Competitive Intelligence / Competitive Strategy, by Arik Johnson
by Arik Johnson

The Top 12 Priorities for Competitive Intelligence

Ask any business manager how they define Competitive Intelligence (CI) and you'll hear responses ranging from, "that spy stuff" to "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 shows 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 as well as the business-unit - 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 zero-sum-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 to the value created for the firm's stakeholders. Despite this evolution in mission towards a more entrepreneurial cash-flow-driver, the fact remains that CI is still largely perceived by its internal customers as a cost-center… an overhead expense that can be scaled back when macroeconomic tides change. As we see lately, with a prevailing contractionary economy, many CI teams are being scaled back or simply "going away" entirely, in order to produce operational cost-savings in the short-term.

The mistake that is usually made with and by these kinds of CI teams is a myopia of scope and scale as regards 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 concentration or effort directed towards helping the firm to grow most profitably or take advantage of opportunities presented by these same contractionary economic circumstances. Of course, in the other extreme, some CI teams expand their mission beyond these foundational priorities too quickly, becoming a "flash-in-the-pan" fatality of a servant with too many masters. The right balance of mission priorities is different for every firm; but remain consistent in terms of the possibilities for the intelligence team to incorporate into their business plan. Watchwords of the day can be summed up with: "Start small, stay focused, expand slowly."

Competitive strategy is still critical to the firm during economic downturns - it's just different in nature 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. To illustrate the counter-intuitive nature of where CI comes in, a company with a dominant position in a given market, for instance, would logically (and usually does) throw up defenses to protect that core marketshare position from rivals (which, in reality, couldn't launch an attack if they wanted to, often 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. This 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. Trust me… there is an abundance of lessons like this that CI has to share.

Minimizing Threats

CI has always concentrated its attention on minimizing threats to current business activities, or status quo, of the firm and has done so through encouraging a better understanding of the shorter-term operational initiatives the firm might take to dominate the markets in which the company competes in the present tense, relative to its competitors for that same total-available-market. This 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. This rather reactionary perspective remains CI's primary objective - although often, simply to be aware of current activities in a marketplace, are discounted and derided by more "proactive" thinkers within the firm. By contrast, I would argue that this is the minimum that must be done to craft an effective competitive strategy in the short-term.

Maximizing Opportunities

The most common area in which new CI functions disappoint its internal customers is that of maximizing new business opportunities for the firm. While many managers fail to accept CI's role in helping the company to select new markets for existing offerings (a.k.a., "low-hanging fruit"), fresh revenue streams, or other opportunities for the firm to grow value for shareholders, this is a vital lesson for CI teams to understand: their value will best be judged on the basis of contributing to the net profitability of the enterprise at large... or their net cost to the enterprise in defending (or recommending abandonment) of existing (and sometimes less important) markets that may already have matured or are plagued by price commoditization. It is far more important in this respect for the CI function to help the firm find new markets for existing or adapted products and services (even if those products and services have very little to do with what the company does today) in order to move the organization towards 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 - Key Intelligence Topics and Measuring Change

KITs, or Key Intelligence Topics, have traditionally dominated CI as the pre-eminent list of priorities by which all intelligence activities will be judged. These 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 measurements 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 very important, this philosophical approach becomes just one of a dozen more diverse missions that the most advanced and well-developed intelligence teams are charged with. Indeed, those CI teams that expand their influence and importance to include all of these such areas, 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 for the firm.

The list below describes these priorities in rough order of levels of sophistication and relative importance to the average enterprise. While not intended to be comprehensive, this 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. This approach adopts a mindset of "intrapreneurship", where 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. Similarly, such a diversification strategy would, much like any other business, 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 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 their commitment to current initiatives. This is standard, old-school "competitor intelligence", the constant striving towards knowing how to successfully transfer marketshare from the competitor's company to one's own.

  2. Customer & Vendor Monitoring - Threats of backwards- and forwards-integration by customers and vendors is a possibility often discounted, but a fact most often realized, by firms every day - even described as two of the drivers of competitive strategy within the classic (Michael) Porter's Five Forces Model - these threats are known as "latent competitors", or those which 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, or "wallet", 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/Performance Benchmarking - Benchmarking initiatives are traditionally conducted against direct competitors, but can also prove beneficial in studying latent competitors, "parallel competitors" (or, substitutes for your products/services), as well as best-in-class or best-in-world firms that can easily move into diversified businesses based on their core competence 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. This is closely tied to an understanding of Hamel and Prahalad's "core competence" (or, those characteristics that are competitively unique and contribute a disproportionate share of customer-perceived value, thereby enabling the firm to make the most of these same characteristics to expand into new markets). Sometimes a company can catch-up to a competitor or develop their own differentia compared to other supplier options that will create a level of market dominance based on operational efficiency. This is especially true for those firms who cannot seem to achieve cost-competitiveness but instead compete in spite of their selling price, rather than because of it... with obvious implications for cash-flow and financial solvency.

  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-total 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, in that, 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, etc. - the most common method of scenario planning is characterized by "decision-trees" or the "implications-wheel" models that have been used to comprehensively and statistically weight all possible outcomes and then craft decisions based on the least harmful or most helpful series of outcomes probabilistically predicted.

  5. Product/Service Sales & Marketing Support - One of the highest-impact areas that the intelligence team can assist in, a solid understanding of strengths and weaknesses, not only of competitors but of the firm's own customer and market perceptions, helping salesforce win new customers or maximize share of existing ones can be the make-or-break metric of success or failure. While the ability to contribute recommendations to salesforce for ensuring "FUD-Factor" (fear, uncertainty and doubt) in the minds of customers about competitors' products and services is important, it's also critical to understand the marketing messages relayed to this customer-base by competitors that can help the firm to mitigate threats to existing customers and win more profitable revenues from new ones. This is closely related to value-chain, channel and customer intelligence, but usually conducted anonymously in order to ensure truthful discussion by customers and distributors of the relative perceptions of their buying options.

  6. Internal Knowledge Management - Knowledge management and its connection with CI has often been talked about, but my own opinion on the subject is that, CI presents what is perhaps the most solid business case for KM initiatives the firm can get its arms around. Some 80-percent of what a company needs to know about its market and competitors already exists within the firm and, when directed towards a specific business problem or objective, KM can be of great assistance to the CI team in exploiting these internal sources - in the form of more tacit "communities of practice" as well as for customized search-and-retrieve of subject-matter experts and identifying sources of explicit documentation for market awareness.

  7. Intellectual Property Exploitation/Protection - For companies like IBM (who once provided a "free service" to the general public to search patent records, which in reality was used to scan for companies interested in licensing its technologies), intellectual property (IP) has become a multi-billion-dollar business. Likewise, as what might often become the cornerstone of a firm's core competence and competitive differentia, IP can determine who wins and ultimately loses the competitive battle in the hearts and minds of customers. In certain markets, IP is the single greatest influencer of wins and losses - pharmaceuticals, for example, are guaranteed a period of protected re-capitalization on their investment in developing new drugs, and defer the problems faced later on, when these "cash cows" are overcome by generic copy-cats. Lately, these 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 effectiveness timeframe, pharma 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 - provide many firms the engine of growth for their future expansion plans. However, statistically speaking, most deals fail to produce the highly touted and endlessly promised shareholder value they purport to deliver. This is most often due to a lack of due-diligence in the qualification process - and a source of tremendous validation value for the intelligence team. Recent efforts to include pre-deal due diligence by intelligence teams have had substantial effects on post-deal success - beginning with selection of candidates and ending with final consummation of the deal and integration of enterprises.

  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" that includes not only the most profitable periods of product/service lifespan, but also eventual decline and death. Most commonly directed towards understanding which markets will be fastest growing (a traditional market research activity) and then making recommendations to decision-makers on the means by which the firm can come to 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, a company like Enron, a giant in the energy business, has transferred its core competence to the Internet and even the steel-selling business (although, of course, there are more significant lessons there...).

  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 really must assume that their organization is under the scrutiny of one's 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 very highly developed process - sometimes even 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 these specific initiatives - despite the fact that legal and security tend to be better at minimizing the impact of breaches after they've occurred rather than preventing against such actions beforehand. The intelligence team has an important role to play as a point of contact for these defenders of the firm's proprietary information in that, 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 nature of the firm's proprietary information can be significant sources of CI for competitors.

  11. Legislative/Regulatory Impact on Business Issues - In certain industries, more than others, government activities - in both legislative and regulatory realms - can be disproportionately influential in enabling or hobbling a firm's competitive strategy. Typically most influential in industries for the public interest such as telecom, finance, energy, healthcare and transportation, this is also important in understanding the implications of strategic initiatives such as merger and acquisition approval - if a government or trade bloc denies approval for a certain merger - as we saw happen 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 (witness the recent energy-availability concerns in the USA) meets with regulatory scrutiny, legal issues can and often do ensue, effectively scuttling the competitive strategies of the market players involved. This activity is closely tied to strategic futures as the key impact is uncertain, yet must still be planned for, despite the relatively small likelihood of outcome.

  12. Decision-Support & Consultative Briefings - The (admittedly) catch-all final category, intelligence teams will be required to assist both tactical and strategic decision-makers in becoming aware of all options available to them in each of those decisions. The real value-add that most managers ask for when they request better information is a really a more thorough understanding of the options available to them - simply, so that they don't miss any options that they might not have thought of on their own. These "trusted-advisor" missions are diverse and require the most highly developed understanding of one's own intelligence mission and resources - but also provide the greatest opportunity for the intelligence team to make an impact on the company's long-term competitiveness. Likewise, the penultimate objective of every intelligence function, should be to become this trusted advisor.

Current Awareness & Early Warning

Ultimately, CI is still about understanding (before it happens, mind you) what is likely to happen and predicting such 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 that must best done to ensure continued survival; a truth applying equally to 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 dozen priorities, while not all immediately or even concurrently (to avoid flash-in-the-pan syndrome), to build out their internal capabilities and subsequent value to the firm.

Arik R. Johnson is Managing Director of the Competitive Intelligence (CI) outsourcing & support bureau Aurora WDC. Learn more about Arik at his firm's Web site