Strategy Diamond

by Edward Henkler on May 28, 2013

Professors Don Hambrick and Jim Fredrickson introduced the strategy diamond in 2001.  Much like the balanced scorecard, their goal was to visually show the interconnection of the strategic elements.  Focusing on individual strategic elements such as markets or products ignores the dynamic interplay of the elements.  The strategy diamond is an excellent tool for facilitating discussion of your company’s strategy but I want to apply it a bit more simply today.

Should you focus on the bottom line???

Should you focus on the bottom line???

Focusing on the four elements of People, Product, Customers, and Dollars, most of us have been taught that the most critical element is the bottom line, i.e. the Dollars.  I believe it can be effectively argued that the bottom line is the only element which should not concern you.  I can hear some of you saying only a fool would ignore their bottom line.  Clearly we must be profitable to stay in business so I’m not suggesting the bottom line does not matter but rather that it is a resultant of addressing the other three elements.

Let’s take a look at each element:

  • People – If we focus on our people: hiring the best, effectively onboarding them, routinely training and mentoring them, rewarding them (and holding them accountable), what happens?  It is fair to assume that the quality and value of our products will steadily increase, bringing in more and better customers, yielding better profits, and allowing us to continue investing in our workforce.
  • Products – Focusing on our products begins the same sequence of more and better customers, higher profits, and workforce capital investment, leading to ever more valuable and innovative products.
  • Customers – By now, you will undoubtedly see the pattern and realize that investing in our customer service and building strong relationships, yields sustainable improvement.
  • Dollars – Here’s where the cycle breaks down and, unfortunately, we see this problem arising in many companies, especially those whose success is measured by quarterly earnings.  “Optimizing” our dollars tends to lead to cost-cutting efforts, which improve the bottom line short term.  Unfortunately, it doesn’t lead to increased investment in our workforce, etc, etc.

The bottom line is that when we focus on our bottom line, bad outcomes may arise.  Focus instead on your People, Products, and Customers and the bottom line will take care of itself.

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