If strategy is conceptualized as being about choice -- managerial choices about what the organisation does and does not do -- then the strategy diamond highlights the choices and choice-gaps in the current and proposed strategy.
Based on decades of teaching and consulting in the strategy area, professors Don Hambrick and Jim Fredrickson introduced the strategy diamond in 2001. Their aim was to introduce a model that allowed executives to accumulate and consider all the pieces of a strategy in combination instead of in isolation (i.e., pricing decisions vs. R&D decisions vs. capacity decisions and so on). The strategy diamond is more a checklist than a model. It suggests that good strategies include answers to a series of related questions spanning target markets, growth vehicles, speed and path of strategic change, and financial deliverables.
Arenas encompass choices made about where to compete: the external environment such as product or service markets, geographic markets or channels. Arenas also identify value chain activities or value creation stages that are insourced or outsourced. For instance, a pharmaceutical firm may outsource new drug development to smaller biotech firms.
Vehicles identify the degree to which the strategy relies on internal development efforts relative to partnering with or acquisition of external parties.
Differentiators are those factors that are believed to allow the firm to "win" in its targeted arenas, particularly external arenas. Differentiators can include image, price, reliablity, and other key inputs.
4. STAGING & PACING
Staging and pacing refer to the sequence and speed of strategic moves. This element helps identify decision points since strategic moves don't have a single possible pathway. For instance, a pharmaceutical firm might grow its global footprint by first broadening its product arenas then using this foundation to broaden its geographic market arenas.
5. ECONOMIC LOGIC
The economic logic element reflects how all the pieces tie together in a way that satisfies key stakeholders. Economic logic for profit-oriented firms can take the form of scale economies, scope economies, premium pricing or some combination of these. For non-profit organisations, economic logic reflects how well the organization is achieving its mission and vision and serving its focal stakeholders.
Ideally, application of the strategy diamond begins by answering questions about arenas and differentiators. The vehicles dimension is considered an essential element because historically it was treated somewhat as an afterthought. Such treatment has been shown to be particularly problematic for successful strategy implementation. Staging and pacing build strategic change into the strategy. Economic logic, as the last step in the strategy formulation process, summarizes how the four other elements work together to maximize profits (or otherwise benefit its stakeholders). It tells us why all the pieces add up in a way that yields near-term and long term positive performance.
Broadly, inputs into analysis using the strategy diamond would include the organisation's mission and vision, goals and objectives the strategy must deliver, and internal and external analysis.
When correctly specified, these five elements are theorized to operate together in a systemic and complementary fashion. The diamond is then used in conjuction with any number of strategy implementation frameworks.