progressing to unfamiliar and complex aspects of the strategy.

Economic Logic[edit]

In the strategy diamond economic logic is how the business will obtain its profits and this objective is the heart of a business. This can be done by either maximising revenue or minimising costs.

Examples of ways that Hambrick and Fredrickson considered are:
Lowest cost through scale advantage?

Lowest costs through scope and replication advantage?

Premium prices due to unmatchable service?

Premium prices due to proprietary product features?

Testing the quality of the strategy[edit]

While not a critical component to the strategy diamond the ability to evaluate the quality of a strategy is vital and this can be done is through the six criteria Hambrick and Fredrickson created^[1].

1. Does your strategy fit with what’s going on in the environment?

Will the strategy result in a successful outcome? Does the strategy align with what is needed to succeed in the environment?

2. Does your strategy exploit your key resources?

Does your strategy efficiently use resources? Will this provide a competitive advantage over others?

3. Will your envisioned differentiators be sustainable?

Will competitors be able to imitate your strengths? Is the differentiator a permanent strength or is it temporary?

4. Are the elements of your strategy internally consistent?

Do each parts of the strategy link and strengthen one another? Does the strategy match the beliefs and values of the organisation? Is the strategy relevant to the identity of the organisation?

5. Do you have enough resources to pursue this strategy?

Does the organisation have the money, time, talent or other resources and capabilities to implement the strategy? Will the strategy create instantaneous results, or will it be delayed?

6. Is your strategy implementable?

Will there be inertia to change from management and shareholders?

Criticisms[edit]

The strategy diamond can help with the preparation and examination of a strategy; however, it cannot help with the execution of the strategy as that is dependent on the individual or the organisations capabilities^[2]. While the strategy diamond can help summarize the connections between components in a business this can also be a weakness as it can oversimplify the information, leading to misleading interpretations. Not only that, the strategy diamond is a snapshot of the current situation, it cannot take into account changing factors and as such is only as useful as the time the variables are unchanged^[3].

References[edit]

^ ^a ^b ^c ^d ^e ^f ^g ^h Hambrick, D. C., & Fredrickson, J. W. (2001). "Are you sure you have a strategy?". Academy of Management Perspectives 2001.{{cite journal}}: CS1 maint: multiple names: authors list (link)
^ Chen, Ming-Jer (2014). "The Power of One: The Strategy Diamond Framework" (PDF). UVA-S-0237.
^ Shafer, S. M., Smith, H. J., & Linder, J. C (2005). "The Power of Business Models" (PDF). Business Horizons. 48(3): 199–207.{{cite journal}}: CS1 maint: multiple names: authors list (link)

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[:0-1] ^ ^a ^b ^c ^d ^e ^f ^g ^h Hambrick, D. C., & Fredrickson, J. W. (2001). "Are you sure you have a strategy?". Academy of Management Perspectives 2001.{{cite journal}}: CS1 maint: multiple names: authors list (link)

[2] Chen, Ming-Jer (2014). "The Power of One: The Strategy Diamond Framework" (PDF). UVA-S-0237.

[3] Shafer, S. M., Smith, H. J., & Linder, J. C (2005). "The Power of Business Models" (PDF). Business Horizons. 48(3): 199–207.{{cite journal}}: CS1 maint: multiple names: authors list (link)

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