Porter's Four Corners Model
Encyclopedia
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 competitor's 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.
This helps in determining competitor's 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 it that drives the competitor? These drivers can be at various levels and dimensions and can provide insights into future goals.
Motivation – management assumptions:
The perception
s and assumption
s the competitor has about itself and its industry would shape strategy. This corner includes determining the competitor's perception of its strengths and weaknesses, organization culture and their beliefs 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, the competition and its own capabilities?
Actions – strategy:
A competitor's strategy determines how it competes in the market. However, there could be a difference between the company's intended strategy (as stated in the annual report and interviews) and its realized strategy (as is evident in its acquisitions, new product development, etc.).
It is therefore important here to determine the competitor's realized strategy and how they are actually 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 is it in implementing its 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?
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's deep beliefs and assumptions about what works or does not work in the market.
Predictive in nature:
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's 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 neuroscientist
s. Hence by considering these factors along with a firm's capabilities, this model is a better predictor of competitive behavior.
's (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 with other analytical models. For instance it complements Porter five forces analysis well. Competitive cluster analysis of industry products in turn complements four corners analysis. Using such models that complement each other can help create a more complete analysis.
Michael Porter
Michael Eugene Porter is the Bishop William Lawrence University Professor at Harvard Business School. He is a leading authority on company strategy and the competitiveness of nations and regions. Michael Porter’s work is recognized in many governments, corporations and academic circles globally...
that helps in determining a competitor’s course of action. Unlike other predictive models which predominantly rely on a firm’s current strategy
Strategy
Strategy, a word of military origin, refers to a plan of action designed to achieve a particular goal. In military usage strategy is distinct from tactics, which are concerned with the conduct of an engagement, while strategy is concerned with how different engagements are linked...
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 competitor's 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's action by understanding their goals (both strategic and tactical
Tactical
-Personnel:Musicians*Deron Miller – vocals, guitar*Tim Yeung – drums*Luke Jaeger – lead guitar*Risha Eryavac - bass*James Murphy – guitar solos & bass on "Wake Up Dead"-Release details:...
) 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 it that drives the competitor? These drivers can be at various levels and dimensions and can provide insights into future goals.
Motivation – management assumptions:
The perception
Perception
Perception is the process of attaining awareness or understanding of the environment by organizing and interpreting sensory information. All perception involves signals in the nervous system, which in turn result from physical stimulation of the sense organs...
s and assumption
Assumption
In logic an assumption is a proposition that is taken for granted, as if it were true based upon presupposition without preponderance of the facts...
s the competitor has about itself and its industry would shape strategy. This corner includes determining the competitor's perception of its strengths and weaknesses, organization culture and their beliefs 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, the competition and its own capabilities?
Actions – strategy:
A competitor's strategy determines how it competes in the market. However, there could be a difference between the company's intended strategy (as stated in the annual report and interviews) and its realized strategy (as is evident in its acquisitions, new product development, etc.).
It is therefore important here to determine the competitor's realized strategy and how they are actually 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 is it in implementing its 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
Motivation
Motivation is the driving force by which humans achieve their goals. Motivation is said to be intrinsic or extrinsic. The term is generally used for humans but it can also be used to describe the causes for animal behavior as well. This article refers to human 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 implicit aspects 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's deep beliefs and assumptions about what works or does not work in the market.
Predictive in nature:
Porter's four corners model provides a framework
Conceptual framework
A conceptual framework is used in research to outline possible courses of action or to present a preferred approach to an idea or thought. For example, the philosopher Isaiah Berlin used the "hedgehogs" versus "foxes" approach; a "hedgehog" might approach the world in terms of a single organizing...
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's 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 neuroscientist
Neuroscientist
A neuroscientist is an individual who studies the scientific field of neuroscience or any of its related sub-fields...
s. Hence by considering these factors along with a firm's capabilities, this model is a better predictor of competitive behavior.
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 2005 survey by the Society of Competitive Intelligence ProfessionalsSociety of Competitive Intelligence Professionals
The Society of Competitive Intelligence Professionals - is a global nonprofit membership organization designed to enhance the skills of knowledge professionals in order to help their companies...
's (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
Simulation
Simulation is the imitation of some real thing available, state of affairs, or process. The act of simulating something generally entails representing certain key characteristics or behaviours of a selected physical or abstract system....
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 with other analytical models. For instance it complements Porter five forces analysis well. Competitive cluster analysis of industry products in turn complements four corners analysis. Using such models that complement each other can help create a more complete analysis.
See also
- Competitive intelligenceCompetitive intelligenceA broad definition of competitive intelligence is the action of defining, gathering, analyzing, and distributing intelligence about products, customers, competitors and any aspect of the environment needed to support executives and managers in making strategic decisions for an organization.Key...
- Delta modelDelta ModelDelta model is a customer-based approach to strategic management. Compared to a philosophical focus on the characteristics of a product , the model is based on customer economics...
- National DiamondNational DiamondStrategic analysis typically focuses on two views of organization. The industry-view and The Resource-Based View . These views analyse the organisation without taking into consideration relationship between the organizations strategic choice and institutional frameworks. The National Diamond is a...
- Six Forces ModelSix Forces ModelThe Six Forces Model is a market opportunities analysis model, as an extension to Porter five forces analysis and is more robust than a standard SWOT analysis.The following forces are identified:* Competition* New entrants* End users/buyers* Suppliers...
- Value chainValue chainThe value chain, is a concept from business management that was first described and popularized by Michael Porter in his 1985 best-seller, Competitive Advantage: Creating and Sustaining Superior Performance.-Firm Level:...