How does your competition work from the inside? Find out with 4 corners analysis!
Four corners analysis is a tool created by Michael Porter to predict a competitor's future strategy and possible changes triggered by market events. This analysis is used to read the possible reactions of competitors in a specific situation. The four corners, are divided into motivation and action sections.
Motivation - drivers
What drives the competition and prompts them to act? This part of the analysis, by understanding a competitor's goals and its current as well as desired market position, allows you to assess whether it is satisfied with its performance. Consequently, whether it is willing to change its strategy. In the event that a competitor is far from its desired position, you can expect that it is likely to respond soon. For example, a major market player will take care to maintain its position while being unconcerned about smaller competitors. However, a start-up will try offensively to gain market share. This section should answer the question, "What drives a competitor?"
Motivation - assumptions
The next part of the 4 corners analysis focuses on determining a competitor's perception of its strengths and weaknesses relative to other players in the industry. If the analyzed entity assesses itself as highly competitive, it is likely to be prepared to counteract potential threats to its position. Regardless of a competitor's sector or specific business, companies that feel their market share is easily eroded will respond dynamically and offensively to any challenges. Entities that feel stable in their market position set a kind of example for other players in the industry and their operations are not disturbed by external factors. When conducting this part of the 4 corners analysis, it is important to answer the question, "What are the competitor's current assumptions about the market, the competition and their capabilities?"
Activities - strategy
The competitor's strategy dictates its actions and decisions in the market. In this part of the 4 corners analysis, it is necessary to determine how the competition is doing in relation to its own strategy. Data on this can be obtained by observing a competitor's behavior, affiliations or geographic reach. You can also find useful information by reviewing industry articles or the company's annual reports. When you manage to collect the necessary data, it is worth putting together the company's goals. The conclusion of this section should be the answer to the question, "How is the competitor doing and to what extent is it successfully implementing its current strategy?".
Activities - opportunities
This corner of the analysis concerns a competitor's ability to respond to or initiate external forces. Despite the fact that a company is highly motivated and expresses a desire to act strategically, its effectiveness may be limited due to insufficient capabilities. We can understand capabilities as marketing skills, patents held or even characteristics of managers. Concluding this part of the analysis, it is necessary to determine in which areas the competitor is strong, and what are its weaknesses.
Analysis of the 4 corners
The analysis allows you to systematize certain information, which, through the analysis of competitors, makes it easier to predict their actions. It is mainly used during strategy development and testing. The tool is also used in the form of early warning, against threats caused by certain decisions of competitors. Knowing a party's plans allows you to prepare appropriately for its actions, while minimizing losses from it.
And does your company know how the competition will react?