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Porter's Diamond

Use this framework to determine your company's competitive advantage

Michael Porter, the architect of a number of our favourite frameworks, wrote a book in 1990 called The Competitive Advantage Of Nations. In the book Porter suggests a diamond shaped framework that is also known as the Theory of National Competitive Advantage of Industries.  We can use the model to assess the strength of a company within its national market. 

Strategy, structure and rivalry sit at the top of the diamond and describe the performance of companies in their national market. By way of example, the competition among Japanese car companies such as Honda, Toyota, Nissan, Mazda and the like has resulted in very efficient automotive companies that perform well on the world stage.

 

Demand conditions in the national market create fertile ground for a company to grow. Again sticking with the automotive industry, the demand for high level engineering within German car buyers has helped Mercedes, BMW and Porsche grow locally and become international players.

 

Factor conditions are those resources that exist locally that benefit a company. These can be natural resources such as oil, hydro electric power or minerals or they could be home-grown resources such as a skilled and educated labour force.

 

Related and supporting industries make up the fourth part of the diamond. These are resources that we have seen in the Value Net model. Most companies need skilled subcontractors and specialists who can help them.  For example, these could be the tech companies in Silicon Valley which are helped by the cluster of local freelance software engineers.

The four sides of the diamond interact with each other. The model can be used to assess the strength of a company.

 

Porter reminds us that two other factors can act as lubricants to growth. A government that encourages businesses can be a great help. And we shouldn't forget that sheer luck (chance) can sometimes play an important part in a company's success.

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