The Outward Insights blog has been up and running for about two years, and we have been very pleased with the level of engagement and activity with our readers. As we continue to improve the quality and provocativeness of the blog, we have moved it to a new platform to allow for even more engagement and interaction.
What a year 2009 was. As the US economy emerges from the worst recession in generations, how should strategy and competitive intelligence practitioners prepare to contribute to their company's growth and performance in the new year? While I'm not a big fan of new years resolutions, over the next few days I'll offer five ways you can improve your company's CI and competitive strategy capabilities in 2010. Here's number 1:
Popularized in the early 1990s by Robert Kaplan and David Norton, the Balanced Scorecard methodology (BSC) is a system of interdependent, strategically derived goals, measures, and activities that summarize a corporation, its strategy and its actions. Said another way, the BSC methodology is an integrative instrument for strategy execution comprised of a communication system, a measurement system, and a management system. The BSC helps an organization translate its often vague and easily misunderstood mission and vision statements into specific, results-oriented actions. Doing so engenders transparency, responsibility, and accountability within the organization with a view towards creating satisfied shareholders and customers, effective and efficient processes, and a motivated and engaged workforce aligned with the company’s strategic goals and objectives.
If one of the goals of a company’s competitive intelligence function is to inject intelligence into the strategic plans of the organization, it is important to position competitive intelligence as a critical component of the company’s balanced scorecard initiative. Because the initial stage of the BSC model requires that the organization identify specific strategies, measures of success, goals and targets, and activities required to reach those targets, positioning CI as an important component of organizational success is important.
For example, assume that an organization has identified four strategic goals: improving revenue mix, creating a “cutting edge” image for its customers, becoming the leader in industry research and development, and improving operational capabilities. In this organization, competitive intelligence can help evaluate competitor channel and promotion strategies, helping the organization optimize its revenue mix. CI can also help monitor and evaluate customer perceptions of the company compared to its competition, as well as identify competitor product pipelines so that the firm keeps on top of competitive research developments. Finally, CI can also help the organization evaluate the production efficiencies of its competitors to help the company establish operational baselines.
Competitive intelligence frequently supports the development of strategy in an organization, but if management fails to realize that CI can help the organization achieve its strategic objectives, then the organization is only realizing half the potential value of competitive intelligence. By integrating CI findings and outputs into the application of the BSC methodology can forge a stronger link between CI and the strategic success of the company. The Balanced Scorecard methodology thus provides a framework to measure the contribution and value of competitive intelligence in not just helping set strategy, but also from the company’s ability to meet specific strategic goals and objectives.
One of the greatest frustrations that routinely plague competitive intelligence analysts and managers is to deliver world-class actionable intelligence -- with clear strategic and decision impact to the company -- only to have management ignore it. Where does the problem lie: with the quality of the intelligence, or with how managers perceive it? The truth is, both parties share in the responsibility of ensuring that credible intelligence is recognized and used.
First, let's revisit what is meant by the term "actionable intelligence." This term has become so axiomatic that we may have lost sight of its true meaning. In his book Good to Great, author Jim Collins notes that companies that consistently out-performed their peers did not necessarily have access to more, or better, information than their comparison companies. Instead, Collins notes, "not in better information, but in turning information into information that cannot be ignored." Now, Good to Great has come under some criticism of late as many of his "great" companies today are sucking wind. Still, the notion of "information that cannot be ignored" strikes me as a good benchmark against which to judge actionability. (Collins, Jim. Good to Great: Why Some Companies Make the Leap, and Others Don't. Collins, October 2001, p. 79)
The hallmark of an effective corporate competitive intelligence function is how it communicates important CI findings to company decision-makers. There are a variety of ways to communicate key intelligence findings: newsletters, ad hoc reports, email, posts to a CI portal, to name a few. But, one of the most effective methods is a scheduled executive briefing.
We all know, intuitively, that competitive intelligence isn’t really intelligence unless it is actionable. If a piece of intelligence doesn’t compel a decision-maker to take action, we are told, it is just another piece of information. But what constitutes action? And, what is the process by which competitive intelligence prompts a decision or strategy that is implemented and subsequently managed? Frequently, even companies that possess world-class competitive intelligence functions struggle with turning credible, insightful, actionable intelligence into a clear strategy, decision, or course of action.
Why is good intelligence often not incorporated into strategic plans or operational decisions? The problem, I believe, rests with reluctance among management to clearly define the role it expects intelligence to play in company decision-making, to define key decision components that are influenced by intelligence, and to track progress against them.
Too often, strategic planning is an exercise in reaffirming what is known or comfortable, or what has worked in the past. Similarly, decision implementation is often an exercise in executing what has worked before. In today's uncertainty, companies are hard-pressed to take new, bold, and decisive action even when all the intelligence “signals” point to the wisdom of pursuing a new course of action. To understand how competitive intelligence can improve both sides of this problem, we need to consider each separately.
The successful integration of competitive intelligence into a company’s strategic planning process requires that strategic planning be based on a well-defined framework that clearly defines the role competitive intelligence is expected to play. It doesn’t matter whether the framework is based on popular techniques like scenario planning, is based on ones invented and perfected by your company, or has a particular objective – such as growth – in mind. With a well-defined planning framework, it is easier to define CI’s specific role, and how CI will be considered when developing and implementing the strategy.
What if your company has no identifiable planning framework, or no strategic planning process at all? In these cases, CI can do little more than provide general industry or competitor assessments in the hope they will generate questions that result in a more disciplined approach to strategic development.
Frequently, competitive intelligence points to the need for a specific decision that is not necessarily a part of a pre-conceived strategic plan. Intelligence early warning, for instance, that describes new competitive developments not directly addressed during the strategic planning process can require managers to make decisions “off plan,” and do so quickly.
In these cases, it is important for the CI manager to identify an issue champion. This is an individual in a decision-making or leadership role whose corporate function is most impacted by the intelligence. For the issue champion to successfully act on new intelligence, the CI manager must brief him or her on the content of the intelligence, and discuss the implications for the company and for his or her function directly. Sometimes, the prospective issue champion will defer to someone else, or include others in the initial discussion about potential decision options once the intelligence is delivered.
The appointment of the issue champion is hardly based on a formal process. The means for identifying the issue champion will differ from issue to issue, and is based on candid conversations between the competitive intelligence manager and the intelligence function’s consumers. One thing, however, is certain. The issue champion must have the authority to determine a course of action based on the intelligence, marshal and manage appropriate resources for decision implementation, and then oversee its execution.
In sum, effective decision implementation following the delivery of an intelligence report requires a sound framework for strategic planning, and the appointment of a decision-level issue champion charged with the task of marshaling the resources for effective decision execution. Simply preparing good intelligence reports is not enough; companies must pay close attention to particular strategic planning frameworks, and how to oversee decision execution over an extended period of time.
Kenneth Knight describes his job as helping the president of the United States and his administration "avoid surprise." As the national intelligence officer for warning, Knight oversees a small team of analysts who serve as an institutionalized safeguard against risk-monitoring and challenging the analyses and assumptions of the broader intelligence community. In this interview, he discusses evaluating threats, overcoming cognitive biases, and constructing scenarios -- challenges familiar to most private-sector strategists. McKinsey's Drew Erdmann and Lenny Mendonca spoke with Knight in Washington, DC, in June 2009.
Outward Insights' business early warning services are modeled on many of the same techniques as used by the US Intelligence Community, including scenario building, indicator definition, and the proactive communication of warning assessments.
Within the past month, two clients have asked me to help them develop training in competitive intelligence for non-CI professionals. Neither of these companies manages a full-time, centralized CI function. Instead, each company's strategic marketing function wants to instill product, brand, and sales managers with core CI skills to enhance their job performance. These companies may, or may not, develop a dedicated CI team; for now, building CI-related skills and competencies among a broader community is more important.
They envision rolling out a series of short, "bite-sized" training modules on various aspects of competitive intelligence (competitor hypothesis generation, human-source network building, intelligence analysis), in some cases as part of a larger, internal training operation. The training would be delivered on-line, via WebEx or Live Meeting or some similar platform, and would include "homework" assignments that will require attendees to apply course material to their specific functions and needs.
The CI training needs of these two companies is emblematic of a broader trend: the decentralization and deprofessionalization of competitive intelligence. For many organizations, especially decentralized, multi-business-line companies, there is more value to be derived from embedding CI skills in other, more well established corporate functions, than from building a dedicated, professional CI program.
Is this wise? Does it further the promotion of CI, or limit it? For me, this deprofessionalization of CI may be a good thing. For one, it brings CI to the masses; there's no reason why professionals in functions related to competitive intelligence can't or shouldn't selectively apply core CI competencies to what they do, especially if doing so enhances decision-making at a variety of levels. It also engages more and more professionals in the conduct of competitive intelligence, potentially bolstering membership in the Society of Competitive Intelligence Professionals (SCIP) and enhancing the profession by opening it to new ways of doing business. One downside for SCIP, however, is that this new corporate approach to CI may make its proposed certification program meaningless.
To be sure, these decentralized approaches to CI will require stronger coordination and management of intelligence practices, the development of strong communities of practice, and other structural elements, to make it work. But, if more and more people are practicing the craft of intelligence, I see more upside than downside.
According to a recent article in USA Today, incidents of corporate espionage are on the increase, thanks to cheap, easy-to-use technology devices and increasing numbers of displaced and disgruntled workers due to the recession.
"Corporate espionage using very simple tactics — much of it carried out by trusted insiders, familiar business acquaintances, even janitors — is surging. That's because businesses large and small are collecting and storing more data than ever before. What's more, companies are blithely allowing broad access to this data via nifty Internet services and cool digital devices."
Meanwhile, the proper use of business and competitive intelligence by US companies is also on the increase. In a recent Outward Insights survey, more than seven out of 10 companies surveyed claimed to have an organized and systematic way to collect, analyze, and use competitive intelligence, a seven percent increase over results from a similar survey we conducted in 2005.
These two facts are completely unrelated to each other.
"Corporate espionage" will be with us in good times and bad. Any employee who feels she is "getting her due" by taking sensitive customer lists along after being laid off, or any sales rep who feels he is one-upping the competition by misrepresenting himself to a competitor at an industry trade show just to get information, are not emblematic of the thousands of companies that are practicing legal, ethical and effective competitive intelligence. These acts of lying and stealing are almost always one-off acts committed by ignorant people in the belief that they are securing valuable competitive knowledge, or exacting revenge on an employer who did them wrong.
And in most cases, the individuals committing these acts wind up unemployed, unemployable, or prosecuted. An individual cited in the USA Today piece who had infiltrated a competitor's email accounts was arrested. He subsequently pleaded guilty to felony wiretapping for tampering with the competitor's e-mail. He was sentenced last month to three months probation and ordered to undergo counseling. "There was nothing sophisticated about me getting into their e-mail," he said in an interview. "Honestly, I had no idea that it was illegal."
Individuals committing such foolish acts rarely are working within, or on behalf of, corporate competitive intelligence programs. Indeed, anecdotal evidence suggests that companies managing formal competitive intelligence programs are less likely to behave unethically, as these companies make clear what intelligence activities are acceptable and which ones are not.
The competitive intelligence industry has made great strides over the years disassociating itself from the sleaze of trade secret theft. But, occasional reminders are necessary that there is a stark difference between corporate espionage and competitive intelligence. The latter is an accepted and necessary business function; the former is just utter stupidity.
Ask any automobile dealer, insurance broker, or retail store manager what has been the single greatest threat to their margins and the answer will most assuredly come back: the Internet. The greater transparency of information and competition engendered by the Internet has transformed some industries for the better (who actually still goes to their local bank branch?), while leaving others in tatters (when was the last time you booked a vacation through a travel agent?).
But just as the dawning of the 21st century saw the Internet dramatically lower, and in some cases dismantle, traditional barriers to entry in a variety of industries, as this decade comes to a close, a new generation of web-technologies threaten to shake-up and squeeze yet another industry: enterprise software.
By now, everyone has heard of ‘cloud’ computing, a concept based upon the conceit that our work need not be tethered to an individual computer or operating system when a universally accepted web-standard allows otherwise. And while many would argue that the Cloud is the future of computing (Google has even recently announced a browser-based operating system called ‘Chrome’ that presumably will support accessing applications in the Cloud), Cloud computing‘s ascension as a feasible alternative will likely be delayed until cheap, high-speed, internet access is as ubiquitous as running water and electricity. Until that time, broad proliferation of Cloud computing will remain a dream.
So if Cloud computing isn’t the software revolution of which we speak, what is? Simply put, it is the advent of sophisticated, free or nearly free web-based tools that can emulate, and often exceed, the features provided by large, often bloated, certainly expensive, software platforms. The maturation of the internet has resulted in free and cheap tools so powerful that many individuals and organizations are foregoing spending tens or hundreds of thousands of dollars per year on platforms designed to achieve largely the same results as free or inexpensive, Internet-based applications. Surprised? You shouldn’t be; if there is one thing history has taught us about the internet, it’s that it dramatically drives down consumers’ costs.
The availability of free or low-cost web-based software tools are now widely available for competitive intelligence applications. When organizations evaluate traditional competitive intelligence software packages (which can run into the hundreds of thousands of dollars), they typically have many overlapping needs including: article summarization, automated competitor website tracking, government regulation tracking, team-based or work-group portals for sharing intelligence analysis and notes, CI workflow, and keyword search trend analysis.
While most CI software vendors can address most, if not all of these needs, few vendors are able to deliver every capability well. In software development, just as anything else, trade-offs are necessary and resources are often allocated towards those features that are most marketable, not necessarily those that are most useful.
That said, with a little research, CI professionals can likely piece together a suite of stand-alone, browser-based, platform-agnostic products that can often be easily integrated into existing workflows that address most, if not all, of their software needs. Indeed, we’ve found that nearly every capability that is offered by the large CI software vendors (including those functionalities listed above) can be easily and cheaply replicated (and in some cases even surpassed) by free or low-cost software offered online.
Granted, this method won’t be suitable for every organization, and it does come with its own drawbacks (such as lack of integration), but for the right CI group on a budget, free and nearly-free online applications can often replicate the features of larger, pricier options, providing an adequate substitute at a fraction of the cost.
According to the New York Times, sales of GPS Navigation Systems -- devices that mount to an automobile dashboard or windshield that tap the Global Positioning System of satellites to determine directions and provide audio turn-by-turn directions and other features -- are on the decline as more smartphones are equipped with GPS capabilities (“Sending GPS Devices the Way of the Tape Deck?” July 7, 2009). Apple’s iPhone, for instance, comes with a map application that uses the phone’s GPS capabilities to do largely the same thing as larger, and often pricier, navigation systems.
Indeed, more than 40 percent of all smartphone owners use their devices to get turn-by-turn directions, according to Compete, a web analytics firm. For iPhone users, the figure is higher at more than 80 percent. Shipments of smartphones in North America are expected to grow by 25 percent this year, with more than 80 percent of them equipped with GPS, according to ABI Research.
Not surprisingly, sales of traditional GPS units from companies like TomTom, Garmin, and Magellan have fallen sharply. TomTom reports that it shipped 29 percent fewer GPS units in the first quarter compared with the same period in 2008. Garmin said that unit sales fell 13 percent in the first quarter compared with the previous year.
Garmin and TomTom, the two leaders in GPS navigation systems, have adopted radically different strategies to deal with this competitive threat. TomTom has announced plans to offer a portable navigation application for the iPhone that would include turn-by-turn directions and audio prompts. Unlike existing GPS apps for the iPhone, TomTom intends to charge a one-time flat fee rather than require users to pay a monthly subscription fee, according to the Times. Doing so makes TomTom available across different platforms, extending the product’s reach.
Garmin, meanwhile, has plans to develop and launch its own combination navigational device and cellphone, called the Nuviphone, later this year. It essentially intends to turn its navigation system into a mobile phone, with sophisticated navigation features that should far outpace current smartphone map applications. In doing so, it will leverage its expertise at developing, selling, and maintaining devices.
Which is the better strategy? On what assumptions do you believe each company’s strategies are based? What obstacles might each encounter as it attempts to respond to the decline in its core business? We’d love to hear your thoughts.
It might be hard to imagine now, but a recovery will follow the recession in which our economy has been mired for the past 18 months. And, just like the onset and the severity of the recession caught many business leaders by surprise, so too will the extent, nature, and pace of the recovery. Is your business prepared?
It is impossible to predict the future, and any business that sets its strategy on a single vision of future market conditions knows one thing: that strategy will not withstand the uncertainty inherent in the future, because the hoped-for conditions will not materialize in the ways your company wants them to. Trying to predict precisely when the economic recovery will begin, how resilient it will be, and how competitors, customers, and other players will behave when it starts is foolish. A scenario planning mindset to the recovery will most likely better
position your company to benefit when it occurs.
Scenario-based strategic planning is a tool that enables organizations to create strategies by considering multiple plausible future environments in which the organization could be forced to participate. It operates under the premise that the future is unknowable and unpredictable, and setting strategy for a single-point vision of a “desired” future is risky. Doing so locks a company into pursuing a set of goals and objectives that may be out of sync with future conditions, and hampers a company’s ability to adjust to future market realities. Fundamental questions surround the nature of the economic recovery, and multiple answers exist to each of
them, underscoring the need for strategic resiliency and flexibility that a scenario-based approach can provide. For instance:
Competitive intelligence functions are in a fight for survival. While competitive intelligence has always seemed to require an above average dose of justification to top management, it is now in a life-or-death battle with other corporate functions for an increasingly limited pool of budget dollars.
Over the past several months, I’ve written about the need for CI functions to make fundamental changes to what they produce and how they operate so that the can demonstrate value and survive the economic crisis. This month, I want to highlight what a few corporate CI functions are doing to not only weather their organizations’ budget cuts, but to thrive and expand their impact. Most of the examples that follow are taken from a lively discussion currently underway in the CI social networking platform Ning (http://competitiveintelligence.ning.com).
First, ensure that competitive intelligence is embedded in multiple, critical business practices and operations. At one European-based multinational company, the competitive intelligence function is interlinked in several crucial business planning processes, including pricing programs, marketing planning, customer relationship management procedures, and the like. The company’s Key Intelligence Topics are defined by standard business planning processes and are integral to the company’s market monitoring and early warning systems. These CI activities have become so crucial, 93% of its users have said that they cannot do without them, according to an internal survey conducted by the CI team. The result? Despite a 30% head-count reduction in the Corporate Marketing Group, the CI function has experienced no staff reductions and no cuts to its six-figure budget.
Second, CI programs may have to temporarily suspend their focus on the long-term and shift attention to current needs. Just like there are no atheists in foxholes, there is no “long-term” in severe global recessions. One CI practitioner who contributed to the discussion described how he identified where current external uncertainties are the greatest, and intervened immediately. Doing so requires a high degree of flexibility. For his CI function, identifying the most urgent, current needs has CI supporting pricing programs one day, and then supporting deliberations regarding a prospective M&A opportunity the next.
Third, CI needs to stay close to the company’s revenue stream and help management focus on serving existing customers. Cost cutting alone won’t help most companies weather the economic downturn; protection of the top line is critical. Two CI functions are helping their organizations manage the top line by helping protect and secure more revenue from existing customers. CI functions can do so by examining whether current customers and revenue sources are threatened by competitive or other external forces, and whether existing rivals have any immediate weaknesses that can be exploited in ways that capture revenue from customers.
Fourth, CI functions should reexamine the utility of their CI products in the eyes of their C-level consumers. If top-level CI users find your existing deliverables too long, not actionable, or simply unusable, the perceived value of the entire CI function is damaged. I have a consumer products industry client that fortuitously transformed its CI reports from long, ponderous market studies to short, warning alerts that provide actionable insights on emerging competitive and industry trends. The CI function aggressively marketed these products to the C-suite and within a matter of weeks had the company’s entire strategic leadership team addicted to these reports.
The current economic crisis need not spell the automatic decline of competitive intelligence. The examples offered here illustrate opportunities for CI functions to not just survive but thrive, and emerge from the current turmoil even more integral to the success of their organizations.
Innovation is a competitive advantage that even the worst economic conditions in decades can't take away. Want proof? Take a look at the movie theater industry. Pundits for years have predicted the death of movie theaters as they came under threat from cable movies on demand, Netflix, pay-per-view, and Apple TV.
However, the movie industry today is on a tear. Ticket sales this year are up 17.5 percent, to $1.7 billion, according to Media by Numbers, a box-office tracking company. And, this surge is not due just to increased ticket prices. Attendance has also jumped, by nearly 16 percent. If that pace continues through the year, it would amount to the biggest box-office increase in almost 20 years.
Movie theaters have been able to defy their own death predictions and thrive in a deep recession by installing stadium seating, high-quality sound systems, better food, and abundant parking. They are also renting out theaters for other uses, such as comedy clubs and major sporting events. Answering complaints about cell phones ringing during movies, the industry is also looking into cell phone jamming and emergency-call-only technologies.
Creativity and innovation are corporate assets that can't be taken away, either by competitors or tough economic conditions. You cannot hope to succeed without being open to change.
More than 500 CI professionals have gathered in Chicago for the 2009 Society of Competitive Intelligence Professionals Annual Conference and Exhibition. On the program are sessions on how to build a CI process, common analytic models, ethics -- the usual fare. Which begs the question, are we in a rut?
Earlier this year, a question was posted to an online competitive intelligence network asking this very question. Few participants in that discussion -- and at an "active dialog" session that I led yesterday at the SCIP09 conference -- could point to any new innovation in our field in the last 20 years.
Does that mean that innovation is not occurring, or that it is occurring but not being shared within the profession? In some sectors -- consumer products, for example -- CI practitioners seem more willing to share their new tools and techniques than others, such as pharmaceuticals. Different industry norms regarding the nature of competition, assumptions about how industry participants operate, and other factors seem to influence the openness of CI innovation.
Still, forums do exist where CI practitioners come together in small groups to learn from each other. Examples include the Conference Board's Competitive Intelligence Council, and the Intelligence Leadership Forum. The existence of these groups, and the experiences of many seasoned CI professionals, suggests that innovation is shared only among small, semi-formal networks, not in large conference sessions. To innovate, then, is to be a superior networker, making personal connections with other practitioners with whom you can share and learn innovative ideas and practices.
Still, after 20+ years, isn't there a need for some new innovation that would benefit the entire CI profession? The answer is yes. The holy grail of CI innovation, I believe, is in determining a method to accurately measure CI's value. Several sessions at this year's conference have addressed this, but the general consensus is that our profession does not have a credible methodology for communicating the quantitative value CI brings to an organization. Whoever can offer such a model will truly advance our profession's innovation.
The 23rd Legal Marketing Association annual meeting begins April 1, 2009 at the Gaylord Conference Center on the Potomac. Conference attendees will be tweeting from the conference at #LMA. LMA has asked speakers to share some of their materials with those who will be following these tweets. Good idea! And so . . .
On Wednesday morning, April 1, 2009, Bill Fiora of Nixon Peabody, Ann Lee Gibson (of Ann Lee Gibson Consulting) and I (Ken Sawka of Outward Insights) will lead a three-hour workshop on scenario-based strategic planning for senior law firm marketing professionals. Below is a summary of four possible futures we have developed for participants' use during the session. Working in small groups, they will identify core and contingent strategies for success under the different scenarios and challenge their own and others' assumptions and strategies. In doing so, they will explore how scenario-based strategic planning enables organizations to develop strategies for future competitive success that start with the premise that the future is unknowable and unpredictable. Instead of basing strategy on a single, preferred vision of the future (which has a zero percent chance of actually coming true), scenario-based strategic planning enables organizations to explore multiple, plausible futures, and to set strategies that address numerous threats and opportunities.
Each of the following scenarios describes a possible future for the legal industry intersecting somewhere between two dimensions: (1) timing of economic recovery (early 2010 vs. 2011-12) and (2) legal services delivery models (aggregated vs. disaggregated). The scenarios are summarized below.
Note to workshop participants: You will receive and work with scenarios that are much more detailed than the following summaries.
Scenario #1 -- The Great Pretenders describes a world where economic recovery begins in early 2010, the earliest anyone now hopes for. Global M&A activity, one of the earliest indicators of the recovery, surges as market-leading companies and those with large cash reserves acquire competitors and suppliers weakened by the recession. The strong are eating the weak and getting even stronger.
In this world, law firm leaders feel they have made it through the tough times and look forward to life as they once knew it. The recession was tough, but it encouraged necessary discipline and weeded out the weak. 2010 promises to produce the most law firm mergers and acquisitions ever recorded.
Scenario #2 -- Shattered! describes a legal industry dramatically altered by a perfect storm of events that created a PR nightmare for BigLaw. In this possible future, the recession’s impacts on the legal industry pale in comparison to other events that also grabbed the public’s attention. Inside BigLaw, the survivors of the 2008-09 layoffs still suffer from depression and guilt. In 2009, a runaway bestseller and a summer HBO TV series set the stage for a Wall Street BigLaw disaster fueled by debauchery and hubris. One of America’s most respected law firms has been brought very low, rocking New York society and BigLaw to its core. Law firms may never be the same.
As a result, the legal industry is reversing its bigger-is-better trend. Dozens of start-up law firms, prospering mid-sized and regional firms, mega-networks of telecommuting lawyers, and new legal vendors leap into the breach. It’s possible the growing economic recovery will allow BigLaw to repair its embattled reputation and rule again, but one thing everybody understands is that for the first time in a long time BigLaw has many serious competitors.
Scenario #3 -- The Big Chill is a future where the hoped-for 2010 recovery has not appeared and does not seem imminent. All governments and economists now agree the recovery will not appear until 2011 or later. Federal stimulus plans have dramatically slowed home foreclosures, but failed to thaw banks’ lending practices. The only bright spot in the corporate legal services market comes from the huge corporate M&A deals being struck in pharma, transportation, real estate, and energy at enormous fire-sale prices.
Corporate legal clients have much smaller legal budgets, but still face an overwhelming burden of legal issues, including bankruptcy, financing, litigation, and regulatory changes. In response, all firms survive by cutting costs to the bone and learn to compete on price. The largest companies discover they have no energy to deal with scores of smaller firms. The exchange of large amounts of commodity work for law firms and the BigLaw promise of safety for corporations becomes the two-ingredient glue that keeps big companies with big law firms. It is a painful time, particularly for legal vendors. Competition becomes cut-throat, pitting firm against firm—and in a surprising twist, some firms against some clients.
Scenario #4 -- Davids vs. Goliaths sees corporate legal clients having a radically different response to the continuing economic deep freeze. In a world already full of risk, they see little extra risk in moving from one law firm to another. All relationships are up for grabs. Some clients cancel their convergence programs, turning to procurement agents or consultants to deliver the best combination of price and expertise on each matter.
The legal industry is rapidly disaggregating. The fiction that big firms could develop and benefit from economies of scale is now seen for the naked emperor it always was. In BigLaw, some of the biggest rainmakers decide they’d rather not share their pie, and form their own boutique firms. In fact, new firms of all kinds are sprouting up all over. Technology vendors reorganize to provide turnkey services and compete directly with firms. Many law firms outsource everything but their most core legal services. Clients are buying legal services directly from India and China. The only certainty is that this is a time for pragmatists, not purists. Everyone who hopes to survive this era is now brutally scrutinizing their beliefs, styles, processes, and goals.
Think of all the ways your company manages its internal information – sales forecasts, ERP systems, and so on. Now, think about the resources spent tracking external events. If your company is like most, it is spending a fraction of its time and effort on the external as it is on the internal. Yet, isn’t the greatest source of strategic surprise found in the events and conditions that lie beyond the corporate walls?
Strategy guru Peter Drucker once said, “ninety percent of the information used in organizations is internally focused and only ten percent is about the outside environment. This is exactly backwards. “ At the heart of Drucker’s comments is the notion of competitive surprise. By failing to monitor external information, companies raise the likelihood of being surprised by external developments.
Research conducted by the Wharton School of Business found that two characteristics of surprise affect companies’ responses: the source of the surprise and the company’s ability to react. The source of the surprise can be looked at in two ways – is it from unknown sources (for example, terrorism) or is it a familiar surprise, such as the timing of a recession? While known threats such as recessions can be anticipated better than sudden ones, successful companies are the ones that can adapt to both.
Surprise acts as a risk-multiplier. It’s bad enough for companies to be confronted with an external development that complicates their strategy. However, if companies at least have an indication that such developments could occur, they can focus on remediation. When such developments happen by surprise, the company’s ability to act in a thoughtful and effective way is compromised. Surprise takes what could be a manageable – though perhaps unpleasant – situation and makes it almost completely unmanageable.
Why do companies do such a poor job of keeping tabs on information that has the potential to cause severe strategic disruptions? I believe there are two causes.
First, companies have a hard time knowing what to monitor. Given the wide range of industry participants and conditions that can be at the root of external threats, firms struggle just determining what is significant. As a result, many companies attempt to monitor everything, and build elaborate “environmental scanning” systems that crumble under the weight of the mountains of information they accumulate.
Second, even if companies are able to isolate those external conditions that pose a threat, there are few effective means by which to monitor those conditions. News alerts and filters usually are not precise enough to capture information that is truly diagnostic for assessing a developing threat. At the same time, knowledge management efforts that attempt to encourage employees to share information and observations related to strategic threats have for the most part been a failure.
The solution, I believe, lies in a system that combines structured analysis of plausible threat scenarios with a simple and effective approach to information monitoring. Both elements form the basis of a business early warning system that can allow strategy analysts to provide credible warning of external threats, thereby minimizing the effect that surprise has on executives’ ability to respond.
To start, a company’s strategic planning process should include a scenario-planning component, whereby the company can depict plausible future conditions that could confront the company within the planning timeframe. It’s important that companies follow a structured scenario development approach that identifies current industry variables and uses them as the “ingredients” for thinking about alternative future worlds.
From there, the scenarios play two roles. First, they create a planning context, enabling executives to game different strategic approaches in different conditions, and choose from among a set of resilient strategic options. For the purposes of building the early warning system, companies can also use the scenarios to identify indicators – industry developments, events, and circumstances that would have to occur for the conditions depicted in any one scenario to actually occur. These indicators then become the basis of focused external information monitoring.
The early warning indicators a company will monitor may include areas such as technology disruption, competitive shifts, regulatory changes, environmental factors, consumer or social changes, economic conditions and political influences. Analysts should collect industry information from a mix of published and human sources. The information collected can be further synthesized through an IT application designed for just this purpose.
As analysts determine that certain indicators are behaving in such a way so as to present a developing threat, they can generate early warning alerts that argue for a particular strategic option – ideally one considered during the scenario-planning phase. This way, the element of surprise is almost completely eliminated from the equation, and managers can focus on deploying a response.
Gotta love The Economist.
"With even short-term horizons as obscure as the San Francisco skyline during a summer fog, companies are finding their standard budgeting and forecasting of little use. The usual trick of plugging figures from operating units into spreadsheets appeals to number-crunchers, but can often generate misleading targets, especially when conditions change fast." ("Managing in the Fog, February 26 2009, at http://www.economist.com/business/displaystory.cfm?story_id=13184837)Companies today are paralyzed. Most managers have never seen economic conditions like these. Short-term thinking prevails. From the same Economist Article:
"Faced with exceptionally volatile business conditions, senior executives are finding it harder than ever to gauge how their companies are likely to fare in the months ahead."The risk, of course, is not having a clear strategy for growth once the recession ends, or worse, failing to position now for future opportunities. That's why cogent strategy development is more important now than ever before. With forecasts deemed virtually meaningless, and the future harder and harder to envision, managers need a tool for flexible and realistic strategy development.
"What can companies do? A few forward-thinking firms can provide inspiration. Hugh Courtney, a professor at the University of Maryland’s Robert H. Smith School of Business, thinks more companies should be using “scenario planning” alongside their financial models, which do not produce a large enough spread of possible outcomes to capture the flavour of today’s uncertainties. Sten Daugaard, the finance chief of Lego, a Danish toymaker, says his firm generated a number of different scenarios as part of its 2009 budget, the first time it had used such an approach. It has developed contingency plans for each scenario so that it can react swiftly whatever the coming months throw at it."Scenario-based strategic planning is one such tool. Unlike most planning approaches, scenario planning starts with the assumption that the future is unknowable. Strategies designed for one vision of the future are almost certainly destined to fail, and managers usually cannot change course fast enough when the future they envisioned fails to materialize.
Let’s face it. CI functions are in survival mode. There’s little doubt that the very nature of your CI operations and output must change if your CI function will survive in these uncertain times. Senior executives’ appetite for strategic intelligence is virtually non-existent right now. If you have been working in a strategically oriented CI department, or have been trying to reposition your CI function to a more strategic posture, you probably need to change tack, and do so quickly.
One way to do so may be to emphasize good, old-fashioned competitor intelligence. One of the most beneficial CI outcomes that can affect how your company emerges from the economic downturn may be to deliver targeted, insightful, and real-time assessments of how the recession is affecting your competitors. Virtually no company is immune from the detrimental effects of the current economic crisis, and your competitors are doubtless figuring out how to shore up revenues, maintain share, and avoid crippling losses -- just like your company.
Indeed, according to a recent article in the Harvard Business Review, “It’s critical to understand your own strengths and weaknesses relative to those of your competitors. They will have different cost structures, financial positions, sourcing strategies, product mixes, customer focuses, and so on. To emerge from the downturn in a lead position, you must calibrate the actions you plan to take in light of the actions that your competitors will most likely take.” (“Seize Advantage in a Downturn” by David Rhodes and Daniel Stelter. Harvard Business Review, February 2008, p.52.)
How? For starters, CI practitioners examining publicly traded rivals should consider conducting a thorough competitor financial analysis. Ratio analysis, in particular, is a relatively straightforward technique that can spot weaknesses in your competitors’ financial position that could present opportunities for your firm. Look especially at the debt ratio (how leveraged is the competitor?), debt-to-equity ratio (how much debt is the firm carrying relative to its investors’ paid-in capital?), and the quick ratio (which demonstrates a company’s access to cash in the short-term).
Similarly, assessing a competitor’s free cash flow and comparing it to its cash positions one, two and three quarters ago can provide insights into whether the recession has caused a significant decline in the amount of cash your competitor’s operations generate. If you notice a serious decline, it could be a harbinger of future measures to cut costs, assuming any access to financing is choked off.
More qualitative techniques can offer insights into competitors’ weaknesses and help your company act opportunistically to exploit them. Qualitative methods are also beneficial for assessing the impact of the downturn on privately held competitors. If you haven’t conducted a Strengths-Weaknesses-Opportunities-Threats (SWOT) analysis on your competitors in a while, now may be a good time. Compare today’s SWOT to ones you conducted six or 12 months ago and see if the recession has affected your competitors’ strategic positioning and intent. They may be unable to seize an opportunity -- providing an opening for your firm -- or conversely may be planning a bold move that could put your firm at risk.
Similarly, now may be a great time to conduct a targeted wargame. Select a handful of competitors and game their responses to a variety of future economic shocks and compare their responses to your own company’s contingency plans. How, for instance, would competitors react to an unemployment rate above 10%? What if there is a failure of a major bank, delaying the resumption of a freer flow of credit? Will any competitors benefit from the economic stimulus package recently passed by Congress?
Returning to the basics of competitor analysis can be an effective way to rapidly change the focus of your CI function and align it to helping your company navigate the downturn. And, it could improve the chances of CI function survival.
Many companies assume that because a competitor is pursuing a new market, lowering prices, or launching a new class of products, "it must know something that we don't." As a result, competitive strategy is often an exercise of imitating a competitor's actions instead of charting a unique course of action -- an approach that rarely results in a company establishing a leadership position in its industry.
Becoming a leader in any given industry requires not just knowing what a competitor is doing, but what it does well -- and what it does badly. Why? Would you rather compete head to head with someone where they are strongest, or identify, and then exploit, their weaknesses? Competitive intelligence (CI) is a systematic way of determining those strong and weak points.
In fact, the biggest mistake companies make when establishing a CI function is that they position it as a research function instead of a resource for informing strategic decisions. As a result, most of these CI functions often provide plenty of information but little genuine intelligence analysis, and hence they fail to deliver truly actionable insights about competitor behavior, strategy, and intent.
What can new CI functions do to get out of the information trap? The most important thing companies can do when establishing a competitive intelligence function is to develop a core set of analytic tools and models that help transform information into actionable insights. Such models can help companies understand the context behind competitor actions, assess rivals' strategic intent, and develop strategies that serve to out-maneuver, instead of copy, competitor actions.
Three types of intelligence analysis methods are particularly useful:
1. Competitor analysis tools that go beyond basic Strengths-Weaknesses-Opportunities-Threats (SWOT) analysis. For instance, the Four-Corners analysis developed by Harvard Business School professor and strategy guru Michael Porter is a model well designed to help company strategists assess a competitor's intent and objectives, and the strengths it is using to achieve them. By examining a competitor's current strategy, future goals, assumptions about the market, and core capabilities, the Four-Corners model helps analysts address four core questions: Is the competitor satisfied with its current position? What moves might it make? Where is it vulnerable? And what might we do that will provoke retaliation? From there, you can identify a competitive strategy that maneuvers around the rival's objectives and strengths, and that plays to your company's capabilities. A client of ours -- a major financial services conglomerate -- uses Porter's Four-Corners analysis regularly to ensure that it both fully considers competitor market positioning and devises a unique course of action that reflects its own strengths, not the competitor's.
2. Early warning analysis that helps spot and assess industry trends and facilitates a discussion of future contingency plans. By identifying, and then monitoring, a set of key industry and competitive events and circumstances, companies can anticipate the emergence of competitive threats and opportunities, and implement strategies to counter them. Indicator analysis lets companies anticipate future developments far more quickly than reading about them in the business press after they have occurred. This way, strategists spend less time trying to figure out what to do in light of competitor developments and more time executing preconceived plans. This is especially helpful in fast moving industries such as information technology and retail, where fast competitive execution is crucial.
3. Broad industry analysis techniques like scenario analysis that help spot relationships along a company's value chain -- changes affecting their suppliers and customers -- that can aid competitive strategy. Good competitive intelligence functions help companies get out of the trap of devising competitive strategies against a single-point prediction about future industry conditions. Because we can't predict the future, there is just one thing we know about such industry projections -- they are wrong. Competitive intelligence functions that employ scenario analysis as a way to consider multiple, plausible, competitive and industry circumstances help their companies develop contingency plans for each. A provider of employee insurance and retirement plans with whom we work regularly employs scenario-based early warning to inform management of the threats and opportunities inherent in key industry trends. Another client was able to make appropriate adjustments in one of its major products when it learned early on that a supplier had to stop making a key ingredient.
Competitive intelligence methods such as these help companies know better how to leverage their strengths against competitor vulnerabilities, leading to strategies that are unique and based on core capabilities. Hewlett Packard's resurgence against Dell provides an interesting example. According to an article in The Wall Street Journal ("Hard Drive: How H-P Reclaimed Its PC Lead over Dell," June 4, 2007, page A1), in less than two years, HP bested Dell to become the world's personal computer sales leader. It did so not by copying Dell's highly successful direct sales model, but instead by leveraging its strengths in the retail channel and attacking a core Dell weakness.
HP concluded that it had been fighting Dell where Dell was strong, in direct sales over the Internet and phone. Instead, HP changed course and began to focus on its strength, retail stores, where Dell had no presence whatsoever. HP over the past two years moved quickly to fix logistical problems and build relationships with retailers, helping it surpass Dell in worldwide sales late last year for the first time since 2003.
Dell's response? To mimic HP and try to begin to compete in retail outlets, HP's current strength. That's likely a losing proposition.
"If all you're trying to do is essentially the same thing as your rivals, then it's unlikely that you'll be very successful," says Harvard Business School’s Porter. So ask yourself, what is your company's strategic focus, to emulate a rival's strengths, or to exploit its weaknesses?
