Collis and Rukstad (2008) suggest that any strategy statement must begin with a definition of the ends that the strategy is designed to achieve and as well include a time frame for reaching it. Hambrick and Frederickson (2001) define strategy as a central, integrated, externally oriented concept of how the organisation will achieve its objectives. The mission of the organisation may be aspirational but should try to reflect the fundamental purpose of the organisation. As an organisation moves towards goals and objectives it needs to be more precise and should have targets in mind. The output of strategic analysis should help to articulate the kind of decisions that need to be made in deciding on the various elements of strategy. Only when these choices have been made and the organisation has a strong idea of how it will achieve its goals and objectives it should start to substantially develop the supporting organisational arrangements for implementation such as structure, processes, people and internal policies.
Hambrick and Fredrickson (2001) argue that strategy should address how an organisation intends to engage its external environment. Choices about organisational arrangements are not part of strategy, nor are rewards, IT systems, training, etc. These should support strategy but not make up the strategy itself, though this view might well be challenged by the proponents of the Resource-Based-View of strategy. This point stills accepts that strategy is not a linear process but a looping on where different elements of strategic process are interrelated. It also accepts that not all of the work can be done at the planning stage, some has to be left for incremental processes as circumstances change.
Hambrick and Fredrickson (2001) argue that in order to have a single unified strategy five major elements of strategy must be thought about and acted upon. These five components of their model are:
1. Arenas – Where will we be active?
2. Vehicles – How will we get there?
3. Differentiators – How will we compete or win?
4. Staging – What will be the speed and sequence of initiatives?
5. Economic Logic – How will we obtain our returns?
Under each component of the model a series of questions are asked that help identify the various strategic choices to be made.
ARENAS - Where will we be active?
Organisations should be specific in the activities, service areas, market segments, geographic areas, etc, as well as in the value added stages they will be involved in, such as service design and service provision. Hambrick and Fredrickson (2001) advise that products and services should be targeted by name if at all possible and that strategists should be as specific as possible. The organisation should be careful not to have goals, objectives or visions here. In the strategy, the organisation is advised to distinguish between the primary and secondary arenas to the organisation and link these to priorities.
VEHICLES - How will we get there?
The question of “how do we get there?” can be broken down to other questions regarding internal development, Joint Ventures, licensing/franchising and acquisitions/outsourcing.
Many companies may design their own products but get other companies to manufacture them. Decisions have to be made wether to go into a joint venture with someone who has skills, capacity or capital available that an organisation doesn’t. Failure to say how an organisation is going to get where they want to get can result in delay, and unnecessary cost or even failure.
DIFFERENTIATORS - How will we compete or win?
Where competitive forces are of significant consequence, differentiation is a way to encourage customer loyalty. So the pertinent questions include: how does the firm beat the competition, how does it excel at what it does and how does it develop a loyalty to a brand over others? This can be done through a range of actions, including the image of the brand or company, the comparative price of the product or service, customisation options for the product or service, reliability, or other key inputs.
Hambrick and Fredrickson (2001) argue that is necessary to make deliberate choices here. It is considered impossible to achieve excellence or even improved levels of service unless these questions are asked, answers found, and choices deliberately made. Choices should be mutually reinforcing and consistent with resources and capabilities. The choices made here will be of considerable interest to stakeholders.
STAGING - What will be the speed and sequence of initiatives?
In the Staging component questions about the order of initiatives must be asked. Just like a building will have foundations, walls, plumbing, electricity and decoration, a strategy will need to sequence its actions to achieve its goals and objectives. Staging is driven by resources (money and staff), urgency (opportunity or threat), credibility (resource attraction and stakeholder confirmation), and early wins. For example, a pharmaceutical firm might grow its global footprint by first broadening its product arenas then using this foundation to broaden its geographic market arenas.
Economic Logic - How will we obtain our returns?
The economic logic element reflects how all the pieces tie together in a way that satisfies key stakeholders. In the private sector, this element of the model essentially refers to the business model, how profits are made. One type of business model might use economies of scale, scope and replication (e.g. Ryanair or Lidl). A different kind of business model involves the use of patents that allows a firm to sell goods and services at a considerable margin of profit until the patent runs out (Dyson vacuum cleaners). Another model charges higher prices for unique design or product features (Apple) or prestige brands (Ferrari). For non-profit organisations, economic logic reflects how well the organization is achieving its mission and vision and serving its focal stakeholders.
Strategy is not primarily about planning. It is about intentional, informed, and integrated choices – the staging and pacing element of the strategy diamond builds strategic change into the strategy, the vehicles element identifies strategic dependencies on internal development, alliances, or acquisitions. These aspects are often overlooked in strategy planning exercises. In the development of strategy, all five elements must be considered intentionally. All involve choice as well as preparation and investment of money and staff, and all elements must align and support each other. It is only when these five elements are in order that those responsible for making strategy can then turn to designing all the other supporting activities like organisational arrangements, operational programmes, processes, etc. The strategy diamond allows managers to compile a concise, comprehensive summary of the strategy that can be communicated with ease. As with all planning activities, creating and discussing a strategy diamond for a product, service, business, or diversified organisation serves to foster and create a shared understanding of the strategy and strategy gaps. The diamond can be used for any industry. It can also be used for competitor analysis where a competitors’s individual strategy diamonds may be mapped out.
The relationships between the variables in the strategy diamond are not based on empirical evidence, but on anecdotal support and therefore the model has the same drawbacks as other checklist-type models such as McKinsey's 7S. When one piece of the model is changed, it is possible that all the other pieces of the model must be changed as well.
The model assumes rational decision making where choices about the strategy diamond facets and resource allocation are not politicized. Moreover, the model emphasizes strategy formulation and key “soft issues” would need to be accounted for in the context of strategy implementation.
The model itself is inwardly focused and does not automatically take system dynamics or competitive interaction into account. These dynamic aspects of strategy based on external analysis must be included in the staging and pacing element for the strategy to also be dynamic.
The tool is valuable because it helps managers focus on the important strategic choices they are making (or not making). However, if you assume that two firms have essentially the same strategy diamond, then execution will differentiate them, not the strategy.