Porter’s Diamond Model
Porters Diamond Model is a strategic tool used by companies, leaders and entrepreneurs to evaluate their business strategic environment and overall competitiveness. Developed by Harvard Business School professor Michael Porter in 1990, the Diamond Model was designed to explain why some nations are more productive than others and why certain industries are able to succeed in some nations, but not others.
The model consists of four areas or ‘princesses’: factor conditions, demand conditions, related and supporting industries and firm strategy, structure and rivalry. The emphasis on and interaction between the four diamond elements constructs a framework which a nation or region can use to assess its overall advantages in international business or industry.
The diamond model is comprised of four diamond shapes each filled with factors that pertain to their specific activity and category. Factor conditions are filled with factors such as availability of labor, capital, level of technological development, and natural resources. Demand conditions are filled with factors such as intensity of domestic demand, product sophistication, and the role of international buyers. Related and supporting industries are categorised by the presence of local suppliers, existence of technological and commercial networks, and the presence of local specialised infrastructure. Finally, firm strategy, structure and rivalry are made up of factors such as the degree of international competition and nature of local competition.
Each of these four aspects of the diamond is connected, creating a whole diamond shape. The importance of the diamond model is that it can be used to develop strategies to improve an organisations position in its local operating environment. The factors present in each of the different diamonds can be used to assess the competitiveness of a business in the international marketplace.
For example, if a business is using the diamond model then it may identify that it has strong demand conditions within its industry, but lacks adequate factor conditions such as capital and labour. In this scenario, the business can focus its efforts on acquiring funds and hiring personnel who have the skills and knowledge to increase the organisations competitiveness in the international market place.
Additionally, the diamond model can be used to examine the overall structure of an industry in order to develop strategies to increase their overall competitiveness. Using the diamond model, a business can identify potential collaborators with which it can use to create strategic partnerships or alliances in order to gain greater strength through collaboration.
In conclusion, the diamond model is an effective tool for businesses, leaders and entrepreneurs to assess their competitive environment. The model can be utilized to identify areas of opportunity and factor conditions present in the business’s environment, allowing them to develop strategies which can help improve their international competitiveness. The diamond model is thus an invaluable tool when it comes to making strategic business decisions as it allows businesses to make well-informed decisions.
