Profiling a specific competitor is often important to management. However, many competitive profiles will fail to give management insights into how competitors will respond to your own strategy. Understanding this inter-relationship is important for knowing how to position your company in relation to the competition. One of the most popular models for this type of competitor analysis is the so-called Four Corners Analysis.
The Four Corners Analysis developed by Harvard Business School professor and strategy guru 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. 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:
- What drives the competitor? Look for drivers at various levels and dimensions so you can gain insights into future goals.
- What is the competitor doing and what is the competitor capable of doing?
- What are the strengths and weaknesses of the competitor?
- What assumptions are made by the competitor’s management team?
From there, you can identify a competitive strategy that maneuvers around the rival’s objectives and strengths, and that plays to your company’s capabilities.
Michael Porter’s Four Corners Model can be used to develop a profile of the likely strategy changes a competitor might make and how successful they may be and determine each competitor’s probable response to the range of feasible strategic moves other competitors might make. It is also used to determine each competitor’s probable reaction to the range of industry shifts and environmental changes that may occur.
The ‘four corners’ refers to four diagnostic components that are essential to competitor analysis: drivers; current strategy; assumptions; and capabilities. Many organisations carry out basic SWOT analysis and have an appreciation for their competitor’s strategies. However, motivational factors are often overlooked and yet are generally the key drivers of competitive behaviour. Understanding the following four components can help predict how a competitor may respond to a given situation.
- Motivation — Drivers. 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.
- Motivation — Management Assumptions. 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.
- Actions — Strategy. 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.
- Actions — Capabilities. 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.
Unlike SWOT, which describes the nature of a market or competitive landscape at a fixed point in time with little predictive value, the Michael Porter’s Four Corners Model looks at a firm’s capabilities and strategy as depicted by their actions, as well as their underlying motivation to follow a given course of action. The model takes into account the drivers that influence the firm including financial goals, corporate culture, business philosophy, organizational structure, and others, as well as management’s perceptions about their strengths, weaknesses, culture, values, and beliefs about a competitor’s goals. Looking at the motivations of a competitor – their capabilities and assumptions – and at the gaps between assumptions and reality contributes to the development of more accurate predictions of future actions with a relatively high level of confidence.