Competitive Urban Legends

We’ve all heard them. "Urban legends" are a sort of modern folklore consisting of stories often thought to be true but that, in reality, are usually false, exaggerated, distorted, or sensationalized. I’m sure you’ve heard the one about unsuspecting business travelers being anaesthetized and then waking up to find that a kidney had been harvested for surgical transplant.

For the most part, urban legends are harmless fun. But many can take on a life of their own and cause those reading or hearing them to think, just for a moment, that maybe if I’m at an ATM and sense danger, I can enter my PIN in reverse and summon the police.

Managers can hold similar myths, stereotypes, and distortions about competitors, industry conditions, or other business matters. It’s hard for executives, especially those who have been in the same industry or with the same company for most of their careers, not to develop deep-seated beliefs about their business environment. There’s always one competitor more aggressive and hungry than you are, or another competitor that certainly has a more favorable cost structure, or a supplier set to go out of business at any moment. These competitive urban legends are endemic to almost every company, and become reinforced over time as more executives buy into them.

Confronting your company’s urban legends with credible evidence may be the right course of action, but doing so can be fraught with risks. If your company is like most, the more deeply held and incontrovertible the urban legend, the more powerful and influential are the executives who espouse it. Challenging their perspective can be dangerous if not done in a logical and systematic manner.

Entering into a debate with a powerful executive places your credibility on the line. Losing such a battle can create personal and career casualties, and harm the overall perception and acceptance of competitive intelligence inside your organization. Still, when approached carefully and thoughtfully, confronting competitive urban legends is a better course of action than turning a blind eye to them.

Consider the following hypothetical example. A computer services firm found itself continually surprised by the actions of a set of competitors its managers thought they knew well. The competitors were underbidding the company for the provision of networking, systems integration, and other technical services performed for the company’s clients. The company was also pricing well out of sync with client expectations. In some cases, it underbid competitors when price did not turn out to be a prevailing decision factor for the customer. In others, it was increasingly losing bids on prices that were too high, sometimes submitting bids 20% higher than those from other competitors. Senior management scratched their collective heads. How in the world could this be happening? Confusion reigned.

During this competitive conundrum, the company’s competitive intelligence team began to hear statements made by management that seemed to be unfounded:

• "Our competitors are bidding on projects as loss leaders just to establish relationships with desired customers."

• "Competitors can’t be lowering their costs by locating their developers and technical staff offshore -- doing so would complicate services delivery and cause customers to lose confidence."

• "That competitor is in trouble; it’s losing money and is desperate for new revenue to avoid having to undergo a significant restructuring later."

Collected evidence did not suggest that competitors were adopting a loss leader approach. Furthermore, credible evidence indicated that a competitor was adopting a significant offshore strategy. And the competitor in alleged financial difficulty? No evidence indicated anything of the kind.

Furthermore, the competitive intelligence team worried that these perceptions not only clouded management’s ability to take action to correct the company’s sales decline, but also paralyzed management from taking any action at all. Strategy and sales meetings became exercises in frustration, with managers citing their company’s misaligned sales approach but remaining at a loss as to what to do about it.

For each competitive urban legend, the competitive intelligence team identified a set of intelligence requirements that, when fulfilled, would give them the evidence required to objectively and logically evaluate the truthfulness of each legend. Using this list of intelligence requirements, the team gathered published-source and human intelligence. They divided the collected data and information into two sets: one that refuted the legends, and one that supported them.

The challenge then became how to successfully (and safely) inform management that several of its competitive perceptions were no longer valid. Most competitive intelligence practitioners focus on the work behind collecting and evaluating information to create practicable intelligence, and sometimes give short shrift to thinking through a communications strategy. In this case, when you have to deliver intelligence that you know is at odds with your management’s prevailing beliefs about the competition, carefully consider the means by which you deliver that message to your decision makers.

In most cases, subtlety does not work.

When calling management perceptions into question, a direct approach usually works best. In this case, the competitive intelligence team first acknowledged the prevailing competitive perceptions, and then arrayed evidence both for and against the perceptions so management could see exactly how the analysts came to their conclusions regarding whether the legends were true. To get their point across, the team presented management’s distorted perceptions directly back to them, labeling them "urban myths." In doing so, the CI team established that a main purpose of the briefing was to call out, and refute, some of management’s beliefs.

In the management briefing, the competitive intelligence team clearly showed the pieces of evidence that supported the competitive urban legends and those that did not. For each legend, the briefing came down on one side or the other, designating a legend as a valid judgment or as an obsolete view of the competitive environment. For validated hypotheses, the competitive intelligence briefing addressed the implications of each for the computer services company’s sales and pricing strategy, and highlighted future circumstances that could change this rationale.

Communicating the competitive intelligence team’s assessment that discounted some of management’s incorrect urban legends was harder. The team stuck very closely to the evidence they presented and, in essence, allowed management to see for itself that their beliefs were no longer valid. Then, for each refuted hypothesis, the team offered alternative assessments that reconciled observed competitive behavior with the evidence collected and the unfavorable results of the recent lost sales.

For each alternative assessment, the team discussed the implications to the computer services company. They also reviewed a corresponding set of intelligence indicators that the team would continue to monitor with an eye toward warning management about future circumstances that could change these new conclusions.

Once you’ve completed your first urban legend analysis, what’s next? Like most competitive intelligence that management receives, a one-time report or briefing is not enough. To effectively prompt management to at least acknowledge that their competitive perceptions could be in error, competitive intelligence teams need a communications strategy that stresses a constant and ongoing review of prevailing hypotheses.

Consider delivering a quarterly update that confronts the competitive urban legends, offers new evidence that either supports or refutes them, and extends your analytic line. Informal reinforcement of your analysis is essential. Listen for comments by executives that are indicative of old, discounted perceptions. Find opportunities to reinforce your analysis that calls such perceptions into question. Urban legend analysis is not about aiming for one grand deliverable, but for finding opportunities to challenge and correct any distorted competitive assumptions on a continuous basis.

To be sure, confronting -- and ultimately changing -- management’s perspective on the competition is difficult, even when that perspective is out of date or based on assumptions and evidence that no longer hold true. Instead of ascribing to and reinforcing those perceptions, a better competitive intelligence strategy is to confront them head on, using inductive, hypothesis-based analysis. Remove debilitating perceptions from management’s mindset that cloud effective decision making. This will take time and persistence, but the benefits to your organization and your competitive intelligence program can be profound.

The Economic Crisis: Will Your CI Function Survive?

Last October, competitive intelligence stalwart Merck & Co. announced that it was cutting 7,200 jobs and closing three research laboratories. At the same time, other blue-chip names – Ford, General Motors, Yahoo, National City – also have announced severe staff reductions. Payrolls fell 500,000 in December, bringing last year’s decline to 2.4 million, the most since 1945, according to the median estimate of economists surveyed by Bloomberg News. Anyone still keeping tabs on their 401 (k) knows that the credit crisis, gloomy earnings forecasts, and a sharp decline in consumer confidence sent stock markets down almost 40 percent in 2008.

What is perhaps most worrisome is that few saw the severity of the downturn as it was taking shape, and many top minds are at a loss to explain it. In a less-than-confidence-inspiring revelation, former Fed chairman Alan Greenspan summed up the economic situation this way, “We are in the midst of a once-in-a-century credit tsunami. Central banks and governments are being required to take unprecedented measures. Those of us who have looked to the self-interest of lending institutions to protect shareholders' equity are in a state of shocked disbelief.”

In times of economic slowdowns, corporations look to cut excess costs. Many a support function – in particular strategic planning and marketing, to name two – are often the first to get whacked. And competitive intelligence, which for most firms is nothing more than a big old cost center in the eyes of the CFO, can have a big target painted on it.

Of course, nothing could be more foolish than to scale back or even eliminate the competitive intelligence function in times of economic uncertainty. If former Fed Chairman Greenspan is in a state of “shocked disbelief” over the the role lending institutions played in the financial crisis, imagine how CEO’s and other top managers are (or aren’t) coping with the impact of the downturn.

That begs the question: for those of you wringing your hands with fear over your CI department’s future, are you asking your managers about their degree of uncertainty regarding future competitive conditions? Now is the time to revisit the very reason why your CI function was established in the first place. Any need expressed by top management to better understand competitive forces, external industry shifts, and specific competitor strategies are magnified today, with an economy in severe decline.

That means that common CI outputs that consist of quarterly competitive landscape reports and monthly competitor profiles just won’t cut it any more. The survival of your CI function may depend on your ability to deliver unique, relevant insights related to helping your company navigate through a tough economy. Now more than ever, your CI deliverables have to go a few steps farther to truly help your management team navigate uncertain economic waters.

To be sure, budgets are shrinking on all but the most essential activities. So make sure that your executives know that CI is an essential activity. Ask yourself: are you providing warning of looming threats and opportunities? Can you clearly link your CI output to key strategic initiatives and objectives at your company? How are your CI efforts helping your company to meet its goals?

For the CI function to survive, cutting back on CI professional development, limiting access to CI best practices, and retrenching away from engagement with external CI experts is the last thing you should be doing. Upgrading your CI function’s output and making the most of challenging economic times requires ongoing access to CI best-practices, a fair degree of risk-taking on your part, and a demonstration of how a well running CI function can help your organization weather what is likely to be a long and deep recession. If you don’t have 110% of your energy focused in this direction, your CI function will not be seen as a valuable asset that is essential to navigating this challenging economy.