Scenarios for the Legal Industry

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.

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.

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.

Why Now Is The Time To Consider Scenario Planning

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.

Instead of forcing managers to plan for the future they want, scenario planning forces corporate leaders to consider multiple, plausible futures that taken together represent a full range of threats and opportunities an organization may face in the future. Currently, we are using scenario planning to help a client develop a strategy centered around environmental sustainability, and to help another client set strategy for a major project category.

Too much short-term thinking now will make companies unprepared for the recovery. A little time spent thinking strategically now will pay dividends in the future -- whatever the future looks like.

Spotting Rivals' Vulnerabilities in the Downturn

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.

Why Is My Competitor Doing THAT?

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?

Competitive Urban Legends

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

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

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

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

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

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

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

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

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

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

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

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

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

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

In most cases, subtlety does not work.

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

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

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

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

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

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

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

The Economic Crisis: Will Your CI Function Survive?

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

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

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

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

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

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

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

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