The Strategy Diamond Model
The Strategy Diamond Model
Strategy without tactics is the slowest route to victory. Tactics without strategy is the noise before defeat.” —Sun Tzu
What is the strategy diamond model?
The strategy diamond is a simple model for creating a business strategy outline. Created by management professors Donald Hambrick and James Fredrickson in 2001, the framework shows the way various factors interconnect to deliver profit. Its five sectors of macroeconomic competition are designed to be examined independently but together form a cohesive plan. Importantly, a well-thought-out diamond can be the guide to how this success might be achieved in reality.
There are five important questions that need to be answered to ensure you have a complete strategic plan:
Where will we be active? (Arenas)
How will we get there? (Vehicles)
How will we win in the marketplace? (Differentiators)
What will be our speed and sequence of moves? (Staging)
How will we make our returns? (Economic logic)
The 3 elements of strategy
The strategy doesn’t have to be complicated. At its core, it has three key ingredients:
Goals: They’re what you set out to achieve.
Actions: They’re what you’re going to do to achieve your goals.
Measures: They’re how you're going to track your progress.
These three elements refer to the content of your strategy. Before you populate your strategic plan, you need to do some research. Your research will determine the way you define your situations and that will, in turn, determine your goals.
A strategy isolated from the organization's external environment is vulnerable to surprises.
What are the advantages of using a strategy diamond?
Most strategic plans focus on just one or two of these elements, creating gaps that might cause problems for your business later on. A strategy diamond can help you stay focused and ensure you’re fulfilling all of your business’s needs rather than one or two.
When do you use the strategy diamond?
With the strategy diamond model, you can develop a comprehensive strategic plan, but it should not be the first tool you use for that job.
Prior to implementing this model, you should have acquired internal and external data. Conduct an internal analysis to determine your organization’s capabilities and an environmental scan to form a clear picture of your operating space.
Without these data, you can’t perform a strategic analysis and make informed decisions in your strategic plan’s development. Forming your strategy without taking into account your competition can leave you in a place similar to that of Blockbuster, unable to adapt your approach fast enough. The strategy diamond model doesn’t populate your plan per se, as much as it organizes and fits the pieces together. And it helps you discover any holes or gaps that you might’ve missed.
The thing about strategy is that whatever the plan doesn’t explicitly or implicitly address, it is being decided one way or the other, whether by external forces like industry disruptions and trends or by internal forces where people simply revert to default and go on with business-as-usual.
Collect the necessary information and then apply the strategy diamond model to develop a comprehensive and organized strategy plan.
What are the five elements of the strategy diamond model
Arena: In this element, the organization chooses the arenas in which it will fight its battles. Specificity is king here. Define your organization’s areas of activity by answering questions like:
What is our category?
E.g., Do we compete in an existing one or create something new?Who is our ideal customer?
E.g., Can we profile our exact target demographic?Where are we selling our product?
E.g., Are we a global brand or are we targeting certain geographical areas?What products do we sell?
E.g., Do we focus on fewer lines? Do we start a new line?What are our technological needs?
E.g., Does our technology give us a competitive advantage? Where should we invest?What unique value do we bring to the market?
E.g., What are our value-creation strategies?
Vehicles: This is the element where you decide how you’ll win the battles in your chosen arenas. This is about choosing your weapons, but most importantly is about the weapons you’re NOT going to choose. By saying “yes” to some of your choices, you’re saying “no” to the rest of them. Thus, this is about focus and commitment. Answer questions like:
Are we taking part in any joint ventures?
Or partnerships?
What internal developments do we need?
Should we license or franchise our product?
Do we need to acquire or merge with another player?
Example : When Bob Iger became CEO of The Walt Disney Company, he chose to focus on three things. Two of these three priorities were unique, original content and technology. He believed Disney should use cutting-edge technology to tell amazing stories. So the vehicle he chose to achieve that was the acquisition of Pixar. Later, when he wanted to go to a direct-to-consumer model, he again chose to acquire another company called BAMTech.
Differentiators In the Differentiators element of the strategy diamond model, you determine your organization’s facets that make it unique. This is where you make a deep internal analysis and ensure your strategy is tailored to your needs and capabilities. Specifically, concern yourself with:
What is our pricing strategy?
E.g., How much do we charge our product?What does our brand stand for?
E.g., What is our core message?What is the quality of the product we wish to reach or maintain?
E.g., Do we go for a premium product or not?What speed element do we have that we can use to our advantage?
E.g., How can we build the fastest supply chain in the industry?How is our product unique?
E.g., What is our product’s unique value offer?How good is our customer experience?
E.g., What is the feedback of our customer support?
Example
Zara has a very powerful differentiator that makes it the most profitable Inditex brand with well over $14 billion net income in 2020. It has an immensely fast lead time. It delivers and restocks its products faster than any other fashion retailer. It accomplishes this by bringing production in-house and choosing its suppliers in strategic locations near its facilities.
Staging & pacing Your timeline determines this element. The duration of your long-term goals will determine the speed at which you’ll execute your strategy. How fast (or slow) certain procedures should progress and what you have to do to achieve this. Here are a few questions to consider for this element:
What should the sequencing of our next steps be?
What is our potential speed according to our capabilities?
How are our competitors affecting our speed of execution?
How is the market affecting our speed?
What moves are highly dependent on the right timing?
Economic logic: This is essentially your business model.
It’s important even for large organizations to challenge their business model and adjust it because it’ll enable them to adapt faster to market disruption. For example, Blockbuster’s mistake wasn’t spotting Netflix too late but rather refusing to adjust its business model soon enough to stay in the game. These are the questions you should ponder:
How can we ensure a healthy margin?
What are our scaling options?
How can we demand a premium price in the market?
How much of our product is proprietary?
The Economic Logic element helps you explore the different ways you can generate positive returns and maximize your profits. You visit it last because it forces you to reexamine your answers to the previous elements and align them properly, e.g., when your arenas reinforce your differentiators.
Example
PayPal disrupted the banking sector. The biggest challenge banks faced was their inability to respond. They grew complacent with their size and business model and didn’t have the internal capability to shift. They lacked a culture and structure of adaptability.
How do you use a strategy diamond?
Completing your own strategy diamond is easy. Miro’s visual collaboration platform is the perfect canvas to create and share this integrated strategy model. Get started by selecting this Strategy Diamond template.
An effective strategy contains these key elements: Arenas, Differentiators, Vehicles, Staging, and Economic Logic. It’s important to consider each of the five elements in the Strategy Diamond Model below because they are all interrelated and mutually reinforcing.
Arenas: What do we plan to achieve? What is the nature of our products, services, distribution channels, and market segments? What geographic areas do we plan to expand into? What technologies will we use?
Differentiators: What sets us apart from our competition? Is it an image, price, product dependability, and how quickly we get our product to the marketplace? How will we win the marketplace?
Vehicles: How will we get there? Will we get there through strategic alliances? Development? Licensing?
Staging: How will we advance our product or positioning? How quickly will we move? In what order we will move forward?
Economic logic: How will we obtain our returns? Will this be achieved by lowering costs to give value for the price? Providing premium services for premium pricing?
Here is a strategy diamond example
Let’s examine the strategy of the famous energy drink company Red Bull.
Arenas: Professionals and students. Red Bull’s market segments are specific.
Vehicles: It sponsors athletes, teams, and events in highly competitive and extreme sports. It negotiates exclusivity in local shops as the sole energy drink supplier.
Differentiation: Red bull is the first-ever energy drink. The company created a new product category and dominated it. The way it keeps its queen status is through buzz-creating marketing moves and word of mouth.
Staging & Pacing: The company has reached a behemoth size. As a whole, its pace is slow, but its more localized strategies have various paces.
Economic logic: Red Bull positions itself as a premium energy drink. It relies on marketing to drive sales with the healthy margins of a retail brand.
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