The Four Corners Analysis, developed Michael Porter, is a model well designed to help company strategists assess a competitor's intent and objectives, and the strengths it is using to achieve them. It is a useful technique to evaluate competitors and generate insights concerning likely competitor strategy changes and determine competitor reaction to environmental changes and industry shifts. By examining a competitor's current strategy, future goals, assumptions about the market, and core capabilities, the Four Corners Model helps analysts address four core questions:
- Motivation - What drives the competitor? Look for drivers at various levels and dimensions so you can gain insights into future goals.
- Current Strategy - What is the competitor doing and what is the competitor capable of doing?
- Capabilities - What are the strengths and weaknesses of the competitor?
- Management Assumptions - What assumptions are made by the competitor's management team?
From there, you can identify a competitive strategy that manoeuvres around the rival's objectives and strengths, and that plays to your company's capabilities.
Advantage of Porter's Four Corners Analysis
Porter's Four Corners tool has been around for a long time and it's earned a place for itself as a useful and respected management tool. The real advantage of this approach is:
- Try to get inside the mind of the opposition
- Explore the beliefs and assumptions of your competitors.
- Use past behavior to predict future action, but actively tries to see if there is likely to be a shift in their strategy.
Components of Four Corners Analysis
The four corners refer to the four elements that are critical in analyzing a market rival, including independently and collectively assessing its: drivers / future goals, management assumptions, strategy and capabilities. Unlike the other static models (i.e. SWOT Analysis) that they don't actually help the analyst understand what would motivate a competitor to take particular actions, the four corners method was developed to capture insights about what competitors plan to do from the present forward. Now, let's take a look of the four component of the analysis:
Analyzing a competitor's goals assists in understanding whether they are satisfied with their current performance and market position. This helps predict how they might react to external forces and how likely it is that they will change strategy. We may brainstorm by considering the following points:
- What is it that drives them forwards
- What is it that drives them to compete?
- How does this motivate and shape their strategy?
The perceptions and assumptions that a competitor has about itself, the industry and other companies will influence its strategic decisions. Analyzing these assumptions can help identify the competitor's biases and blind spots. We may brainstorm by considering the following points:
- What do they believe about themselves and the world in which they operate?
- What assumptions have they made about their own strengths and weaknesses in relation to their competitors?
- Is this likely to make their strategy proactive or reactive? Aggressive, or defensive?
A company's strategy determines how a competitor competes in the market. However, there can be a difference between 'intended strategy' (the strategy as stated in annual reports, interviews and public statements) and the 'realised strategy' (the strategy that the company is following in practice, as evidenced by acquisitions, capital expenditure and new product development). Where the current strategy is yielding satisfactory results, it is reasonable to assume that an organisation will continue to compete in the same way as it currently does. We may brainstorm by considering the following points:
- How do your competitors actually act and are they happy will they be with the efficacy of their actions?
- Is there a gap between intended strategy and realized strategy?
- Is there likely to be a sea-change in their strategy due to current lack of success or are they likely to keep moving in the same direction?
The drivers, assumptions and strategy of an organisation will determine the nature, likelihood and timing of a competitor's actions. However, an organisation's capabilities will determine its ability to initiate or respond to external forces. We may brainstorm by considering the following points:
- What are their best options for responding to competition from their rivals? For example:
- Are they more likely to respond with a price drop
- Or through aggressively targeting its distribution network?
Four Corners Analysis Template
The table below shows a Four Corners Analysis Template that consists of some typical kinds of things people would consider in developing a Four Corners Analysis model.
- Financial goals
- Corporate culture
- Organizational structure
- Leadership team backgrounds
- External constraints
- Business philosophy
- How the business creates value
- Where the business is choosing to invest
- Relationships and networks the business has developed
- Company's perceptions of its strengths and weaknesses
- Cultural traits
- Organizational value
- Perceived industry forces
- Belief about competitor's goals
- Marketing skills
- Ability to service channels
- Skills and training of work force
- Patents and copyrights
- Financial strength
- Leadership qualities of CEO
Four Corners Analysis Example
The figure below shows a Four Corners Analysis Example that involves the strategic analysis of a rival fast food restaurant.