11.08.2022

How can a strategy diamond help you analyze your business?

Highlights:

  • Porter's Strategic Diamond is an effective tool for analyzing a company's competitive position that examines both the micro and macro environment of a company.
  • The four classic elements of the strategic diamond (conditions of factors, conditions of demand, related and auxiliary sectors, strategy structure and company rivalry) interact with each other, which is key to understanding the synergies in shaping competitive advantage.
  • The analysis of the conditions of the factors allows the identification of basic and advanced resources that can contribute to building a competitive advantage.
  • Understanding demand conditions, including the structure and distribution of demand, makes it possible to meet consumer demand more effectively.
  • Analyzing related and ancillary sectors provides a deeper understanding of competition and the supply chain, which is key to understanding a company's place in the market.
  • The analysis of strategy, structure and rivalry allows to understand how market competition affects the development of enterprise innovation.
  • In addition, the strategic diamond takes into account the impact of government actions and opportunities that, although temporary in nature, can have a significant impact on a company's competitiveness.
  • Strategic diamond provides information that can provide a solid basis for setting strategies for business development, fighting competition and seizing market opportunities.

Wondering how your company compares to the competition or want to know how to improve its position? The strategic diamond, developed by Michael E. Porter, can be a useful tool. It originally referred to the theory of competitive advantage between countries, but in the current economic reality it can easily be applied to the analysis of companies, or specific industries. The diagram distinguishes four elements that, when analyzed in sufficient depth, can give a information about the competitiveness of our enterprise and how it can develop. The classic model includes:

  • conditions of factors,
  • demand conditions,
  • related and auxiliary sectors,
  • strategy the company's structure and rivalry.

What Does Porter's Diamond Show?

Porter's Diamond, as a strategic analysis tool, provides a broad spectrum of information that can be crucial to understanding a company's position in the competitive environment. First of all, it helps to understand what factors shape a company's competitiveness in its environment - whether in terms of the availability and quality of resources, demand conditions, linkages with other sectors, or internal structure and strategy. It also allows you to see how these elements affect each other, which is extremely important in the context of seeking synergies and building competitive advantages.

Another important feature of Porter's diamond is that it allows analysis of the impact of government activity and the role of randomness and unpredictability in shaping competitiveness. These aspects are often overlooked in other strategic analysis models, and can be crucial to a company's long-term success.

How can a strategic diamond help build a company's competitiveness?

The question to be asked is how to use the strategic diamond and its individual components in shaping the company's strategy. Going through the characteristics of the individual parts of the model, it is important to know that the main idea is that they interact with each other and achieve synergy. Focusing on one element may not give a complete picture of our company's position among competitors.

When analyzing the first pillar, which is the conditions of the factors, it is important to focus on grouping them as basic and advanced. The first group refers to the macro-environment on which the company has limited influence. With their help, you can shape the advanced factors that actually give you a competitive advantage and help build your company's strategy. These include know-how, workforce experience, and innovative infrastructure, among others.

The second element of the strategic diamond is demand conditions, that is, an in-depth analysis of the demand for a product or service in the company's environment (for example, in the country). First of all, it is important to focus on the structure of demand, so we can more accurately respond to consumer demand. Its distribution is also important, as it can be geographically even or created by agglomerations. In this part of the analysis, it is also worth taking into account what type of product our company produces, since due to the dissonance in the rate of growth of demand, a strategy is constructed differently for a basic good and a luxury good.

The next part of the model, the related and supporting sectors - these include a broad analysis of competition and the supply chain. It is necessary to consider those companies that directly create competition for our enterprise and those that produce parts necessary for our production process. It is necessary to examine barriers to entry and market conditions and trends. It may be necessary to spend relatively large amounts on research and development to gain a satisfactory position, which will force a change in the company's strategy.

The last pillar of the classic strategic diamond consists of the company's strategy, structure and competition. In the context of a business unit, it is primarily about the effect of market competition on driving the development of business innovation. Using this relationship and other available resources, goals can be set that will improve our competitiveness against other companies.

How do you check your position against the competition?

As a complement to Porter's classic model, two additional factors stand out: government and opportunity. The government's actions are extremely variable in nature, often dictated by the political situation in the country, but at the same time very important. Government can stimulate demand, create and enforce new laws on market competition or encourage entrepreneurs to innovate. The concept of opportunity, on the other hand, refers to the randomness that occurs in the economic space. This means that sometimes the fate of a product in the market is completely random. However, both of these aspects may not lead to a permanent, but only a temporary competitive advantage, so they are often not sufficiently taken into account when creating an analysis and preparing an enterprise's strategy.

The strategic diamond is an effective and versatile tool for analyzing a company and its competitors, as it examines both the company's micro and macro environment. However, it is important to note the synergy between its elements, which translates into a more real picture of our company's situation. Diamond as a tool is unlikely to function on its own, and complements other types of analysis. However, the information it provides can provide a solid basis for determining the company's development strategy, fighting the competition and seizing market opportunities.

Why analyze the company's strategic situation?

Strategic analysis of a company is an essential part of management and development planning. It allows you to understand the current position of the company in the market, identify strengths and weaknesses, as well as detect potential threats and opportunities. Without such analysis, companies may be unaware of key trends, changes in consumer behavior, or new competitors, which can result in inappropriate strategic decisions. Understanding the strategic situation allows companies to focus their resources on the most promising areas, avoid unfavorable market situations, and effectively counter the actions of competitors. In addition, strategic analysis makes it possible to monitor the effectiveness of implemented strategies and their possible modifications, which is crucial for maintaining and expanding competitive advantages.

Would you like to conduct an analysis of your market position, but don't know where to start? Fill out the form below and make an appointment free consultation, and our specialists will help you choose the right solution!

Kacper Gorniak

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