National Diamond

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Strategic analysis typically focuses on two views of organization. The industry-view and The Resource-Based View (RBV). These views analyse the organisation without taking into consideration relationship between the organizations strategic choice (i.e. Porter generic strategies) and institutional frameworks. The National Diamond' is a tool for analyzing the organizations task environment. The National Diamond highlights that strategic choices should not only be a function of industry structure and a firms resources, it should also be a function of the constraints of the institutional framework. Institutional analysis (such as the National Diamond) becomes increasingly important as firms enter new operating environments and operate within new institutional frameworks. Michael Porter's National Diamond framework resulted from a study of patterns of comparative advantage among industrialized nations. It works to integrate much of Porter's previous work in his competitive five forces theory, his value chain framework as well as his theory of competitive advantage into a consolidated framework that looks at the sources of competitive advantage sourcable from the national context. It can be used both to analyze a firm's ability to function in a national market, as well as analyse a national markets ability to compete in an international market. It recognizes four pillars of research (factor conditions, demand conditions, related and supporting industries, firm structure, strategy and rivalry) that one must undertake in analysing the viability of a nation competing in a particular international market, but it also can be used as a comparative analysis tool in recognising which country a particular firm is suited to expanding into. Two of the aforementioned pillars focus on the (national) macroeconomics environment to determine if the demand is present along with the factors needed for production (i.e. both extreme ends of thevalue chain). Another pillar focuses on the specific relationships supporting industries have with the particular firm/nation/industry being studied. The last pillar it looks at the firm's strategic response (microeconomics) i.e. its strategy, taking into account the industry structure and rivalry (see five forces). In this way it tries to highlight areas of competitive advantage as well as competitive weakness, by looking at a companies/nations suitability to the particular conditions of a particular market.

A graphical representation of Porter's National Diamond

Contents
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1 Principles 2 Components

o o o o o

2.1 Factor Endowment 2.2 Related and Supporting Industries 2.3 Demand Conditions 2.4 Strategy, Structure and Rivalry 2.5 The role of government

3 Criticism 4 See also 5 References

Principles

For analyzing national competitiveness, we need to focus upon firm performance. The role of the national environment is providing a context within which firms develop their identity, resources, capabilities, and managerial styles.

For a country to sustain a competitive advantage in a particular industry sector requires dynamic advantage: firms must broaden and extend the basis of their competitive advantage by innovationand upgrading. The dynamic conditions that influence innovation and the upgrading are far more important than initial resource endowments in determining national patterns of competitiveness.

Components
The four different components of the framework are:

Factor Endowment

Related And Supporting Industries Demand Conditions Strategy, Structure, And Rivalry

Factor Endowment
Factor Endowment can be categorized into two forms:

"Home-Grown" resources Highly specialized resources

For example, in analyzing Hollywood's preeminence in film production, Porter has pointed out the local concentration of skilled labor, including the different schools of film (UCLA & USC) in the area. Also, resource constraints may encourage development of substitute capabilities; Japan's relative lack of raw materials has spurred miniaturization and zero-defect manufacturing.

Related and Supporting Industries

For many firms, the presence of related and supporting industries is of critical importance to the growth of that particular industry. A critical concept here is that national competitive strengths tend to be associated with "clusters" of industries. For example, Silicon Valley in the USA and Silicon Glen in the UK are techno clusters of high-technology industries which includes individual computer software & semi-conductor firms. In Germany, a similar cluster exists around chemicals, synthetic dyes, textiles and textile machinery.

Demand Conditions
Demand conditions in the domestic market provide the primary driver of growth, innovation and quality improvement. The premise is that a strong domestic market stimulates the firm from being a startup to a slightly expanded and bigger organization. As an illustration, we can take the case of Germany which has some of the world's premier automobile companies like Mercedes, BMW,Porsche. German auto companies have dominated the world when it comes to the high-performance segment of the world automobile industry. However, their position in the market of cheaper, mass-produced autos is much weaker. This can be linked to a domestic market which has traditionally demanded a high level of engineering performance. Also, the transport infrastructure of Germany, with its Autobahns does tend to favor high-performance automobiles.

Strategy, Structure and Rivalry

National performance in particular sectors is inevitably related to the strategies and the structure of the firms in that sector. Competition plays a big role in driving innovation and the subsequent upgradation of competitive advantage. Since domestic competition is more direct and impacts earlier than steps taken by foreign competitors, the stimulus provided by them is higher in terms of innovation and efficiency. As an example, the Japanese automobile industry with 8 major competitors

(Honda, Toyota, Suzuki, Isuzu, Nissan, Mazda, Mitsubishi, and Subaru) provide intense competition in the domestic market, as well as the foreign markets in which they compete.

The role of government

The role of government in Porter's Diamond Model is "acting as a catalyst and challenger; it is to encourage or even push - companies to raise their aspirations and move to higher levels of competitive performance " . They must encourage companies to raise their performance, stimulate early demand for advanced products, focus on specialized factor creation and to stimulate local rivalry by limiting direct cooperation and enforcing anti-trust regulations.

Criticism
Criticism on Porter's national diamond model resolves around a number of assumptions that underlie it. As described by Davies and Ellis: "sustained prosperity may be achieved without a nation becoming 'innovation-driven', strong 'diamonds' are not in place in the home bases of many internationally successful industries and inward foreign direct investment does not indicate a lack of 'competitiveness' or low national productivity". Porter generalised from the American case; for developing countries the model may be wrong.

Porter's Four Corners Model

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Porters four corners model is a predictive tool designed by Michael Porter that helps in determining a competitors course of action. Unlike other predictive models which predominantly rely on a firms current strategy and capabilities to determine future strategy, Porters model additionally calls for an understanding of what motivates the competitor. This added dimension of understanding a competitor's internal culture, value system, mindset and assumptions help in determining a much more accurate and realistic reading of a competitors possible reactions in a given situation.
Contents
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1 The Four Corners 2 Strengths 3 Use in competitive intelligence and strategy 4 See also 5 References 6 Further reading

[edit]The

Four Corners

Motivation Drivers This helps in determining competitor's action by understanding their goals (both strategic and tactical) and their current position vis--vis their goals. A wide gap between the two could mean the competitor is highly likely to react to any external threat that comes in its way, whereas a narrower gap is likely to produce a defensive strategy. Question to be answered here is: What is it that drives the competitor? These drivers can be at various levels and dimensions and can provide insights into future goals. Motivation Management Assumptions The perceptions and assumptions the competitor has about itself and its industry would shape strategy. This corner includes determining the competitor's perception of its strengths and weaknesses, organization culture and their beliefs about competitor's goals. If the competitor thinks highly of its competition and has a fair sense of industry forces, it is likely to be ready with plans to counter any threats to its position. On the other hand, a competitor who has a misplaced understanding of industry forces is not very likely to respond to a potential attack. Question to be answered here is: What are competitor's assumption about the industry, the competition and its own capabilities? Actions Strategy A competitor's strategy determines how it competes in the market. However, there could be a difference between the company's intended strategy (as stated in the annual report and interviews) and its realized strategy (as is evident in its acquisitions, new product development, etc.). It is therefore important here to determine the competitor's realized strategy and how they are actually performing. If current strategy is yielding satisfactory results, it is safe to assume that the competitor is likely to continue to operate in the same way. Questions to be answered here are: What is the competitor actually doing and how successful is it in implementing its current strategy? Actions Capabilities

This looks at a competitor's inherent ability to initiate or respond to external forces. Though it might have the motivation and the drive to initiate a strategic action, its effectiveness is dependent on its capabilities. Its strengths will also determine how the competitor is likely to respond to an external threat. An organization with an extensive distribution network is likely to initiate an attack through its channel, whereas a company with strong financials is likely to counter attack through price drops. The questions to be answered here are: What are the strengths and weaknesses of the competitor? Which areas is the competitor strong in?

[edit]Strengths
Considers implicit aspects of competitive behavior Firms are more often than not aware of their rivals and do have a generally good understanding of their strategies and capabilities. However, motivational factors are often overlooked. Sufficiently motivated competitors can often prove to be more competitive than bigger but less motivated rivals. What sets this model apart from others is its insistence on accounting for the "implicit" factors such as culture, history, executive, consultants, and boards backgrounds, goals, values and commitments and inclusion of management's deep beliefs and assumptions about what works or does not work in the market.[1] Predictive in nature Porter's four corners model provides a framework that ties competitor's capabilities to their assumptions of the competitive environment and their underlying motivations. By looking at both a firm's capabilities (what the firm can do) and underlying implicit factors (their motivations to follow a course of action) can help predict competitor's actions with a relatively higher level of confidence. The underlying assumption here is that decision makers in firms are essentially human and hence subject to the influences of affective and automatic processes described by neuroscientists.[1] Hence by considering these factors along with a firm's capabilities, this model is a better predictor of competitive behavior.

[edit]Use

in competitive intelligence and strategy

Despite its strengths, Porter's four corners model is not widely used in strategy and competitive intelligence. In a 2005 survey by the Society of Competitive Intelligence Professionals's (SCIP) frequently used analytical tools, Porter's four corners does not even figure in the top ten.[2] However this model can be used in competitive analysis and strategy as follows: Strategy development and testing: Can be used to determine likely actions by competitors in response to the firm's strategy. This can be used when developing a strategy (such as for a new product launch) or to test this strategy using simulation techniques such as a business war game. Early warning The predictive nature of this tool can also alert firms to possible threats due to competitive action.

Porter's four corners also works well with other analytical models. For instance it complements Porters five forces model well. Competitive Cluster Analysis of industry products in turn complements Four Corners Analysis.[3] Using such models that complement each other can help create a more complete analysis.

http://www.quickmba.com/strategy/global/diam ond/
http://www.valuebasedmanagement.net/methods_porter_diamond_model.html