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Corporate Espionage or "Intrapreneurship", CI fortifies decision making

This article appears in the issue Nov/Dec 2001 [Volume 10, Issue 10]

Ask any business manager how he or she defines competitive intelligence (CI) and you'll hear responses ranging from "that spy stuff" and "industrial espionage" to "systematic collection and analysis of competitor information" from those slightly better informed. But CI has priorities that range a lot more broadly than understanding competitor behavior, although that's a key part. Its influence and usefulness show up in many firms in other areas more traditionally served by existing "silos" of functionality that sometimes take offense at CI playing in their sandbox. In the pharmaceuticals business, for example, CI plays a role at almost every level of the organization's external information collection--both at the corporate level and business unit level—from regulation and legislation to intellectual property protection and exploitation.

While CI remains chiefly concerned with tracking and monitoring direct competitor behavior to support the firm's strategic and tactical decision-making, never before has CI played such an important part in so many diverse areas of the enterprise. It has expanded from its still noble beginnings of helping the company to win the game of "we-win-and-they-lose," often more than a little sinister in its ends (and the reason for its association with industrial espionage), to include supporting--through external information collection, analysis and formulation of strategic recommendations—virtually all of the sundry short- and long-term market objectives of the firm . . . at least those related to the organization's competitiveness and ability to create a level of market hegemony in those businesses that contribute the most value for the firm's stakeholders. Despite the evolution in mission toward a more entrepreneurial cash flow driver, CI is still largely perceived by its internal customers as a cost center . . . an overhead expense that can be scaled back when macro-economics tides change. As we see lately, with a prevailing contractionary economy, many CI teams are being scaled back or simply disappearing entirely to produce operational cost-savings in the short term.

The mistake that is usually made with and by such CI teams is a myopia of scope and scale regarding their original mission--a definition of their own value to the firm as primarily related to competitor tracking in the near-term businesses in which the firm competes today--with little effort directed toward helping the firm to grow most profitably or take advantage of opportunities presented by those same contractionary economic circumstances. Of course, in the other extreme, some CI teams expand their mission beyond foundational priorities too quickly, becoming a flash-in-the-pan fatality. The right balance of mission priorities is different for every firm, but the watchwords of the day can be summed up: "Start small, stay focused, expand slowly."

Competitive strategy is still critical to the firm during economic downturns; it's just different from that which we pursue during expansionary business cycles. For example, rather than expansion through marketing or production partnerships, M&A and licensing IP for new products, competitive strategy might concentrate on capitalizing on the pain of one's smaller, cash-starved rivals--especially those with market capital invested in fast-growth markets that hold the future of the firm's diversified market strategy. A company with a dominant position in a given market, for instance, would logically throw up defenses to protect that core market share position from rivals (which, even if they wanted to, probably couldn't launch an offensive because of a lack of marketing resources). In fact, during contractionary business cycles, a firm with a dominant market position should, instead, use that rather more consistent cash flow to finance a strategy concentrating on maximizing the pain of smaller, weaker rivals in the markets it covets, acquiring some, forcing others out, in order to dominate those markets when the business cycle recovers, as it inevitably will. That is a surprisingly little used strategy, but one which, when applied with care, can result in a company emerging from a downturn stronger than ever.

Minimizing threats CI has always focused on minimizing threats to current business activities, or the status quo, through encouraging a better understanding of the shorter-term operational initiatives the firm might take to dominate the markets in which it competes, relative to its competitors for that same total available market. That focus has allowed many companies to build very effective CI operations with the mission of remaining aware and responsive to competitive threats as they arise on the market landscape. That rather reactionary perspective remains CI's primary objective, but I would argue that it is the minimum that must be done to craft an effective competitive strategy in the short term. And simply to be aware of current activities in a marketplace is often discounted and derided by more proactive thinkers within an organization.

Maximizing opportunities The most common area in which new CI functions disappoint internal customers is that of maximizing new business opportunities for the firm. Many managers fail to accept CI's role in helping the company select new markets for existing offerings, fresh revenue streams or other opportunities for the firm to grow value for shareholders. But the CI team must understand that its value will be judged on the basis of contributing to the net profitability of the enterprise at large . . . or by its net cost to the enterprise in defending (or recommending abandonment) of existing markets that may have matured already or are plagued by price commoditization. It is far more important for the CI function to help the firm find new markets for existing or adapted products, to move the organization toward its most profitable potential direction while avoiding costly and sometimes ruinous mistakes in strategic direction made by decision makers higher up.

A new kind of KIT KITs, or key intelligence topics, have traditionally dominated CI as the pre-eminent list of priorities by which all intelligence activities will be judged. Those areas include such diverse competitor variables as: Financials, Products/Services, Sales/Marketing, Value-Chain, Personnel and the competitor's Customers. Customarily focused on understanding subtle changes in a few key areas of competitor activity, the KIT becomes less important when thinking of CI as an aggressive and opportunistic exercise rather than a defensive, status quo protection activity. While within the competitor perspective of information collection and analysis, KITs remain important, they become just one of a dozen missions with which the most advanced and well-developed intelligence teams are charged. Indeed, CI teams that expand their influence and importance to include all of those priorities, usually drop the "competitive" part of "competitive intelligence," becoming--much as government intelligence programs do--a more general and broadly commissioned function that provides the backbone of decision-making and due diligence.

The list below describes those priorities in rough order of levels of sophistication and relative importance to the average enterprise. While not intended to be comprehensive, the list does establish boundaries and territory by which the CI team can plan its future expansion of services and continuously increase value-added results for its internal customers. The approach adopts a mind-set of "intrapreneurship,” in which the CI team becomes a business within a business--thus focusing intelligence personnel on growing its "business" with internal customers, through continuous expansion of products and services relative to its own effectiveness and the perception of value provided by its constituency. A diversification strategy much like any other business would build out its own product/service/market offerings to deliver value to a broader customer base.

1. Current competitor activities & strategy monitoring The standard "meat" of the CI program, it's important to remember that, above all, customers expect the CI team to be aware of and helpful in understanding competitors' current activities and plans. Usual sources for this kind of research come from public announcements (Web, news, PR, etc.) and follow-up interviews conducted against the competitor to ascertain its commitment to current initiatives. This is standard, old-school competitor intelligence, the constant striving toward knowing how to successfully transfer market share from the competitor's company to one's own.

2. Customer & vendor monitoring Threats of backward and forward integration by customers and vendors is a possibility often discounted, but a fact most often realized by firms every day--as described as two of the drivers of competitive strategy within Michael Porter's classic Five Forces Model. Those threats are known as "latent competitors," those that could relatively easily move back and forth in the value chain to exclude the firm as a preferred source in the open market. As customers and vendors move up and down the value-added ladder, healthy profits at different stages within the value chain create sometimes irresistible opportunities for such traditional allies to move quickly into a "cannibalization" mode against the firm. Likewise, an understanding of customer share can be revealing in terms of unexploited opportunities to sell more products/services within existing customer relationships, thereby minimizing selling and marketing costs while maximizing impact within a customer's value chain and excluding competitors from those self-same opportunities.

3. Operational benchmarking Benchmarking initiatives are traditionally conducted against direct competitors, but can also prove beneficial in studying latent competitors, parallel competitors (substitutes for your products/services), as well as best-in-class or best-in-world firms that can easily move into diversified businesses to take advantage of market opportunities perceived by their own intelligence team. Most often, such benchmarking studies begin by isolating the operational deficiencies present in the firm, identifying practices at firms that excel in those areas, then conducting research to determine why they excel, and transfer that knowledge to the firm to increase tactical efficiency. Sometimes a company can catch up to a competitor or develop their own differentia compared to other buying options that will create a level of market dominance based on operational efficiency. This is especially true for firms that cannot seem to achieve cost competitiveness but instead compete in spite of their selling price, rather than because of it.

4. Strategic probabilities & possible futures The future is the battleground for all business, and as we try to predict that future, "scenario planning" has been a tool used by many competitive strategists to understand the sum of all possible futures and assign probabilistic likelihood to each of those possibilities--thereby, gaining an understanding of what is likely to happen moving forward. Closely tied to war-gaming (business war games try to predict how companies will make decisions and the comparative outcomes of those decisions, across a number of financial quarters--where they will invest, what markets they will attack, which ones they'll abandon), the most common scenario planning method is characterized by "decision trees" or the "implications wheel" models that have been used to weight all possible outcomes and then craft decisions based on the least harmful or most helpful series of outcomes.

5. Product/service sales & marketing support One of the highest-impact areas that the intelligence team can assist in is a solid understanding of strengths and weaknesses not only of competitors but of the firm's own customer and market perceptions. It helps the sales force win new customers or maximize its share of existing ones and can be the metric of success or failure. While the ability to contribute recommendations to the sales force to ensure the FUD (fear, uncertainty and doubt) factor in the minds of customers about competitors' products and services is important, it's also critical to understand the marketing messages relayed to that customer base by competitors. Closely related to value chain, channel and customer intelligence, it is usually done anonymously to ensure truthful discussion by customers and distributors of the relative perceptions of their buying options.

6. Internal knowledge management Knowledge management’s link with CI. I believe that CI presents perhaps the most solid business case for KM initiatives that a firm can get its arms around. Some 80% of what a company needs to know about its market and competitors already exists within the firm and when directed toward a specific business problem or objective, KM can be of great assistance to the CI team in exploiting those internal sources--in the form of more tacit communities of practice, as well as for customized searching and retrieving of subject matter experts and identifying sources of explicit documentation for market awareness.

7. Intellectual property exploitation/protection Intellectual property (IP) has become a multi-billion-dollar business. As the potential cornerstone of a firm's core competence and competitive differentia, IP can determine who wins and loses the competitive battle in the hearts and minds of customers. In certain markets, IP is the single greatest influence on wins and losses. Pharmaceuticals, for example, are guaranteed a period of protected recapitalization on their investment in developing new drugs, and defer the problems found later when those cash cows are overcome by generic copy-cats. Lately, those forces have been lessened by shrewd manipulation of product features as points of patent to perpetuate historic monopoly protection of secure markets. From the design and form of the pill itself to the application time frame, pharmaceutical companies are developing new ways to protect and exploit old products.

8. M&A/alliance/investment support Buying, investing in and allying with companies that have something to offer--either in the form of marketing channels or production capabilities, if not raw cash in hand--spark many firms’ future expansion plans. However, statistically speaking, most deals fail to produce the highly touted and endlessly promised shareholder value they purport to deliver. That is most often because of a lack of due diligence in the qualification process. Recent efforts to include pre-deal due diligence by intelligence teams have substantially affected post-deal success--beginning with selection of candidates and ending with final consummation of the deal.

9. Long-term market prospects Are you in the right business today? Tomorrow? That's what an understanding of long-term market prospects can produce for the firm. Every business is locked into the devilish product life cycle, which includes not only the most profitable periods of product/service life span, but also eventual decline and death. Most commonly directed toward understanding which markets will be fastest growing and then making recommendations about how the firm can dominate those markets, a solid understanding of core competence is also important here. A firm like Corning, which began in the tableware business and came to dominate the fiber-optics business, is such an example. Likewise, Enron, a giant in the energy business, has transferred its core competence to the Internet and even the steel-selling business.

10. Counter-intelligence & information security CI is conducted by every company, against all competitors, although I would qualify that by saying it is most often an informal process, rather than one with an official staff and specific mission. One must assume that his or her organization is under the scrutiny of rivals, at least periodically, and that traditional (and some very non-traditional) methods will be used to extract sensitive information from the firm to enable the competitor to better succeed in the marketplace. While most often deployed against "industrial espionage" activities, counter-intelligence is often a highly developed process, designed specifically to dis-inform one's competitors as to the firm's future plans. The legal and security teams are most often considered the liaisons to counter-attack those specific initiatives--despite the fact that legal and security tend to be better at minimizing the impact of breaches after they've occurred than preventing such actions. The intelligence team has an important role to play as a point of contact for defenders of the firm's proprietary information. CI personnel are best-suited to countervail the same strategies they are actively engaged in with competitors. Likewise, former employees, contractors and other individuals privy to the firm's proprietary information can be significant sources of CI for competitors.

11. Legislative/regulatory impact on business issues In certain industries (particularly those that concern the public interest such as telecom, energy, healthcare and transportation), government activities can be disproportionately influential in enabling or hobbling a firm's competitive strategy. For example, if a government or trade bloc denies approval for a certain merger--as we saw with MCI/WorldCom and Sprint, as well as GE and Honeywell--the competitive benefits of the deal will certainly be compromised. Likewise, if a certain drug or market strategy meets with regulatory scrutiny, legal issues can and often do ensue, scuttling the competitive strategies of market players. That is closely tied to strategic futures because the key impact is uncertain yet must still be planned for, despite the relatively small likelihood of outcome.

12. Decision support & consultative briefings In the catch-all final category, intelligence teams will be required to help tactical and strategic decision makers become aware of all options available to them. The real value-add that most managers ask for when they as for information is a better understanding of the options available to them-- so that they don't miss any options they didn’t think of on their own. Those trusted-advisor missions are diverse and require a highly developed understanding of one's own intelligence mission and resources. But they also provide the greatest opportunity for the intelligence team to make an impact on the company's long-term competitiveness.

Current awareness & early warning Ultimately, CI is still about understanding what is likely to happen and predicting outcomes with a reliable degree of accuracy, then devising a pre-defined response or countervailing strategy to minimize the impact of such events to the firm. At its most fundamental level, intelligence that provides an awareness of the current marketplace drivers and competitive forces is the minimum to ensure continued survival of both the intelligence team and the firm at large. Without CI playing a role in the broader decision-making process, companies are debilitated in their means to deal with new threats and exploit current opportunities. At the same time, the intelligence team must remain cautious not to be spread too thin and serve too many different priorities. Best-in-class CI teams around the world use these 12 priorities to build their internal capabilities and subsequent value to the firm.

Arik Johnson, managing director of Aurora WDC, a competitive and strategic intelligence consulting and research bureau, can be contacted through his Web site at aurorawdc.com.


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