four-corners-analysis

What Is The Four Corners Analysis And Why It Matters In Business

Developed by American academic Michael Porter, the Four Corners Analysis helps a business understand its particular competitive landscape. The analysis is a form of competitive intelligence where a business determines its future strategy by assessing its competitors’ strategy, looking at four elements: drivers, current strategy, management assumptions, and capabilities.

Understanding the Four Corners Analysis

In a rapidly changing global market, business analysts are often required to make important decisions on how a business will not only adapt but gain a competitive advantage.

The Four Corners Analysis is one such tool that can be used to collect and analyze information on competitors to guide future strategy. As a result, the business can then use the tool as a form of self-analysis – identifying parts of its strategy where there is room for improvement.

Ultimately, Porter’s framework gives all businesses a frame of reference with which they can judge their competitive success. We will look at how this frame of reference is created in the next section.

Implementing a Four Corners Analysis

The analysis involves identifying four factors that give a business valuable insight into their competitors.

Motivation – Drivers 

What drives the competition and impels them to act? How do their motivations impact on their strategy, and vice versa? When a business understands the drivers of competitor behavior, it will be able to better predict future drivers of success.

For example, a market leader will work hard to defend their position and be largely unconcerned by smaller rivals. A start-up, on the other hand, will take a more offensive approach in their attempt to gain market share.

Motivation – Management Assumptions 

This corner involves determining how a business perceives itself in the market. This may be hard to ascertain externally, but actions speak louder than words. For example, a business can make assumptions about a rival restaurant by assessing patronage levels, wait times, and subsequent customer loyalty.

Regardless of the industry, management teams who feel that their market share is easily diminished will face challenges quickly and aggressively. Conversely, organizations that feel more secure lead by example and are not perturbed by external disruptions.

 Actions – Strategy 

Is the competition succeeding or failing with respect to its strategy? Again, a detailed strategy may be hard to obtain from a competitor, but there are several areas that when used in combination give clues. These include competitor language, behavior, press releases, product range, partnerships, content production, and geographic footprint.

Once a business has gathered information from these sources, compare their intentions with quantitative data. This will determine whether a competitor strategy has been financially or otherwise successful.

Actions – Capabilities 

This describes the ability of an organization to either initiate or respond to external forces. Capabilities in specific terms include such things as marketing skills, employee training, held patents, and even the leadership qualities of the CEO.

Capabilities (or a lack thereof) tell the competition a lot about a business. For example, a business without the ability to innovate may simply lower its prices when faced with a competing product.

Key takeaways:

  • The Four Corners Analysis allows a business to glean insights on their competitors and position themselves accordingly.
  • The Four Corners Analysis provides a means of independently and holistically assessing a competitor’s current and future actions.
  • Businesses who use the Four Corners Analysis diligently will understand the complex interplay between a competitor’s mission, management, strategy, and capabilities.

Connected Business Frameworks

Porter’s Five Forces

porter-five-forces
Porter’s Five Forces is a model that helps organizations to gain a better understanding of their industries and competition. Published for the first time by Professor Michael Porter in his book “Competitive Strategy” in the 1980s. The model breaks down industries and markets by analyzing them through five forces.

SWOT Analysis

swot-analysis
A SWOT Analysis is a framework used for evaluating the business‘s Strengths, Weaknesses, Opportunities, and Threats. It can aid in identifying the problematic areas of your business so that you can maximize your opportunities. It will also alert you to the challenges your organization might face in the future.

BCG Matrix

bcg-matrix
In the 1970s, Bruce D. Henderson, founder of the Boston Consulting Group, came up with The Product Portfolio (aka BCG Matrix, or Growth-share Matrix), which would look at a successful business product portfolio based on potential growth and market shares. It divided products into four main categories: cash cows, pets (dogs), question marks, and stars.

Balanced Scorecard

balanced-scorecard
First proposed by accounting academic Robert Kaplan, the balanced scorecard is a management system that allows an organization to focus on big-picture strategic goals. The four perspectives of the balanced scorecard include financial, customer, business process, and organizational capacity. From there, according to the balanced scorecard, it’s possible to have a holistic view of the business.

Blue Ocean Strategy 

blue-ocean-strategy
A blue ocean is a strategy where the boundaries of existing markets are redefined, and new uncontested markets are created. At its core, there is value innovation, for which uncontested markets are created, where competition is made irrelevant. And the cost-value trade-off is broken. Thus, companies following a blue ocean strategy offer much more value at a lower cost for the end customers.

GAP Analysis

gap-analysis
A gap analysis helps an organization assess its alignment with strategic objectives to determine whether the current execution is in line with the company’s mission and long-term vision. Gap analyses then help reach a target performance by assisting organizations to use their resources better. A good gap analysis is a powerful tool to improve execution.

Scenario Planning

scenario-planning
Businesses use scenario planning to make assumptions on future events and how their respective business environments may change in response to those future events. Therefore, scenario planning identifies specific uncertainties – or different realities and how they might affect future business operations. Scenario planning attempts at better strategic decision making by avoiding two pitfalls: underprediction, and overprediction.

Read alsoBusiness Strategy, Examples, Case Studies, And Tools

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