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Let’s start with arenas. Answers to strategy questions about arenas tell
managers and employees where the firm will be active. For instance, Nike is
headquartered in Washington County, on the outskirts of Beaverton, Oregon. Today,
Nike’s geographic market arenas are most major markets around the globe, but in the

early 1960s, Nike’s arenas were limited to Pacific Northwest track meets accessible
by founder Phil Knight’s car. In terms of product markets (another part of where), the
young Nike company (previously Blue Ribbon Sports) sold only track shoes and not
even shoes it manufactured.
Beyond geographic-market and product-market arenas, an organization can
also make choices about the value-chain arenas in its strategy. To emphasize the
choice part of this value-chain arena, Nike’s competitor New Balance manufactures
nearly all the athletic shoes that it sells in the United States. Thus, these two sports-
shoe companies compete in similar geographic- and product-market arenas but differ
greatly in terms of their choice of value-chain arenas.
What about differentiators? Differentiators are the things that are supposedly
unique to the firm such that they give it a competitive advantage in its current and
future arenas. A differentiator could be asset based, that is, it could be something
related to an organization’s tangible or intangible assets. A tangible asset has a value
and physically exists. Land, machines, equipment, automobiles, and even currencies,
are examples of tangible assets. For instance, the oceanfront land on California’s
Monterey Peninsula, where the Pebble Beach Golf Course and Resort is located, is a
differentiator for it in the premium golf-course market. Anintangible asset is a
nonphysical resource that provides gainful advantages in the marketplace. Brands,
copyrights, software, logos, patents, goodwill, and other intangible factors afford
name recognition for products and services. Obviously, the Nike brand has become a
valuable intangible asset because of the broad awareness and reputation for quality
and high performance that it has built. Differentiators can also be found in
capabilities, that is, how the organization does something. Wal-Mart, for instance, is
very good at keeping its costs low. Nike, in contrast, focuses on developing leading-
edge, high-performance athletic performance technologies, as well as up-to-the-
minute fashion in active sportswear.
The third facet of the strategy diamond in this traditional view is economic
logic, which explains how the firm makes money. Economic logic tells us how profits
will be generated above the firm’s cost of capital. The collapse in the late 1990s of
stock market valuations for Internet companies lacking in profits—or any prospect of
profits—marked a return to economic reality. Profits above the firm’s cost of capital
are required to yield sustained or longer-term shareholder returns. While the
economic logic can include environmental and social profits (benefits reaped by
society), the strategy must earn enough financial profits to keep investors (owners,
tax payers, governments, and so on) willing to continue to fund the organization’s
costs of doing business. A firm performs well (i.e., has a strong, positive economic
logic) when its differentiators are well aligned with its chosen arenas.
Vehicles
You can see why the first three facets of the strategy diamond—arenas,
differentiators, and economic logic—might be considered the traditional facets of

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