Porter's diamond.

The American theorist Michael Porter made great contributions in business management. These include his analyses of competitiveness. Which led him to raise what is still known today as Porter’s diamond. And, although initially it focused more on countries and regions, the theory was soon applied to the business world as well. What can you bring to a hardware company? What are the analysis variables? Let’s see!

Porter’s diamond: what does it consist of?

Porter’s diamond is a graphical scheme, shaped like a diamond, hence its name, in which the indicators are related at the micro level. Which has a direct influence on a company, that is, the variables that determine its competitive advantage.

This model indicates that there are reasons for one company to be more competitive than another. By analyzing these factors, the keys for one company to position itself against another can be found.

What can Porter’s scheme bring to a company?

In addition to determining the factors, which we will see them below, what interests a company is the relationship that exists between them.

By identifying the causes of the high competitiveness of an organization, it is studied whether it really translates into an advantage over other companies in the sector. If not, you can look for solutions.

It should be noted that, thanks to Porter’s theory, a company has the possibility to know both its competitors and its environment. This will make it much easier to define a strategy.

Elements of Porter’s diamond analysis

Let’s look at the 4 factors that influence the competitiveness of a company according to Porter’s diamond theory.

1 Factors conditions

The company’s productive factors are detailed. Infrastructure, manpower, resources available would fall within this section. In turn, factors that influence a good positioning in the market are studied. As are the relationships of the company with its environment, innovation and productivity.

 2 Demand conditions

Demand, another aspect that generates competitive advantages according to Porter’s diamond, refers to consumers who, freely and consciously, choose to buy a specific company because of the supply and conditions it offers. Porter further notes that a proactive company will try to anticipate what its customers might demand in the short term.

3 Strategy, structure and rivalry of the enterprises

Competitors, companies that belong to our same sector and that offer products and services to the same customers as our company, promotes the emergence of competitive advantages.

To this end, for it to be truly advantageous, the strategy will include the improvement of the quality of products and services.

4 Related and auxiliary sectors (related and support)

Due to the high competitiveness between some sectors of the economy, it makes the standards of supply higher. This competitiveness to achieve production margins benefits the company.

Four basic factors and two environmental variables

Apart from the four factors we just saw, Porter’s diamond theory defines two more elements that can also influence competitive advantage:

  • Casual events. Aspects that are out of control: technological advances, changes in demand, political events.
  • Government action. Economic policies and other government decisions can tip the balance one way or the other.


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