Porter's Four Corners Model
Predicting Competitor Behavior
How does your organization shape its strategy, and how does it react to changing market conditions?
Many factors influence the moves that your organization makes, including customer expectations, financial goals, corporate culture and values, people's skill and ability levels, and even assumptions about 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.
About the 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. Other strategy tools, such as SWOT Analysis or the Boston Matrix, can also help you to do this; however, the main strength of this model is that it takes your competitors' key motivators, culture, assumptions, and values into account.
Applying Porter's Four Corner's Model
Let's look at each of the corners of the model in more detail, and discuss how you can apply each one.
Your first step is to try to understand what your competitors' goals may be and to measure their progress towards achieving these goals. This can help you anticipate how they might respond – either offensively or defensively – to any threat that your organization makes. You also need to look closely at their values and their corporate culture.
Start by looking at the goals that your competitors talk about in published material – for example, on websites, in annual reports, in analysts' reports, in interviews, and in press releases.
Then, carry out a PEST Analysis from your competitors' perspective. What local or national factors could affect their goals and strategy? What you're interested in is how these factors will affect their desired strategy.
Use 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?
Next, look at your competitors' leadership team members. What are their backgrounds? How is their talent and experience likely to influence their goals and overall strategy? Who has the most power in these organizations, and where are they in the company hierarchy?
Then, pull all of this together to think about how likely they are to achieve their goals. Are they "finely-oiled machines," perfectly set up for success, or have they got a lot of work to do to move forward at all?
This model assumes that you have existing in-depth knowledge about your competitors. Learn what you can about them from public sources, and from people who have worked with them, and then make your best guess. If you make too many guesses, though, be aware that your conclusions may be unreliable.
This quadrant encourages you to explore the assumptions that your competitors and their management teams may be making about their own strengths and weaknesses, as well as those of the industry as a whole. You 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; or they might be unprepared to deal with new threats or with emerging or disruptive technologies.
Perform a SWOT Analysis from what you understand your competitors' perspective to be. What do you think they perceive their strengths and weaknesses to be? Have they taken advantage of opportunities to use these strengths in the past?
How involved are these organizations in the industry? Are they quick to adopt new technologies and best practices? If not, why not?
Then, perform a blind spot analysis from what you understand your competitors' perspective to be. What questionable assumptions might they be making about the industry, and about their own strengths and weaknesses? And what opportunities could these flawed assumptions open up for you?
This quadrant encourages you to 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, namely with acquisitions, new product releases, and with their response to threats.
One goal in this quadrant is to 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.
Look at where your competitors stand in the industry. How well are they competing?
Read past annual reports, interviews, and public statements from these organizations. Do their actions reflect their goals, or have they followed a different course?
From this, try to understand what your competitors' actual strategy is – that is, how they will try to win in the market – and think about whether this is likely to be stable, or whether it's likely to change.
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.
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.
Harvard Business School professor, Michael Porter, developed the Four Corners Model to help businesses analyze their competitors' positions and make educated guesses about their future courses of action.
The model has four dimensions, that come under two main headings:
- Management Assumptions.
The advantage to 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 wrong guesses, the analysis can lead you in the wrong direction.
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