Porters four corners model

Porter’s four corners model is a predictive tool designed by Michael Porter that helps in determining a competitor’s course of action. Unlike other predictive models which predominantly rely on a firm’s current strategy and capabilities to determine future strategy, Porter’s model additionally calls for an understanding of what motivates the competitor. This added dimension of understanding a competitors internal culture, value system, mindset and assumptions help in determining a much more accurate and realistic reading of a competitor’s possible reactions in a given situation.

The Four Corners

Motivation – drivers: This helps in determining competitor action by understanding their goals (both strategic and tactical) and their current position vis-à-vis their goals. A wide gap between the two could mean the competitor is highly likely to react to any external threat that comes in its way whereas a narrower gap is likely to produce a defensive strategy. Question to be answered here is what is that drives the competitor? These drivers can be at various levels and dimensions and can provide insights into future goals.

Motivation – Management Assumptions: The perceptions and assumptions the competitor has about itself and its industry would shape strategy. This includes determining the competitor's perception of its strengths and weaknesses, organization culture and their belief's about competitor's goals. If the competitor thinks highly of its competition and has a fair sense of industry forces, it is likely to be ready with plans to counter any threats to its position. On the other hand a competitor who has a misplaced understanding of industry forces is not very likely to respond to a potential attack. Question to be answered here is what are competitor's assumption about the industry, competition and its own capabilities.

Actions – Strategy: A competitor's strategy determines how it competes in the market. However it should be noted that there could be a difference between the company's intended strategy (as stated in the annual report, interviews) and its realized strategy (as can be evinced from its acquisitions, new product development etc). It is therefore important here to determine the competitor's realized strategy and how they are performing. If current strategy is yielding satisfactory results it is safe to assume that the competitor is likely to continue to operate in the same way. Questions to be answered here are what is the competitor actually doing and how successful are they in implementing their current strategy?

Actions – Capabilities: This looks at a competitor's inherent ability to initiate or respond to external forces. Though it might have the motivation and the drive to initiate a strategic action, its effectiveness is dependent on its capabilities. Its strengths will also determine how the competitor is likely to respond to an external threat. An organization with an extensive distribution network is likely to initiate an attack through its channel whereas a company with strong financials is likely to counter attack through price drops. The questions to be answered here are what are the strengths and weaknesses of the competitor? Which areas is the competitor strong in?

Strengths

Considers the implicit aspects of competitive behavior:

The main strength of Porter's four corners is that, it attempts to understands the psychological aspects of competitive action. It allows for and takes into consideration factors such as motivation which are often overlooked but often the key drivers of competitive behavior.

Firms are more often than not aware of their rivals and do have a generally good understanding of their strategies and capabilities. However, motivational factors are often overlooked. Sufficiently motivated competitors can often prove to be more competitive than bigger but less motivated rivals. What sets this model apart from others is its insistence on accounting for the "implicit" factors such as culture, history, executive, consultants, and board’s backgrounds, goals, values and commitments and inclusion of management deep beliefs and assumptions about what works or does not work in the market.

Better predictor of competitive actions:

Porter's four corners model provides a framework that ties competitor's capabilities to their assumptions of the competitive environment and their underlying motivations. By looking at both a firm's capabilities (what the firm can do) and underlying implicit factors (their motivations to follow a course of action) can help predict competitor actions with a relatively higher level of confidence. The underlying assumption here is that decision makers in firms are essentially human and hence subject to the influences of affective and automatic processes described by neuroscientists.

Criticisms

High level of subjectivity: This model by looking at underlying assumptions and motivations throws itself open to high level of subjectivity. Analysts and executives are more comfortable using observed and quantifiable data for their analysis. A reason being this data and subsequent analysis is more easily defended than one based on implicit factors. Hence there is a tendency by most analysts to disregard this method in favor of other models such as financial modeling, SWOT or Competitor Analysis.

Requires significant preliminary research Before embarking on Four Corner's analysis, an analyst would have to do some significant preliminary research. This could include a wide range of information from the history of a competitor, critical events in its past, value systems, corporate beliefs, management profiles, objectives and goals (as opposed to stated objectives and goals) and so on. Some of this information is not easily available and would require more effort on part of the researcher. A poorly researched model could have numerous assumptions that could be off-base leading to a wrong estimate.

Use in competitive intelligence and strategy

Despite its strengths, Porter's four corners model is not widely used in strategy and competitive intelligence. In a survey by the Society of Competitive Intelligence Professionals (SCIP)frequently used analytical tools, Porter's four corners does not even figure in the top ten.

However this model can be used in competitive analysis and strategy as follows:

Strategy development and testing: Can be used to determine likely actions by competitors in response to the firm's strategy. This can be used when developing a strategy (such as for a new product launch) or to test this strategy using simulation techniques such as a business war game

Early warning: The predictive nature of this tool can also alert firms to possible threats due to competitive action.

Porter's four corners also works well other analytical models. For instance it compliments Porters five forces model well. Competitive Cluster Analysis of industry products in turn compliments Four Corners Analysis. Using such models that compliment each other can help create a much complete analysis.

See also

• Porter five forces analysis
• Delta Model
• Six Forces Model
• National Diamond
• Value Chain

Further reading

• Gilad, Benjamin (2009) Business War Games, Career Press, 2009.
• Porter, M.E. (1979) How competitive forces shape strategy, Harvard business Review, March/April 1979.
• Porter, M.E. (1980) Competitive Strategy, Free Press, New York, 1980.