G.N.

KHALSA
COLLEGE

STRATEGIC
MANAGEMENT
MICHAEL PORTER’S
DIAMOND MODEL
TYBBI {SEM-6}

2011

MATUNGA-19
 Michael Porter
Michael Porter

May 23, 1947 (age 63)

Born
Ann Arbor, Michigan

Occupation Author, Management Consultant

Michael Eugene Porter (born May 23, 1947 is the Bishop

William Lawrence University Professor at Harvard Business
School. He is a leading authority on company strategy and the
competitiveness of nations and regions. Michael Porter’s work is
recognized in many governments, corporations and academic
circles globally. He chairs Harvard Business School's program
dedicated for newly appointed CEOs of very large corporations.

Early life

Michael Eugene Porter received a B.S.E. with high honors in

aerospace and mechanical engineering from Princeton University
in 1969, where he was elected to Phi Beta Kappa and Tau Beta Pi.
He received an M.B.A. with high distinction in 1971 from the
Harvard Business School, where he was a George F. Baker
Scholar, and a Ph.D. in Business Economics from Harvard
University in 1973. Porter was an outstanding intercollegiate
golfer while at Princeton.

Career

Michael Porter is the author of 18 books and numerous articles

including Competitive Strategy, Competitive Advantage,
Competitive Advantage of Nations, and On Competition. A six-
time winner of the McKinsey Award for the best Harvard Business
Review article of the year, Professor Porter is the most cited
author in business and economics.

Michael Porter’s core field is competition and company strategy.

He is generally recognized as the father of the modern strategy
field, and his ideas are taught in virtually every business school in
the world. His work has also re-defined thinking about
competitiveness, economic development, economically distressed
urban communities, environmental policy, and the role of
corporations in society.

Recently, Porter has devoted considerable attention to

understanding and addressing the pressing problems in health
care delivery in the United States and other countries. His book,
Redefining Health Care (written with Elizabeth Teisberg), develops
a new strategic framework for transforming the value delivered
by the health care system, with implications for providers, health
plans, employers, and government, among other actors. The book
received the James A. Hamilton award of the American College of
Healthcare Executives in 2007 for book of the year. His New
England Journal of Medicine research article, “A Strategy for
Health Care Reform—Toward a Value-Based System” (June 2009),
lays out a health reform strategy for the U.S. His work on health
care is being extended to address the problems of health care
delivery in developing countries, in collaboration with Dr. Jim Yong
Kim and the Harvard Medical School and Harvard School of Public
Health.
In addition to his research, writing, and teaching, Porter serves as
an advisor to business, government, and the social sector. He has
served as strategy advisor to numerous leading U.S. and
international companies, including Caterpillar, Procter & Gamble,
Scotts Miracle-Gro, Royal Dutch Shell, and Taiwan Semiconductor.
Professor Porter serves on two public boards of directors, Thermo
Fisher Scientific and Parametric Technology Corporation.
Professor Porter also plays an active role in U.S. economic policy
with the Executive Branch and Congress, and has led national
economic strategy programs in numerous countries. He is
currently working with the Presidents of Rwanda and South Korea.

Michael Porter has founded three major non-profit organizations:

Initiative for a Competitive Inner City - ICIC in 1994, which
addresses economic development in distressed urban
communities; the Center for Effective Philanthropy, which creates
rigorous tools for measuring foundation effectiveness; and FSG-
Social Impact Advisors, a leading non-profit strategy firm serving
NGOs, corporations, and foundations in the area of creating social
value. He also currently serves on the Board of Trustees of
Princeton University.

In 2000, Michael Porter was appointed a Harvard University

Professor, the highest professional recognition that can be
awarded to a Harvard faculty member.

Michael Porter is one of the founders of The Monitor Group, a

premier strategy consulting firm. He is a Senior Partner and
Academic Director.

His main academic objectives focus on how a firm or a region can

build a competitive advantage and develop competitive strategy.
He is also a Fellow Member of the Strategic Management Society.
One of his most significant contributions is the five forces. Porter's
strategic system consists primarily of:

• Competitive advantage
• Porter's Five Forces Analysis
• strategic groups (also called strategic sets)
• the value chain
 • the generic strategies of cost leadership, product
differentiation, and focus
• the market positioning strategies of variety based, needs
based, and access based market positions
• global strategy
• Porter's clusters of competence for regional economic
development
• Diamond model

Works

Competitive Strategy

• Porter, M.E. (1979) "How Competitive Forces Shape

Strategy", Harvard Business Review, March/April 1979.
• Porter, M.E. (1980) Competitive Strategy, Free Press, New
York, 1980.
• Porter, M.E. (1985) Competitive Advantage, Free Press, New
York, 1985.
• Porter, M.E. (ed.) (1986) Competition in Global Industries,
Harvard Business School Press, Boston, 1986.
• Porter, M.E. (1987) "From Competitive Advantage to
Corporate Strategy", Harvard Business Review, May/June
1987, pp 43-59.
• Porter, M.E. (1996) "What is Strategy", Harvard Business
Review, Nov/Dec 1996.
• Porter, M.E. (1998) On Competition, Boston: Harvard
Business School, 1998.
• Porter, M.E. (1990, 1998) "The Competitive Advantage of
Nations", Free Press, New York, 1990.
• Porter, M.E. (1991) "Towards a Dynamic Theory of Strategy",
Strategic Management Journal, 12 (Winter Special Issue), pp.
95-117.
• McGahan, A.M. & Porter, M.E. Porter. (1997) "How Much Does
Industry Matter, Really?" Strategic Management Journal, 18
(Summer Special Issue), pp. 15-30.
• Porter, M.E. (2001) "Strategy and the Internet", Harvard
Business Review, March 2001, pp. 62-78.
 • Porter, M.E. & Kramer, M.R. (2006) "Strategy and Society:
The Link between Competitive Advantage and Corporate
Social Responsibility", Harvard Business Review, December
2006, pp. 78-92.

Domestic Health Care

• Porter, M.E. & Teisberg, E.O. (2006) "Redefining Health Care:

Creating Value-Based Competition On Results", Harvard
Business School Press, 2006.

Global Health Care

• Jain SH, Weintraub R, Rhatigan J, Porter ME, Kim JY.

Delivering Global Health. Student British Medical Journal
2008; 16:27.
• Kim JY, Rhatigan J, Jain SH, Weintraub R, Porter ME. From a
declaration of values to the creation of value in global
health: a report from Harvard University's Global Health
Delivery Project. Glob Public Health. 2010 Mar; 5(2):181-8.
• Rhatigan, Joseph, Sachin H Jain, Joia S. Mukherjee, and
Michael E. Porter. "Applying the Care Delivery Value Chain:
HIV/AIDS Care in Resource Poor Settings." Harvard Business
School Working Paper, No. 09-093, February 2009.

Criticisms

Porter has been criticized by some academics for inconsistent

logical argument in his assertions.[2] Critics have also labeled
Porter's conclusions as lacking in empirical support and as
justified with selective case studies.
 National Diamond
Strategic analysis typically focuses on two views of organization.
The industry-view and The Resource-Based View (RBV). These
views analyze the organization 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
analyze 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 analyzing the
viability of a nation competing in a particular international
market, but it also can be used as a comparative analysis tool in
recognizing 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 the value 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 company’s/nations suitability to the particular
conditions of a particular market.

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 innovation and 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 Conditions
• Related And Supporting Industries
• Demand Conditions
• Strategy, Structure, And Rivalry

Factor Conditions

Factor conditions 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
and 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 up gradation 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 9 major
competitors (Honda, Toyota, Suzuki, Isuzu, Nissan, Mazda,
Mitsubishi, Subaru & Datsun) provide intense competition in the
domestic market, as well as the foreign markets in which they
compete.

The Diamond as a System

The effect of one point depends on the others. For example,

factor disadvantages will not lead firms to innovate unless there is
sufficient rivalry. The diamond also is a self-reinforcing system.
For example, a high level of rivalry often leads to the formation of
unique specialized factors.

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 generalized
from the American case; for developing countries the model may
be wrong.

CASE STUDIES
Application to the Japanese Fax Machine
Industry
The Japanese facsimile industry illustrates the diamond of
national advantage. Japanese firms achieved dominance in this
industry for the following reasons:

 Japanese factor conditions: Japan has a relatively high

number of electrical engineers per capita.
 Japanese demand conditions: The Japanese market was
very demanding because of the written language.
 Large number of related and supporting industries with
good technology, for example, good miniaturized
components since there is less space in Japan.
 Domestic rivalry in the Japanese fax machine industry
pushed innovation and resulted in rapid cost reductions.
 Government support - NTT (the state-owned telecom
company) changed its cumbersome approval
requirements for each installation to a more general type
approval.

Greek’s Olive Oil Sector Using Porter’s

Diamond Model
ξ Agricultural products of Greek are olive oil and table olives.
 ξ In Greece a large number of small family businesses olive oil
sector enterprises are operating.

ξ Greece has the third largest production capacity of olive oil,

a production that for certain areas of the country are the
major sources of income.

ξ The aim of this work is to study the comparative and

competitive advantages of the olive oil production in Greece
and international markets.

ξ It is also used to study the economic structure and profile of

Greek rural areas.

Factor conditions are

a) analysis of cultivation procedures and demands
b) production and processing infrastructures
c) human capital and labour cost
d) technological innovation and
e) capital.

Demand conditions of national market refer to

a) structure and characteristics of domestic demand
b) size and trends of domestic demand and
c) international demand for Greek olive oil and its characteristics.

According to Porter, domestic demand can alone lead in

economies of scale and actively support international
competitiveness of local companies. An example indicating this
process is the adoption of innovations in domestic companies
originating from strong demand and needs in local markets for
higher quality products.

Relating or supporting sectors develop a piece of the value

system of the product and actively support and affect the proper
operation and growth of olive oil sector. In our case such factors
are the
a) suppliers of growers
b) transportation enterprises and
c) distribution channels.
Aims, culture and overall structure determine largely Corporate
Strategy, a crucial factor for the final success of the whole
attempt which also affects severely the operation of any other
subsidiary or affiliate company. Also domestic competition can
lead both parent and subsidiary company’s strategic choices and
contribute to the final form of its competitive advantage.

For Greek olive oil production sector the domestic competition lies
a) between same activity companies
b) their marketing strategies
c) market trends and focus.
Finally government as an external factor affects each of the
previous mentioned parameters, thus enterprise’s
competitiveness. Governmental policy is applied in regional,
national and international level and obviously can directly affect
and influence business operations.

ACKNOWLEDGEMENT
We express our sincere thanks to
our esteemed institution “Guru
Nanak Khalsa College” for this
opportunity given to us.

We wish to express our deep

sense of gratitude to Professor
Allan D’souza and Professor Kapil
Bhopatkar. We also sincerely
thanks to all our professors and
non – teaching staff. They have
been constant source of
inspiration in completing the
project. It is our foremost duty to
thanks all our respondents and
group members who helped us in
completing our project.
Websites
 http://www.12manage.com/methods_
porter_diamond_model.html
 http://www.valuebasedmanagement.
net/methods_porter_diamond_model.
html
 http://en.wikipedia.org/wiki/Michael_P
orter
 http://www.12manage.com/methods_
porter_diamond_model.html
 http://en.wikipedia.org/wiki/National_
Diamond
 http://www.quickmba.com/strategy/gl
obal/diamond/
 http://www.themanager.org/models/d
iamond.htm
 http://www.themanager.org/models/d
iamond.htm
 INDEX

• Michael Eugene Porter

• National Diamond

 Introduction

 Principles

 Components

 Factor Conditions

 Demand Conditions

 Related and Supporting Industries

 Strategy, Structure and Rivalry

 The Diamond as a System

 The Role of Government

 Criticism

• Case Studies

 Japenese Fax Machine Industry

 Greek’s Olive Oil Sector