Competitive Intelligence Lessons from Frost & Sullivan's 2008 Growth & Innovation Congress

The most interesting learnings from attending this weeks Frost & Sullivan's Global Congress on Corporate Growth are results shared from an annual CEO Survey. The most striking highlights from a competitive intelligence (CI) practitioner standpoint include:

* CEO's number one priority is growth and overwhelmingly agreed that competitive strategy is the most effective growth strategy

* According to the same executives, the number one external challenge to growth is the competitive environment.

That is good news for us because it validates the role CI can play in shaping and executing resilient strategies in light of an increasingly competitive environment. But here is the discouraging news - only 37% of these companies involve CI in developing their firms growth strategy. A major disconnect but unfortunately a reality many of us have grappled with as practitioners and consultants.

Why is CI left out of these discussions? The same stigma that CI is more about data than insight and analysis seem to continue to plague the profession. The burden is on us to change this misperception. Our challenge is not that we can't do the analytical part of the job but instead that in today's economy with constrained budgets and resources, we are pulled in many directions including spending an inordinate amount of time collecting and managing data leaving little room for developing insights and true intelligence.

In light of the economic turmoil we find ourselves in, it will be interesting to watch if the remaining 63% of CEO's are compelled to draw on our expertise out of necessity.

Signaling Complexity

Monitoring corporate signaling practices can and should play an important role in competitive intelligence practitioners’ repertoires.
Changes to dividend policy are often regarded as one of the most salient signaling mechanisms. More often than not, however, organizations will use a suite of signaling techniques tailored to meet the unique environment in which they operate. In other words, industry structure, competitive market forces, and the competition’s intent all play a role in management’s signaling strategies.

And this makes sense. There is real benefit to be had -- such as lowering cost of capital -- from disclosing relevant information about the directionality of an organization’s revenue streams. Fortunately, there exists a delicate balancing act that management must conduct when choosing between the benefits of releasing proprietary information and the associated costs. It is in this balancing act that insight can be had.

For example, consider firms that operate in industries with relatively low entry barriers. These firms are less inclined to rely solely on accounting disclosures as the cost associated with releasing proprietary information likely exceeds costs associated with stock repurchases and/or dividend policy alterations. So what might this mean for an intelligence professional?

For starters, an analyst whose knowledge of an industry is more robust might spend less time poring over SEC filings and annual reports, choosing instead to monitor changes in capital structure and alterations in an organization’s payout policy. Moreover, that same analyst might be more apt to recognize that a voluntary accounting disclosure represents a major signal about the future prospects of the organization, its strengths and weaknesses, or trigger a more detailed investigation.

Similarly, the nature of the competitive environment can play an important role in an organization’s signaling strategies. Firms operating in industries with high concentration ratios (a measure of the relative size of firms relative to their industry as a whole) often have higher political costs and will shy away from signaling via accounting disclosures to avoid government attention. In such cases, analysts would be wise to focus on a firm’s dividend and repurchase policies.

But that’s not all. Consider the insight that might be had from changes in payouts from a firm in a nearly monopolized industry. What might a substantial payout convey about the prospects of the organization, pending regulation, or the industry as a whole? While this question can’t be answered with signaling analysis alone, this new piece of intelligence can add depth and texture to competitor and industry assessments.

Just as an intelligence analyst should pay attention to industry structure and the competitive environment, she should also be wary of her competition’s short and long-term objectives. To be sure, organizations keen on delivering growth tend to re-invest excess capital. What if the proportion of excess capital retained begins to decline? Does that mean the organization anticipates slower growth? Again, the answer isn’t going to be apparent but if our analyst knows that the competition has stated that its goal is to grow for its share-holders, faltering re-investment rates may signal an important and/or deliberate organizational change.

Unfortunately, these are not hard and fast rules. Careful judgement must be exhibited when conducting signal analysis and individual data-points are not likely to yield epiphanous insight. Nevertheless, these examples illustrate two things. The first is that monitoring the suite of corporate signaling efforts can play an important role in garnering insight on the competition. Importantly, however, these examples also illustrate that signal analysis can be much more valuable if it is paired with complementary analytical techniques, industry and competitive awareness.

William J. Dragon
Will is a Senior Consultant at Outward Insights, a Boston-area strategy and competitive intelligence consulting firm. He can be reached at wdragon@outwardinsights.com.
© Copyright 2008 Outward Insights

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.

Leaping Over the Intelligence – Decision Gap

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. 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.

The identification of an issue champion can help. 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.

What other solutions can help to mitigate the gap between intelligence and action?

Why Now Is the Time To Take a Closer Look at Scenario Planning

September is a common strategic planning time for many companies. With fall just around the corner, this is a good time to begin thinking about maximizing your strategic planning process. If your planning process is not fostering collaboration among corporate and business-unit managers, nor making best use of best practices -- two conditions that improve planning process outputs, according to a recent McKinsey & Company survey -- scenario planning may offer a solution.

Scenario planning helps organizations envision a future very different from the present and develop concrete strategies that ensure success in a number of different possible futures. Companies also develop specific, measurable indicators that provide an early warning of what the future may bring, and the opportunity to start preparing today. In doing so, scenario planning encourages that managers from different parts of the company collaborate to offer their unique insights about the external environment. It also facilitates the consideration of prevailing environmental trends, likely competitor behavior, and external threats -- planning best practices executives say they wish they could follow more judiciously.

Let us know if your firm incorporates scenario planning into the annual planning process.

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.
  

Can an Organization's Relentless Quest for Market Share Drive Employees to Break the Law?

According to articles in The Wall Street Journal, a former Hewlett-Packard Co. vice president pled guilty earlier this month to stealing trade secrets after passing a confidential email from his previous employer, International Business Machines Corp., to senior H-P executives. According to an indictment filed June 27 in U.S. District Court in San Jose, Calif., Atul Malhotra was a director of sales and business development in IBM's printing-services division in March 2006 when he requested confidential pricing information about IBM services. In May 2006, the indictment says, Mr. Malhotra became a vice president of H-P's printing division. That July, the indictment alleges, he "sent an e-mail to an H-P senior vice president with the subject 'for your eyes only'" with an attachment including the confidential information. He allegedly followed it up with a similar email to a second senior vice president. Malhotra, 42 years old, faces a maximum of 10 years in prison, a $250,000 fine and three years of supervised release. A spokesman for the U.S. Attorney's office in San Francisco declined to say what penalties prosecutors would seek. A sentencing hearing is set for Oct. 29.

My first take on this incident was that it was the latest in a string of senior executives acting unethically in the false belief that doing so would afford competitive advantage. However, deeper inspection illustrates another more interesting explanation -- that ethical foul-ups are a symptom of companies’ misguided efforts to increase market share.

It has long been argued by strategists and economists alike that prudent corporations would be wise to compete on dimensions other than price. Because it is possible to segment out individuals, groups, and clusters of groups that share similar beliefs, goals, aspirations, needs, and desires, it is desirable for competing companies to target slightly different customer clusters and position their respective products accordingly, allowing multiple competitors to exist peaceably with each other. Look at Apple Inc., whose products are designed and positioned, not as commodities, but more as genuine appeals to a lifestyle. Apple’s reward? The company remains one of the only PC manufacturers able to sell every computer it produces at a profit.

If this is the case, why then, do so many companies destroy industry value by engaging in direct, head-to-head competition? One answer is likely found in the antiquated notion that market share is a legitimate measure of organizational success. In reality,  market share is such a malleable, perspectivist metric (it is entirely dependent upon how one defines their market) that it is practically useless as a gauge of organizational performance, despite the emphasis organizations put on as a metric of their performance.  Regrettably, to gain market share, firms often do what comes natural: they slash prices, a nasty side-effect of which is often the commoditization of their products, which, remember, the theorists argue is unnecessary.

The problem, of course, is systemic in many industries (particularly IT), which brings us back to our friend at HP. It could be argued that the pressure to gain market share is so indelibly entrenched in the consciousness of some organizations, that their employees are compelled to take the low road in an effort to gain incremental share.  Was the desire to help his organization achieve a stated goal what compelled Malhotra? Was it simply poor judgment or the prospect of personal advancement? Perhaps. But what if it was something more insidious. What if blind adherence to an antiquated metric created an environment so unrestrained in its single-mindedness that it prompted individuals to act without regard to creed, convention, or code of ethics. What if Malhotra is guilty of nothing more than toeing the party line? And if you can entertain this thought, then think of this: is your organization doing the same thing?