The word ‘strategy’ is always mostly misused. Because of this, let’s spend a few moments making sure we understand what strategy means.
According to Wikipedia ‘Strategy generally involves setting goals and priorities, determining actions to achieve the goals, and mobilizing resources to execute the actions.’
The goals might be long, medium or short-term, depending on the time frame you are working with,
Having said that, let’s take a look at what exactly the strategy diamond is.
The strategy diamond is simply a model for creating a business strategy outline, that provides a simple way to show how the different parts of an organization’s strategy fit together.
Created in 2001 by Donald Hambrick, a management professor and James Fredrickson, the framework shows the way in which different factors interconnect to deliver business profit.
A strategy diamond consists of five elements forming a coherent business strategy. These five elements of the strategy include the Arenas, Differentiators, Vehicles, Staging and Economic Logic.
Let dive in
The first question that the Strategy Diamond helps startups to answer is “Where will we be active?”.
Most early-stage startups often make the mistake of not being specific with their response. For example, you hear founders saying, “we want to be the number one financial service provider in Nigeria”.
But this is more a vision statement than a strategy.
To overcome this, you need to be as specific as possible when describing arenas
To help you do this, you can simply provide answers to the following questions:
- Which product categories will you compete in?
- Which marketing channels will you use?
- What market segments will you target?
- Which geographic areas is your target?
- What tech stack will you use?
- What value creation stage will you focus on?
This is what sets you apart from your competition, such that it gives you a competitive advantage in your current and future arenas.
Differentiators help you answer the question; How will you win in the marketplace?
Is it through an image, price, product dependability, or how quickly you get your product to the marketplace?
Whatever you feel sets you apart is your differentiator.
Now that you know your arena, and what makes you stand out from your competitors (differentiator), it’s time to specify how you are going to get there.
Here you determine what vehicle (medium) you will use to get from where you are to where you want to be.
Examples of Vehicles include:
- Joint ventures
- Franchising and so on
Again, you need to be as specific as possible, avoid generic responses,
This step helps you determine what moves you need to take to get to where you want to be.
As an early-stage startup, staging is very important. There are many stories of companies that expanded too fast before they were ready, and as a result, most of these startups are no longer in existence.
You need to progress from one point to the next and your strategy must clearly show that, otherwise, you risk getting ahead of yourself. You risk taking on more than you can manage and eventually if you can’t handle the pressure, you will be out of business.
Two important questions to ask during this step are:
- What sequence of steps should we take?
- At what speed should we take these steps?
Be sincere with your response to these two questions
The last part of the strategic diamond model focuses on how you will obtain your returns.
Will this be achieved by lowering costs to give value for the price or by providing premium services for premium pricing?
You have to figure out what will best suit your startup and clearly state it.
Now that you understand what the strategy diamond model is all about, let’s look at when you should use the model.
When to use the Strategy Diamond model
The Strategy Diamond Model is designed to help startups consider the most important questions that need to be answered when defining their business strategy or organizing the strategy as a whole so that each part integrates with the others. It also helps with figuring out the business’s goals and the best way to achieve them.
Strategy Diamond Example
Let’s take a look at the strategy of Ikea.
Ikea offers affordable, Scandinavian-designed furniture, via its retail stores. Most Ikea furniture requires home assembly.
The diagram below shows the Strategy Diamond of Ikea
Let’s break it down into the five categories that make up the Strategy Diamond
Arena: young people who want to buy inexpensive furniture
Vehicle: wholly owned stores.
Differentiators: low price, reliable quality, in-house design and instant fulfilment.
Staging: early base in each country, then expanding later
Economic logic: economies of scale and replication efficiencies.
A final note on The Strategy Diamond Model
Many other strategic plans focus on just one or two of the aforementioned elements, leading to gaps that might cause problems for your business later.
One way the strategy diamond can help as an early-stage startup is that it helps you to stay focused and ensure that you fulfil all of your business’s needs rather than just one or two.