Porter’s Diamond
Innovation Alphabet
Porter’s Diamond
in a nutshell
Marylin Monroe sang “Diamonds Are A Girl’s Best Friend”. Porter’s Diamond, instead, can be an entrepreneur’s best friend. It is a self-reinforcing system designed to analyze the performance of companies and study ways to achieve sustainable competitive advantage based on a nation’s ability to attract new businesses and invest resources.
Application Fields
• Economic theories: Micheal Porter is among the most celebrated economists ever, particularly in the theoretical field of management strategy. His “diamond” was created to illustrate the main factors that influence a country’s international advantage. But, by extension, it can help companies interpret the global economy with each state’s endogenous conditions in mind.
• Strategy: Not only theory, but also practice. The diamond is used as a framework in building a business strategy. It can calculate the intensity with which the market forces companies to compete aggressively and innovatively. Porter considers the fact that, often the structure of a company is determined by the social conventions of the country in which it is born (think of the Japanese example).
• Competitor analysis: As a manager ponders the possibility of landing the company in a foreign market, Porter’s Diamond is a useful tool for lucidly recognizing its positioning, potential opportunities, and possible risks. Rivalry and new challenges, however, can serve to improve the quality of the products manufactured and sold.
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Industries
• Porter’s Diamond in the automotive industry
Porter’s Diamond can help to understand the reasons behind the success of the German automotive company Audi in its own native country. First, there are no speed limits in Germany: customers are more likely to buy more powerful vehicles. In addition, the nation’s economic situation is particularly prosperous (or, at least, it was before the Covid-19 pandemic broke out). There are other highly specialized sectors that come to the rescue of the production chain, such as the computer industry, distributors of electronic components, or the banks themselves, in a position to provide capital.
• Porter’s Diamond in the fashion industry
France is a renowned country when it comes to fashion. In fact, the capital hosts one of the most awaited and followed Fashion Weeks. From Paris came some of the most famous international fashion houses, such as Louis Vuitton. The birth of the industry has historical origins: we have to go back to the 17th century, when King Louis XIV gave approval to the development of textile industries. France, then, is a highly competitive nation for the rise of clothing brands, and here clothing companies enjoy a certain international competitive advantage.
• Porter’s Diamond in the furniture industry
In choosing the placement of its stores, IKEA considers the urban design of the countries in which it is located. For example, in Europe, stores have been distributed mostly in the suburbs of large cities, yet in such a way they are still easily accessible and can provide free parking. In the Asian market, on the other hand, furniture stores are located in areas close to public transportation stops.
Business Functions
• Porter’s Diamond in support of the manufacturing sector
BMW is known as a globally prestigious brand in the automotive industry. Actually, it began as a manufacturer of aircraft engines. Following a careful analysis of the economic advantages offered by Germany, the company was able to take advantage of technological innovation and manpower to focus everything on automotives, which has, in fact, defined the company’s success.
• Porter’s Diamond in support of internationalization
As H&M, a Swedish clothing company, opened up to foreign markets, it had to consider the cultural specificities of Asian countries. Indeed, while in Europe a floral dress represents a common – if not trivial – summer choice, in Eastern culture it would be associated with the idea of death. Marketing managers, therefore, had to redesign (metaphorically and literally) the products according to the most appropriate style for the customs of the target markets.
• Porter’s Diamond in support of the supply chain
The Japanese company Honda’s suppliers are both numerous and quite diverse. Should a provider tend to demonstrate a prevaricating authoritarian force, negative consequences could result for the automaker. But the company, by constantly focusing on innovation and technology, has managed to gain an enviable competitive advantage and attractiveness. As a result, the dependency relationship is more unbalanced on the side of suppliers toward Honda than vice versa, and the authority of providers is definitely undermined.
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Check out more of the Innovation Alphabet:
Gamification
Gamification
Gamification is actually adding a game-like element to make more fun and engaging something that’s not necessarily a game. It’s all about turning a task that might be boring or difficult into a more enjoyable and motivating activity. You can also earn points, badges, and rewards for completing certain actions or challenges. Are you ready to play?
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Business Intelligence
Business Intelligence
A smart business means efficiency: Business Intelligence represents the ability to collect up-to-date data, present it in easy-to-understand formats, and deliver it in a timely manner to employees. Making data-driven decision-making and management processes leads to competitive advantage, reduces inefficiencies, and improves productivity and service at all levels.
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Artificial Scarcity
Artificial Scarcity
We often tend to desire what we cannot have. Or what we are in danger of losing: Artificial Scarcity is a strategy that flaunts a limited number of items that do not correspond to actual availability. The goal is to stimulate the perception in consumers that the stock of items is about to run out and thus create a need based on the “fear of being cut off” or the intention to buy the item in order to resell it at a higher price.
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Subscription Model
Subscription Model
A subscription model is a business tool that generates revenue by charging customers a fee at regular intervals. The company provides products or services to subscribers on a subscription basis, usually monthly or annually. In this way, loyalty has become more important than acquiring new users.
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Holacracy & Flat Organization
Holacracy & Flat Organization
A “flat organization” breaks down the traditional hierarchy and removes its negative connotation, while “holacracy” is the business tool that facilitates its formation. Flat organizations place more emphasis on communication and collaboration, aspiring to a distributed decision-making process that gives each employee a voice. But this is a model that is difficult to implement.
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Mass Customization
Mass Customization
Mass customization is an initiative adopted by companies to embrace the increasingly diversified needs of customers. By offering customizable products and services, consumers feel engaged and can bring their creativity into play. Brands gain from this a boost in perceived value and the opportunity to fuel a positive word-of-mouth marketing.
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Coopetition
Coopetition
If you can’t beat them, join them. Coopetition is a business strategy that defines cooperative and competitive relationships between competing companies in the same young or high-growth market. The goal is to travel a stretch of road together to lower initial research and development costs. Once the desired results are achieved, the companies will return to being enemies as before.
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MVP
MVP
To the disappointment of all sports fans, this is not an article about Michael Jordan. In the language of business, MVP stands for Minimum Viable Product and indicates the version of a new product that has enough features to attract customers. In this way, a team can gather the most feedback with the least effort, improve the prototype, and validate its sale.
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Agile
Agile
Agile is an approach to software development designed to respond to change. Teams quickly analyze the context in which they operate, identify uncertainties faced, and figure out how to adapt to always move forward. Interaction between individuals comes before processes and tools; collaboration with the customer is more important than negotiating contracts.
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Bounded Rationality
Bounded Rationality
The best solutions always come to mind when it is too late. This is because human beings tend to make decisions on the basis of satisfaction rather than optimization. Bounded Rationality means that we are unable to think clearly and linearly, we proceed by trial and error and forget all the possible variables that affect the process. But we are also flawed.
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