National Diamond

National Diamond

Strategic analysis typically focuses on two views of organization: the industry-view and the Resource-Based View (RBV). These views analyse the organisation without taking into consideration relationship between the organizations strategic choice (i.e. Porter generic strategies) and institutional frameworks. The National Diamond' is a tool for analyzing the organizations task environment. The National Diamond highlights that strategic choices should not only be a function of industry structure and a firms resources, it should also be a function of the constraints of the institutional framework. Institutional analysis (such as the National Diamond) becomes increasingly important as firms enter new operating environments and operate within new institutional frameworks.

Michael Porter's National Diamond framework resulted from a study of patterns of comparative advantage among industrialized nations. It works to integrate much of Porter's previous work in his competitive five forces theory, his value chain framework as well as his theory of competitive advantage into a consolidated framework that looks at the sources of competitive advantage sourcable from the national context. It can be used both to analyze a firm's ability to function in a national market, as well as analyse a national markets ability to compete in an international market.

It recognizes four pillars of research (factor conditions, demand conditions, related and supporting industries, firm structure, strategy and rivalry) that one must undertake in analysing the viability of a nation competing in a particular international market, but it also can be used as a comparative analysis tool in recognising which country a particular firm is suited to expanding into.

Two of the aforementioned pillars focus on the (national) macroeconomics environment to determine if the demand is present along with the factors needed for production (i.e. both extreme ends of the value chain). Another pillar focuses on the specific relationships supporting industries have with the particular firm/nation/industry being studied. The last pillar it looks at the firm's strategic response (microeconomics) i.e. its strategy, taking into account the industry structure and rivalry (see five forces). In this way it tries to highlight areas of competitive advantage as well as competitive weakness, by looking at a companies/nations suitability to the particular conditions of a particular market.