Porter's Four Corners model
Michael Porter is considered the father of Corporate Strategy, by many. He is a pioneer. Although he is well known for his Porter’s Five forces analysis framework, it is his Four Corners model the one I find most helpful in determining what to do, which actions to take. In Competitive Intelligence, this is considered an essential tool for early warning.
The Four Corners model is a predictive tool that helps in determining a competitor’s course of action, by looking at the firms motivations and actions. It is by adding the perspective of motivations in the form of values, culture, mindset, and self-reflection, what makes it powerful in the most likely future strategy of a player.
The combination of a Four Corners model (possible future steps) with a Five Forces analysis (current situation), is the minimal condition (and many times sufficient) for any serious competitive and market strategy assessment. I’ll write about Five Forces next.
The Four Corners model considers two types of characteristics. First, it looks at the motivations of a company determined by (1) drivers to reach their established goals; and (2) the self-reflection, perception, and assumptions the leadership team has about itself. Second, it considers the actions aligned to the (1) intended or realized strategy, as well as (2) the capabilities to react and operate. Here’s a common visual of this.
Let me walk for how to put this together in two big steps.
Analyzing a competitor's drivers and 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.
Consider the following points to complete the drivers box as motivations:
- What is it that drives them forward?
- What are they after?
- What is it that makes them compete?
- How does this shape the steps they take?
Look for drivers such as:
- Financial goals
- Corporate culture
- Organization structure
- Business philosophy
The perceptions and assumptions that a competitor has about itself, the industry and other companies, are big influencers to its strategic decisions. This is considered one of the most important boxes in Competitive Intelligence, because analyzing these can help identify the competitor's biases and blind spots.
Questions to consider:
- 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?
- Cultural traits
- Beliefs about competitors goals
A company's strategy determines how they compete in the market. As mentioned above, there may be a difference between intended strategy (i.e. what a publicly traded company states in its annual reports and shares with industry analysts) and realized strategy (i.e. followed in practice, as evidenced by acquisitions and new product development). Needless to say, taking both into account is important.
Questions that can help:
- How does the competitor actually act and are they in alignment to what they claim or what is expected?
- Any identifiable gaps between intended strategy and realized strategy?
- Can they change strategy due to current lack of success?
- Value creation model and messaging
- Investment targets
- Relationships developed
The drivers, assumptions and strategy of an organization will determine the nature, likelihood and timing of a competitor's actions. However, an organization's capabilities will determine its ability to respond to external forces (competitor moves or macroeconomic). This is, in my humble opinion, the easiest to obtain and rationalize, and I like to fill it last.
Questions to consider:
- What are their best options for responding to competition from their rivals?
- Are they more likely to respond with a price drop
- Or through aggressively targeting its distribution network?
- Financial strength
- Marketing skills
- R&D Investments and patents
- Channels and Distribution
- Leadership track record
- Geographical presence
Always keep in mind the left boxes are motivations, while the boxes on the right are actions. The previous actions can be somehow justified with the motivations, which in turn, the possible future actions can be determined by today’s motivations.
With the first step completed, the second and last step is to write down the expected competitor’s future strategy box. Yes, this is a four corners model, but there are 5 boxes to fill.
Competitor’s future Strategy
Predicting likely future actions is nearly impossible, but if you take into consideration what drives a company and how they perceive themselves, aligned with their claimed strategy to be executed with their capabilities, you can get pretty darn close. Naturally, this box is the last one to fill out. I like to do it by answering long qualified questions with the information contained in the other boxes, trying to correlate and connect components of the actions tied to the motivations.
Here’s a hypothetical example of what I call a long qualified question:
Given the company is trying to grow to a market adjacency by entering a new geography (action-strategy), and they have the capital to open 10 new sales offices there (action-capability), how would they phase that out given their pressure from investors (motivation-driver) and their belief that it will be easy to do because they did it 5 years ago (motivation-management assumption)
Let’s quickly break this down:
- The question to answer is “How would they phase a market expansion”. IN other words, what we are interested in is finding on what steps would expect the competitor to take, to expand geographically.
- We know, maybe because they’ve shared in quarterly earnings calls, that they intend to expand their market via geographical expansion.
- We also perhaps know that today they have 10 new sales offices in a particular region. So they have the track record, and the means to do it, since they did it 5 years ago.
- We also know that they are getting a ton of pressure from investors, which means they’d like to do this fast and cautiously.
We are effectively looking to thread the elements obtained in the 4 corners, in order to look for an answer to a simple question (in this case, what do we expect them to act on).
I tried to capture the steps that work for me, and the process to obtain the model completed. Prof Porter did the hard work identifying and building this model; we just have to follow it. If done correctly, and in group settings, this is by far one of the best succinct pictures to profile a competitors plausible next steps.