Achieving Actionability: How to Get Decision-Makers to Pay Attention to Intelligence

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)

Why, then, does intelligence regularly seem to miss the mark? I believe there are three forces at work.

First, decision-makers may have the wrong expectations for intelligence. For competitive intelligence to be useful in setting strategy, it needs to be anticipatory. That is, good intelligence should provide a reasoned judgment about future competitor, market, and/or industry behavior. Because predicting the future is impossible, managers have to take actions based on intelligence that is, by definition, speculative and subjective. For many managers, making decisions on anything less than hard facts is extremely difficult.

Second, I would contend that most intelligence deliverables that managers receive are heavy on facts and data, and light on insights and judgments. Despite their best intentions, competitive analysts have a hard time providing their opinions, assessments, and conclusions about the data they are examining. There are several reasons. Perhaps they have not been trained to do so, or the company does not value well-reasoned opinions, or they are unwilling to open themselves to criticism and disagreement. Whatever the explanation, intelligence that does not speculate about likely future conditions is bound to be ignored.

Last, even good intelligence is often communicated poorly. Business analysts have been conditioned to produce and present long, heavy reports that present fact after fact, and to deliver any conclusions or opinions only at the end of the report or presentation. Time-pressed managers simply do not have the luxury of plodding through page after page, or slide after slide, of graphs, figures, and quotes to reach a conclusion. If a piece of competitive analysis does not provide the chief conclusion and implications for the company right up front, chances are decision-makers will stop reading or listening before the analyst can get to the grand conclusion.

What, then, can CI analysts and company decision-makers do to increase the chances that intelligence will be taken into consideration and applied to corporate actions? First, senior executives and intelligence practitioners must together come to agreement on the pressing issues facing the company for which sound, forward-looking intelligence is necessary. This requires not only coming up with a list of key intelligence topics that reflect external business conditions, but also understanding the accountabilities, corporate culture, and personal objectives that influence how each senior executive makes decisions.

Second, intelligence analysts must address intelligence issues with a higher degree of rigor. This requires regularly using proven analytic methodologies to help move from summarizing facts and data to expressing judgments, opinions, and implications. Over time, this means that the portion of a competitive intelligence product devoted to facts and figures should diminish, while the share devoted to insights and judgments should increase.

Last, intelligence must be delivered more effectively. Analysts must be trained in expository writing techniques that clearly state conclusions up front, and support them with carefully selected facts and evidence that lend support to analytic reasoning. Intelligence reports and briefings must be short, to the point, and open to disagreement and debate. Taking the safe road and avoiding controversy in intelligence deliverables serves neither managers nor analysts well.

Achieving true actionability -- or providing managers with information that cannot be ignored -- is not far out of reach. If competitive intelligence practitioners identify or anticipate management's needs, present plausible judgments and assessments clearly, and offer decision options and alternatives, then I believe executives will listen, and will find it hard to ignore intelligence when setting competitive strategy.

A New Paradigm for Competitive Intelligence Training?

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.

Separating CI From the Sleaze

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.

The Next Internet Revolution Isn't What You Think

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.

Is The CI Industry In A Rut?

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 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.

Coping Mechanisms for Future Uncertainty

Frustrations abound over most organizations’ inability to effectively deal with future uncertainty, despite a general awareness of the sources of such uncertainty. How can organizations better counter unexpected external developments and surprises?

At the Frost & Sullivan Growth, Innovation and Leadership Executive Congress (San Francisco, September 15-16 2008) I asked 25 director, VP and C-level executives to identify the major sources of strategic surprise in their external environments. The key sources of surprise included:

• Rapid technology advances

• Unforeseen customer demands and needs

• Economic conditions

• Competitor activities and behavior

Perhaps as frustrating as the recurrence of such developments is the near-total lack of control companies have over them. Furthermore, there was widespread agreement that the time and resources firms spend on monitoring the external environment was grossly out of proportion with the time and money spend tracking internal information, further contributing to this “lack of control” feeling.

Similarly, the coping mechanisms companies use to deal with external surprise were fairly consistent -- but deemed, for the most part, to be ineffective. They include conducting ad hoc research studies, conducting one-off brainstorming sessions, and, sadly, doing nothing.

Conduct research. When faced with unforeseen external developments and an urgent need to take action, many companies retrench behind a facade of more information. Consultant studies, project-based research and other variations of data accumulation failed, according to the executives, to yield a greater understanding of the implications of the external events, nor a stronger sense about what to do. Instead, research and data gathering led to a state of “analysis paralysis” that further acerbated the feeling of frustration and hopelessness over companies’ ability to deal with external stimuli.

Brainstorming sessions. While the variety of strategy workshops, brainstorming sessions, and ideation groups tend to result in innovative solutions and approaches for uncertainty management, the transition from idea generation to implementation is weak. The main reason? Lack of clear ownership of response tactics targeted at addressing competitive environment surprise.

Do nothing. Not surprisingly, the least effective approach. Nevertheless, it is not uncommon for companies to ignore external surprises in the hope that they will simply go away.

What, then, can companies do? I believe there are three ingredients to maintaining an effective posture against future competitive uncertainty.

Avoid -- or at least minimize -- surprise in the first place. Companies can begin to reverse the imbalance between external versus internal information monitoring by pursuing an indicator-based intelligence early warning system. Such a process helps organize external intelligence gathering against a set of indicators, or signposts of future change, for which significance has been determined and a strategic response already decided.

Develop flexible strategies. By employing techniques such as scenario-based strategic planning, companies can pursue strategic plans that have flexibility built in, allowing for rapid responses to unforeseen developments within a consistent overall strategic framework.

Link intelligence analysis with strategy implementation. Organizations must ensure that intelligence insights can quickly be communicated to those responsible for owning strategic response implementation. Keeping intelligence gathering and analysis several layers beneath strategic implementation will ensure that relevant insights never get the chance to influence strategic response.

Competitive Intelligence Driving More Corporate Decisions

It's a classic good news / bad news report: more US corporations are using competitive intelligence to drive critical strategic and tactical decisions than ever before, but an alarming number of companies still do not have structured way to deliver intelligence to decision-makers in their organizations. Is the chasm between companies that value CI and those that don’t growing?

Outward Insights conducted its second “Ostriches and Eagles” CI best practices survey, which gauges the effectiveness and use of CI among US companies across industries. The first survey was conducted in 2005. The biggest finding this time around? More and more companies are “getting” the value of competitive intelligence. Most reassuring was the growth among respondents who said that CI was “an integral part of operational or tactical decisions” over the 2005 survey.

Another positive finding was the 72% of respondents that claimed to use CI to “anticipate and thwart competitor strategies” compared with 64% in 2005. This uptick reflects the increasing value executives place in the early warning applications of competitive intelligence.
Among other key findings:

• More respondents (28%) integrate likely competitor reactions into their plans for launching new products than in 2005 (21%)
• The use of scenario planning nearly doubled from 30% in 2005 to 59% this year
• The percentage of respondents who believe CI is “an integral part of the strategic planning process” was at 85%, the same as in 2005.

Despite these findings, obstacles still impede corporations from realizing the full value of competitive intelligence. For example, the survey found that nearly half of respondents say that their CI programs are not sufficiently funded. In addition, 37% of respondents said that CI does not have “sufficient stature” within their organizations. The gains that are evident in the strategic application of CI may be short-lived if these programs are not funded adequately and given proper stature in the organization. The survey also found that almost one in five executives believes that senior managers do not value the competitive intelligence they receive, and 24% of respondents said that their companies lack a formal CI process altogether.

There were some notable differences in the responses from the seven industry groups surveyed: consumer products, energy, financial services, insurance, high-tech, manufacturing, and pharmaceuticals. For example, consumer products companies were least likely to have an organized intelligence function (62% vs. 76% of all respondents), while energy companies were least likely to make CI an integral part of their strategic planning process (71% vs 85% of all respondents).

We conducted the survey in June and July 2008. The survey consisted of telephone interviews with 100 senior executives at US corporations. More than two-thirds of the companies participating had revenues of $1 billion or greater. To request a complete survey report, contact us at info@outwardinsights.com.

Fly Swatting and Competitive Strategy

Recent findings from a Cal Tech research study, published in the journal Current Biology, and reported today by the BBC, reveals interesting parallels between the neurological make-up of houseflies and effective competitive strategy.

According to the BBC report, researchers think that the fly's ability to avoid being hit by a flyswatter is due to its fast acting brain and an ability to plan ahead. High speed, high resolution video recordings showed that the insects quickly work out where a threat is coming from and prepare an escape route.

"Most people will have experienced the frustrating experience of carefully attempting to swat a fly, only to swing and miss while the intrepid insect buzzes off to safety. The research suggests that the best way of swatting a fly is to creep up slowly and aim ahead of its location," the BBC reports.

The article goes on to note that over the years there have been different theories put forward to explain the fly's uncanny ability to outwit human attempts to swat them, but the research says it is about quick-fire intelligence and good planning. Specifically, the researchers discovered that, long before the fly leaps, it calculates the location of the threat and comes up with an escape plan.

Any strategic planner frustrated at his or her company's inability to best a nimble competitor can empathize with unsuccessful human efforts to swat flies. What sets leading companies apart? A fast-acting, nimble nature, sound planning, and an uncanny ability to spot threats before they impact their interests. As with the fly, quick-fire intelligence and good planning are required if any company is to develop keen instincts and an uncanny ability to avoid threats and leap to a new, safe position.

Conferences and Trade Shows: Are Your Employees Saying Too Much?

Conference and trade show intelligence is hot. Awareness of the opportunities for focused intelligence gathering at industry meetings, conferences, and exhibitions has perhaps never been higher. And rightfully so. Conferences bring together many people with valuable knowledge in one place to network and talk. With proper organization and advanced planning, companies can collect substantial amounts of competitive intelligence at such events.

However, for the same reasons that conferences and exhibitions represent such valuable intelligence gathering opportunities, they also pose intelligence risks. Just like other attendees, your company's employees attend such shows to meet new people, network, and talk. Natural human tendencies make it more likely that participants at a trade show or conference are disclosing more than they should about their companies.

People usually underestimate the value of the information they disclose, and want to demonstrate their knowledge and expertise, especially when surrounded by industry peers. These tendencies often lead to the improper disclosure of sensitive information, whether or not the employee was the specific target of an intelligence gathering effort by a competitor.

What, then, are ways to avoid the improper disclosure of information at conferences and trade shows?

• First, know what not to say. Make sure that all conference attendees from your company know what questions not to answer, and what information your company considers confidential.
• If you find that your employees are being asked the same question several times over, instruct them to direct all questioners to a single point of contact. Doing so helps coordinate a consistent, safe response. Your company can then also spot trends in the questions and identify who they are coming from, providing valuable insights into what your competitors want to know about your company.
• Stifle your natural human tendencies. Watch out for attempts to use flattery, challenging statements, and misinformation as a means to prompt your employees to disclose proprietary information.
  

Hug a Librarian

Anyone who has been practicing competitive intelligence for the past several years cannot have helped but notice the increasing role information professionals are playing in the CI discipline. Consider:

• Membership in the Special Libraries Association CI division stands at over 700, up more than 25 percent in just two years. The Association reports that the CI division has been among the fastest growing divisions for the past several years.

• Information professionals are becoming more experienced in CI. More than a quarter of SLA CI Division members have been involved with CI for over 10 years.

• And, nearly half of the CI Division's members report dedicating more than half of their time to CI.

It's hard to imagine a successful CI function that is not accompanied by a solid information services function, either as an embedded part of the CI program or as an internal service provider to the CI function within the larger organization. Whereas information professionals were once limited to providing background research to more experienced CI human-source researchers and analysts, today's information professionals increasingly are involved in conducting intelligence analysis and preparing intelligence assessments for their organizations.

Why? Just as the lines between market research and competitive intelligence are becoming increasingly blurred, so to are the boundaries between what was once "the corporate library" and any organization's need for a unified and integrated view of its external environment. To be sure, a successful CI function must rely on more than just published-source information, and requires a solid human-source information network. Still, information professionals today have the expertise to tap a wealth of information sources to collect information that not long ago was the sole purview of primary source researchers, or that was not available quickly and inexpensively on the Internet. As a result, information professionals are now able to identify trends, define future outcomes, and determine competitive implications -- the very lifeblood of top-notch intelligence analysis.

Surprise: Strategic Planning's Achilles Heel

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.

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.

CI in a Down Economy

We just published our March CI and Strategy newsletter, Looking Out. In it, Karen Rothwell had a piece on the importance of maintaining CI capabilities in a down economy. What role is CI playing in your companies amid the economic uncertainty we are facing? Is CI becoming a more important tool to help navigate through a possible recession, or is the CI function on the budget chopping block?

--Ken