Hi class,

Let us discuss regarding strategy diamond created by Donald Hambrick and James
Fredrickson. It provides a simple way to show how different parts of an organization's
strategy fit together. It is a checklist of things, which has to have a complete strategy.
When making decisions, managers must consider the set of choices in a strategy, that
relate to five elements: (1) arenas, (2) differentiators, (3) vehicles, (4) staging and
pacing, and (5) economic logic.
 A good strategy considers the above five vital elements in order to arrive at specific
answers to five questions:
Arenas - It is the area in which a firm is required to be active in decision-making. It
encompasses its products, services, distribution channels, market segments,
geographic areas, technologies, and even stages of the value-creation process.
Identification of the arenas must be precise. It tells what a firm should and should not
do.
It helps a firm decide which activities to be outsourced and which ones to be done by
the firm itself.
It helps to determine which particular industry or geographic segments are the firm’s
prime competitive arenas. The arenas facet also allows summarizing corporate strategy,
i.e., it allows summarizing which industry and geographical segments the firm competes
in.
Differentiators - Differentiators are features and attributes of a company’s product or
service, which are unique to the company and give a competitive advantage in the
marketplace. For example, Japanese automakers Toyota and Honda have done very
well by providing effective combinations of differentiators. Many consumers find the
value that they get. Even though the good strategies often combine differentiators,
history has shown that firms often perform poorly when trying to provide all things to all
consumers. It is difficult to imagine, for example, a single product that boasts both state-
of-the-art technology and the lowest price on the market.
There are two crucial factors in selecting differentiators: (1) Early upfront decisions are
crucial, (2) Identifying and making tough choices about trade-offs.
Audi has aligned successfully these two factors. Audi management realized several
years ago, that its cars were perceived as low-quality but expensive. It had two options:
(1) lower its costs to match customers' perceptions on product-quality, or (2) improve
quality sufficiently to justify premium pricing. Finally, Audi invested heavily in quality-
programs and in finetuning its marketing strategy. Within a decade, Audi cars quality
has increased remarkably, and customer-perception has taken them much closer to the
level of Mercedes-Benz and BMW. Audi has garnered the benefits of premium-pricing
and improved profitability by decisions of strategic up-market move with significant
trade-offs.
Vehicles
It enables firms to partake in the targeted areas. A firm that wants to become global can
do so in many different ways. In a recent drive to enter specific international markets
(e.g., Argentina), Walmart has opened new stores and grown organically, meaning that
it developed all the stores internally instead of acquiring existing stores in the intended
countries to enter. Elsewhere, Walmart has purchased existing retailers and is in the
process of transferring its unique way of doing business to the acquired companies.
Likewise, a firm may invest in research and development or could opt to ally with a
supplier or a competitor that already possesses the technology, accelerating the
integration of the missing piece into its set of resources and capabilities or simply
buying a firm that possesses the technology. The possible means to enter a new arena
include acquisitions, alliances, and organic investment and growth.
Staging and Pacing – Staging choices mirror the firm’s industry knowledge, human
capital, and cash. Staging decisions are driven by the urgency and extent of business
credibility and the need for early wins. For example, the entry of Walmart into
international markets was very late. Had the company pursued global opportunities
earlier, it would have developed a better sense of foreign market conditions. However,
by delaying its global moves, the firm could focus on dominating the US market only.
Presently there are mixed results overseas,
Economic Logic – This element determines how a firm will generate positive returns
beyond its cost of capital. Average profits can be earned after a firm meets all fixed,
variable, and financing costs. Cost and revenue are analyzed. Sometimes economic
logic resides primarily on the cost side of the equation. For example, in the Irish airline
Ryanair, lower costs per passenger mile than any significant competitor were
considered. At other times, it may rest on the firm’s ability to increase the customer’s
willingness to pay premium prices for products. When the five elements of the strategy
are aligned and mutually reinforcing, the firm is generally able to perform well.

Regards,

Bibhuti

Reference: https://saylordotorg.github.io/text_international-business/s14-04-the-
five-elements-of-strategy.html