Access the essential membership for Modern Managers
How does your organization shape its strategy, and how does it react to changing market conditions?
Many factors influence the strategic decisions that your organization makes, including customer expectations, financial goals, corporate culture and values, people's skill and ability levels, and even assumptions about its strengths and weaknesses.
The same is true of your competitors. When it comes to predicting how they will behave in the future, it's important to look at all of the factors that could influence their decisions.
In this article, we'll look at Porter's Four Corners Model, a framework that you can use to analyze your competitors and predict their future behavior.
What Is Porter's Four Corners Model?
Michael Porter, Harvard Business School professor and creator of other well-known strategy tools such as Porter's Five Forces and the Value Chain, developed the Four Corners Model to help organizations analyze their competitors' positions, and predict their future courses of action.
Porter's Four Corners Model is shown in figure 1, below:
Figure 1: Porter's Four Corners Model
The four corners of the model represent your competitors' perceived Motivation (made up of "Drivers" and "Management Assumptions"), and Actions (made up of "Strategy" and "Capabilities").
The Motivation corners represent your competitors' internal state, such as their goals, philosophy, mission, and values. The Actions corners show the steps that your competitors are taking, and that you can observe first-hand.
By considering each of the four elements in turn, you can anticipate how your competitors might react in a given situation.
Tip:
Other strategy tools, such as SWOT Analysis and Competitive Intelligence, can also help you to analyze your competitors.
However, the main strength of the Four Corners model is that it takes your competitors' internal processes and strategy into account. For example, its key motivators, its culture, assumptions, and values, rather than just focusing on its activities in the market.
Applying Porter's Four Corners Model
Let's look at each of the corners of the model in more detail, and discuss how you can apply each one:
Motivation
Drivers
Your first step is to try to understand what your competitors' goals may be and to measure their progress toward achieving these goals. This can help you to anticipate how they might respond – either offensively or defensively – to any threat that your organization makes. Start your research by looking at the following things:
- Goals and strategy. What goals are your competitors currently working toward? Do they have an overarching strategy? Or lots of different strategies? Look at their websites, annual reports, analysts' reports, interviews, and press releases to find more detail about their goals and strategy. Then, carry out a PEST Analysis from your competitors' perspective. What local or national factors could affect what they want to achieve? How are these factors likely to impact their desired strategy?
- Corporate Culture. Use tools like the Cultural Web, Deal and Kennedy's Cultural Model, or the Competing Values Framework to analyze and better understand your competitors' corporate culture. How does their culture differ from yours? How might that influence their goals and strategy?
- Leadership. Next, look at your competitors' key leadership figures. What are their backgrounds? How is their talent and experience likely to influence the organization's goals and overall strategy? Who has the most power in these organizations, and where do they fit in the company hierarchy?
- Values and Mission. Lastly, look at your competitors' expressed values and their mission statement. How do they differ from those of your organization? How might those differences affect decision making and goals?
Once you've collected all the relevant information, pull it all together and think about how likely it is that your competitor will achieve its goals. Are they "finely-oiled machines," perfectly set up for success, or have they got a lot of work to do to get where they want to be?
Management Assumptions
This quadrant encourages you to explore the assumptions that your competitors and their leadership teams may be making about their own strengths and weaknesses, as well as those of the industry as a whole.
You'll also need to think about the assumptions that your competitors might be making about your organization's goals and strategies.
If your competitors perceive that their competition – and the overall industry – is strong, then they're likely to have strategies in place to respond to threats. However, if your competitors believe that their competition is weak or that the industry is stagnant, they may not be devoting much thought to the business, which can mean that they're unprepared to deal with new threats or with emerging or disruptive technologies.
Assess your competitors' assumptions, by asking yourself the following questions:
- What do you think your competitors perceive to be their strengths and weaknesses? Have they taken advantage of opportunities to use their strengths? Have they got a good track record of dealing with threats effectively? Performing a SWOT Analysis on your competitors can help you to answer these questions more effectively.
- How involved are these organizations in the industry? Are they quick to adopt new technologies and best practices? If not, why not?
- What questionable assumptions might your competitors be making about the industry, and about their own strengths and weaknesses? And what opportunities could any flawed assumptions open up for you? A Blindspot Analysis can help here. It allows you to pinpoint any key market opportunities or threats that you or your competitors may be overlooking.
Actions
Strategy
Now you need to take a deeper look at your competitors' strategy. Most organizations have two strategies: an “ideal” strategy, which is often detailed in annual reports or in public statements, and the “actual” strategy, which is reflected in the organization's actions – for example, the acquisitions it makes, new product releases, and its response to threats.
First, determine whether your competitors are satisfied with how they're currently performing. If their existing strategy is working, then they're unlikely to change it. However, if they're struggling, then it's likely that the management team is developing – or is about to roll out – a new strategy.
Consider the following points in your analysis:
- Where do your competitors currently stand in the industry? How well are they competing?
- Do their actions reflect their goals, or have they changed direction? Read past annual reports, interviews, and public statements from these organizations to gain a good understanding of their strategic direction over the past 1-2 years.
- Finally, try to pinpoint what your competitors' actual strategy is. Can you sum it up in a sentence or two? Think about how your competitors are trying to "win" in the market? Then assess how well their strategy is going. Is its strategy stable? Or is it likely to change in the near future?
Capabilities
The last quadrant in the model encourages you to look at your competitors' competencies and their effectiveness. Your competitors may want to respond in a certain way, but they might be held back by weaknesses, a lack of resources, or incorrect assumptions.
For example, imagine that your organization lowers the price of a popular product. Your biggest competitor may want to drop its price as well, but, if it's struggling financially, it may not be able to. On the other hand, if it has a strong supplier network, it might be able to shorten its shipping time to compete with your lower price.
Start by listing your competitors' core competencies. Perform a Core Competency Analysis and a USP Analysis to identify the competencies that provide real value for your competitors.
Next, look at their strategic alliances. Who are they partnered with that might help them to respond to a threat? And conduct a VRIO Analysis to understand their strategic assets.
Then, put all of this together to think about how likely they are to be able to execute their strategy.
As a final step, bring together your assessment of your competitors' goals, assumptions, actual strategy, and capabilities to form a view of how your competitors are likely to act and react in the future.
Key Points
Harvard Business School professor, Michael Porter, developed the Four Corners Model to help businesses analyze their competitors' positions and make educated predictions about their future courses of action.
The model has four dimensions, that come under two main headings:
- Motivation – Drivers and Management Assumptions.
- Actions – Strategy and Capabilities.
The advantage of Porter's Four Corners Model is that it encourages you to look at your competitors' motivations, values, and corporate culture – all of which can influence future strategy and goals.
The disadvantage is that it can be difficult to find the information that the model needs, and, if you make too many incorrect assumptions, the analysis can lead you in the wrong direction.
