Economic Logic
The specific mechanism by which a business will generate superior returns — the underlying reason its strategy should be profitable.
Economic logic is the fifth facet of the Strategy Diamond and, according to Hambrick and Fredrickson, the one most often missing from stated strategies. It answers a precise question: what is the specific mechanism by which this business will earn above-average returns?
Common economic logics include: lowest delivered cost through scale economies, premium pricing sustained by a strong brand or unique benefit, scope economies from shared resources across a portfolio of arenas, and superior asset utilization.
Economic logic is what separates a strategy from a wish. A company can have compelling arenas, vehicles, differentiators, and staging, but if there is no credible mechanism connecting those choices to superior profitability, the strategy has a gap at its core.
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