Use this framework to determine a strategy for entering a new market
There is scope for confusion here because our website features two frameworks with the word diamond in their title. There is Porter's Diamond which seeks to determine a competitive advantage by looking at demand, resources and supporting industries and there is the Strategy Diamond (discussed on this page) that looks at opportunities when setting out in pastures new. The common denominator is the graphic at the heart of the frameworks which, in each case, is diamond shaped.
The strategy diamond framework deserves wider recognition. The tool was proposed by professors Donald Hambrick and James Fredrickson in an article called "Are you sure you have a strategy?" in Academy of Management Executive in 2001. It is based on a number of choices that can be made about a business seeking to expand.
There are five parts of the diamond.
It starts with a consideration of the arenas or options of where you can be active in the business. For example you can do so with different products or new geographies, different segments or channels to market. This is where you decide the market in which your company will compete. There are a number of arenas where you could compete and the challenge is to focus on those that offer the greatest opportunities.
The framework then considers how you will compete in the market place - the factors that differentiate your company's products. This part of the diamond has similarities to Porter’s generic strategies as it tell us we must figure out what will draw customers to the company and that will enable it to beat the competition. Again there are choices on which to focus such as superior quality, attractive price, image or speed to market.
It is now time to think about implementing the strategy and where and how you are going to compete. This is the role of the vehicles. You could decide to do everything yourself or you could seek external help such as franchises, licensing or acquisitions. Much will depend on your core competences as we have seen in the framework from Gary Hamel and CK Prahalad.
The strategy has to be launched and this is likely to be in stages. The diamond considers the sequences of launch steps and the speed with which these will be applied. Hambrick and Fredrickson like the idea of not rushing the implementation of the strategy and they call this “pacing”.
The aim of the strategy is to make a profit. The economic logic part of the diamond shows how the pieces fit together to deliver a suitable profit. This may be achieved by economies of scale and low-cost or premium pricing based on any special product advantages.
The Strategy Diamond recognises the interrelationship of the five different elements of the framework. It considers choices of what to do and equally what not to do in order to make the strategy work. An attraction of the model is its simplicity which means it can be used at any level in an organisation and it is easy to communicate to everyone so they understand the overall goal and what must be done.
In their paper Hambrick and Fredrickson list a useful check list of questions to test the quality of a strategy. We reproduce it here:
Testing the Quality of Your Strategy
Key Evaluation Criteria
1. Does your strategy fit with what’s going on in the environment?Is there healthy profit potential where you’re headed? Does your strategy align with the key success factors of your chosen environment?
2. Does your strategy exploit your key resources?With your particular mix of resources, does this strategy give you a good head start on competitors? Can you pursue this strategy more economically than competitors?
3. Will your envisioned differentiators be sustainable?Will competitors have difficulty matching you? If not, does your strategy explicitly include a ceaseless regime of innovation and opportunity creation?
4. Are the elements of your strategy internally consistent?Have you made choices of arenas, vehicles, differentiators, and staging, and economic logic? Do they all fit and mutually reinforce each other?
5. Do you have enough resources to pursue this strategy?Do you have the money, managerial time and talent, and other capabilities to do all you envision? Are you sure you’re not spreading your resources too thinly, only to be left with a collection of feeble positions?
6. Is your strategy implementable?Will your key constituencies allow you to pursue this strategy? Can your organization make it through the transition? Are you and your management team able and willing to lead the required changes?
Some things to think about:
What are the major changes taking place in the market in which you operate? How does your strategy fit with these?
What are your key resources? Does your strategy fit with these?
What are the important differentiators that separate you from the competition? How will you sustain them?
Does everyone within your organisation know the strategy? Are they all aligned with it?
Do you have sufficient resources to pursue your strategy?
Is your strategy implementable? Where within your organisation could there be any weaknesses that could stop you achieving it?