Michael Porter's Four Corners Analysis is a method that can help firm strategists identify competitors' objectives, as well as the strengths they are using to achieve them.
It is a valuable tool for evaluating competitors and generating insights on expected competitor strategy changes. It helps understand how competitors react to environmental changes and industry adjustments.
This tool is divided into four corners which are: Drivers, Assumptions, Capabilities, and Strategy. The four corners are categorized into two main categories: Motivation and Actions.
When and Why is this tool used?
Porter's Four Corners method has been around for a long time and has established a reputation as a valuable management tool. The real benefit of this method is to get inside the opponent's mind and Investigate their beliefs and assumptions. By using the four corners, you will know your competitors’ motivation and consequently their current strategy that is powered by their capabilities. This analysis will aid you in formulating your company’s strategy.
How is this tool used?
The four corners method was intended to gather information about what competitors plan to do. It begins with analyzing the four components.
Step #1: Identify the motivation of your competitor
Two corners must be analyzed in the motivation category. The first one is the drivers and the second one is the management assumption.
The drivers: Analyzing a competitor's goals might help you figure out if they're happy with their current performance and market position. This assists in predicting how they will react to external factors and how likely they will change tactics. You shall brainstorm your competitor’s drivers by asking questions such as:
- What motivates them to keep going?
- What makes them want to compete?
- What motivates and shapes their strategy as a result of that?
The Management Assumption: A competitor's perceptions and assumptions about themselves, the industry, and other companies around them will impact their strategic decisions. Analyzing these assumptions can assist you in the identification of the competitor's biases and blind spots. You shall brainstorm your competitor’s management assumptions by asking questions such as:
- What do they believe about themselves and the world in which they operate?
- What assumptions have they made about their advantages and disadvantages in comparison to their competitors?
- Is their strategy more likely to be proactive or reactive as a result of that? Are they aggressive or defensive?
Step #2: Identify the possible actions of your competitor
The second part of the analysis is about the predictable actions that a competitor might take. This section is also divided into two subsections; current strategy and capabilities.
The strategy of a company determines how they compete in the market. However, there can be a distinction between the 'planned strategy' (as mentioned in yearly reports, interviews, and public comments) and the ‘realized strategy' (the strategy that the company is following in practice, as evidenced by acquisitions, capital expenditure and new product development). When an organization's existing strategy is producing satisfying results, it is logical to anticipate that it will continue to compete in the same way. You can brainstorm your competitor’s strategy by asking questions such as:
- How do your competitors truly behave, and how satisfied are they with the efficiency of their products?
- Is there a gap between intended and realized strategy?
- Is it likely that their strategy will change as a result of their current lack of success, or will they continue in the same direction?
Capabilities: The nature, likelihood, and timing of a competitor's actions will be determined by an organization's drivers, assumptions, and strategy. On the other hand, the ability of an organization to initiate or respond to external forces is determined by its capabilities. You shall brainstorm your competitor’s capabilities by asking questions such as:
- What are their best options for dealing with their competitors?
- Are they more likely to respond with a price cut or by aggressively acquiring more distribution networks?
Step #3: Identify the company’s trend
The last thing that you need to do is to combine all the information and start making the analysis. The four corners are interrelated and they affect each other directly or indirectly. Consequently, you have to draw conclusions and correlations from the data to figure out the company’s future strategy.
Case Study
Ahmed is an entrepreneur who wants to start a new business by creating a travel mobile app that offers customized travel services starting from choosing the destination to the way back. A major problem that Ahmed knows he might face is the fierce competition in the field and the rapid change in the industry. Therefore, he had to conduct the four corners analysis for his direct competitor “Google Trips” to be one step ahead of the competition.
Ahmed began by analyzing the motivation of Google trips as a business. He wanted to know what drives the company to sustain such a business and how they perceive their business. Ahmed started to search for information about the application and to dig deep to know their drivers and management assumptions. He came up with the following:
Then, Ahmed moved to the possible actions that Google Trips might take in the future based on their current strategy and their capabilities. Further, he summed the info in the following:
Lastly, Ahmed grouped all his assumptions that he wrote in the four corners analysis. Then, he assumed the following:
- The company is customer-oriented.
- The company has a long-term strategy which is innovation for the best experience.
- The company is willing to invest a huge amount of money to develop its business.
- The company has the calibers to help in its innovation stage.
After looking at these facts, Ahmed realized that he will be facing fierce competition against a big player. He must be very cautious while entering the market because of the strengths of his competitors. Yet, he must always keep an eye on the features that are required by customers and introduce them to the market faster than his competitors.
Pros and Cons
The four corners tool is very insightful in terms of the future decisions and tactics of an entity. It helps formulate a strategy for the business rather than looking at a snapshot of the company like the SWOT analysis. Nevertheless, as mentioned before it is not widely used and therefore, a lot of people do not know about it.
Click on the attachment below to download the four corners analysis template.
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