The Prying Game

Read this story to learn: - How companies turn competitive intelligence into a strategic weapon. - Techniques that companies are employing in CI. - The range of questions CI can help answer.

Gathering competitive intelligence (CI) is a lucrative occupation that can deliver real rewards even to the most amateur of business spooks — but Australian managers are kidding themselves if they think they're doing it well. While savvy companies overseas keep close tabs on competitors by accessing a wealth of readily available information to win invaluable insights into the enemy's likely next moves, Australian companies have largely been slow to fully exploit this potent weapon. In fact, a report from the Macquarie Graduate School of Management MBA director, Dr Chris Hall, called The Intelligent Puzzle, finds Australian managers seem nothing less than schizophrenic when it comes to competitive intelligence.

"Managers seem to display a generic schizophrenia or blind spot: they assess their competitiveness as above average relative to the market, but acknowledge that they lack the CI capability to really compete effectively relative to their needs," the report finds. "It is even harder to see why, in a rapidly changing and increasingly competitive world, they persist with relatively unsophisticated approaches to CI, especially when all levels of management recognise that their CI needs outstrip their CI capability!"

Hall, the president of SCIPAust, the Australian chapter of the Society of Competitive Intelligence Professionals (SCIP), says the figures leave no doubt a "self-deception blind spot" prevails at all levels of Australian management.

For instance, while 67 per cent of respondents rate themselves as above average in their ability to compete and 48 per cent say they are ahead of the market ability to monitor their competitors, only:

38 per cent make regular or continuous use of market research 24 per cent make regular or continuous use of competitor audits 30 per cent make regular or continuous use of benchmarking 15 per cent make regular or continuous use of integrated competitive intelligence systems (CIS).

"It is difficult to see how such a large percentage of firms can be ahead of the competition when such a large proportion make such a small effort to keep track of what the competition is doing," Hall's report says.

Contrast that with the situation in the US, where a March PricewaterhouseCoopers (PwC) Trendsetter Barometer found about one-third of fast-growth CEOs saw competitor information as more important than a year ago. Almost two-thirds rate it as having equal importance, and only 4 per cent say it is somewhat less important. Moreover, the vast majority of fast-growth CEOs surveyed (84 per cent) viewed competitor information as important to profit growth of their company, including 42 per cent who saw it as "very" or "critically" important, and another 42 per cent for whom it was "somewhat" important.

Back in Australia, Hall's report finds the self-deception blind spot prevails at all levels of management, with average needs for CI rating 7.81 on a 10-point scale, while average capability is at just 4.15 on the scale. Perceived competitiveness is at 5.64, well above capability but below needs. CI satisfaction is even lower, at 3.74 on the scale.

"This pattern prevails across all levels of management, and confirms the essence of the 'intelligent puzzle' — that is, managers are somewhat schizophrenic," the report says. "They assess their competitiveness as above average relative to the market, but acknowledge that they lack the CI capability to really compete effectively relative to their needs, and that they really are not happy with the CI available to them."

The situation may be slowly changing. Babette Bensoussan, managing director of Sydney-based CI consultancy The MindShifts Group, says there are signs that more organisations are beginning to train staff in how to deploy and use CI. "We are, I would say, about five years behind the US as far as CI levels are concerned," Bensoussan says. "We really don't have companies that have, like Merck, a team of 25 dedicated analysts. We don't have people with titles like CI manager. We don't have directors of strategic analysis. They do.

"[But] having worked in it, I must say there seems to be a little bit more activity growing. I think the key sign that I'm seeing is the amount of people that are training their staff in CI. That's what changed; I think that people are now moving more to in-house competitive intelligence, rather than outsourcing their intelligence. Competition is a big issue — CI is about company survival in a competitive environment," she says.

Forging Ahead

PwC's Trendsetter Barometer makes the reasons why US companies so value CI very clear: tuning in on major competitors can make a big difference in business performance.

The Trendsetter CEOs surveyed who rated competitor information as "very" or "critically" important grew revenues by 14.2 per cent over the past 12 months, versus 11.8 per cent for all others — a 20 per cent faster rate. They also anticipated even better outcomes in the upcoming year, expecting revenue growth of 16.9 per cent, versus 13.3 per cent for all others — a 27 per cent faster rate.

Nor are the benefits confined to better growth rates. The research makes clear those placing a premium on competitor information are also outperforming their peers on gross margins and a number of other key performance measures.

"Our volatile economy has left businesses scrambling to neutralise or undermine whatever perceived advantages their competitors may have developed," says Steve Hamm, managing partner of PricewaterhouseCoopers' middle market advisory services in the US. "Little wonder competitor intelligence is valued more highly today — and why so many are focusing on ferreting out information about new competitor initiatives.

"But companies that place high value on competitor information are doing more than just outgrowing their peers. Viewed separately, those rating competitor information as 'very' or 'critically' important are more dynamic than the other fast growth companies in several ways."

What's most important to know about competitors? According to the Trendsetter CEOs, changes in pricing, new product initiatives and changes in corporate strategy top the list. Operating information is also of high importance for those rating competitor information "very" or "critically" important. "The three most valuable types of competitor information are time sensitive," Hamm says. "With some advance notice, they can be used to shape a deflection or a counter approach."

But other CI experts say to work well, CI needs to develop information not just about competitors but also other environmental factors likely to impact the organisation, including industry trends, legal and regulatory trends, international trends, technology developments, political developments and economic conditions. Experts say determining CI information should be framed in terms of the firm's relative competitive advantage over the competitor assessed within the "network" of "environmental" factors.

The competitive intelligence information thus obtained should feed into programs that supplement all manner of activities, including planning, mergers and acquisitions, restructuring, marketing, pricing, advertising and R&D activities.

Law-Breakers Need Not Apply

Competitive intelligence experts gather information by using the latest technology and clever methods such as filing Freedom of Information Act requests, satellite photo-reconnaissance, combing government databases, reverse-engineering and even hiring psychiatrists to analyse a competitor's decision-makers.

CI should not be confused with business espionage, which develops information using a range of illegal activities like hacking. CI uses public sources to find and develop information on competition, competitors and the market environment.

Complex and difficult to implement, experts say CI nevertheless remains one of the most potent tools available to executives today, with the capacity to generate substantial bottom-line results. Those organisations that can effectively deploy CI to help them react and respond quickly to changed external circumstances can win a razor-sharp competitive edge and may avoid making the sort of mistakes that can trip up even the smartest of companies at some time or another.

CI has given organisations advance warnings of competitive threats in a globalised marketplace and allowed years-long lead times on new technologies through monitoring the regulatory and political environment and the activities of potential partners and existing and potential competitors. It has application to almost every functional area of a business: from use of sales and marketing intelligence for help in preparation of tenders to the use of technical competitive intelligence for tracking technical advances. Typically CI's most important function lies in responding to questions from senior management to support their decision-making activities.

And the lead countries are very, very serious about harnessing those advantages, and go to enormous lengths to ensure they are up to date, says Adrian Farrell, principal of Victoria-based Woodlawn Marketing Services. "I think we're a little spoiled here that we haven't had such an intense competitive environment say as in the US, which is so very, very competitive, they've got to use every means to understand what is happening and keep right up with it," he says.

But Farrell says Australian companies should be paying more attention to CI, particularly if they are going to operate globally. "In other words, as the global economies grow in the way that they are doing, we'll find that we'll be left out. We won't really understand what is really happening." To ensure higher levels of activity Farrell believes there may even be an argument for government driving the push to get companies to make more use of CI. The Canadian government has been especially supportive of industry in this regard, as has been the government of the Province of Alberta, a largely agricultural community.

"In fact one of the studies they did for their local industry was doing an investigation of the beef industry, and looking at the competitiveness of Australia against Canada," Farrell says. "A very easy test is to do a search on the [Canadian government] Web site of competitive intelligence. You'll get umpteen responses detailing documents and seminars and authors that are encouraging their local industry to be very much to the fore. The Australian government is offering virtually no support.

"There are a lot of parallels with Canada and Australia in terms of our economies," says Farrell. "Our populations aren't that much different, our geographies are spread out. Our history has some commonalities. I just think they are forging ahead in this particular area, and if you do the same search on one of the government Web sites here like DETYA's or someone, you get zero. There's nothing."

Actually there is at least something.

The Commonwealth and state governments alike are working to help farmers become more businesslike under the FarmBis program. Two programs operate under the banner of FarmBis.

The Commonwealth/state component is jointly funded by the Commonwealth and state governments and provides subsidies to farmers to attend business and natural resource management training covering business management subjects including marketing, succession planning, quality assurance, natural resource management and so on.

Meanwhile, the national component — FarmBis Australia — has a national focus and targets the development of new and innovative training activities. The program focuses on the broad education and training needs of agricultural industries, with the aim of developed projects then being eligible for delivery through the Commonwealth/state FarmBis program.

Bruce Thorpe, director of farm business development with the WA Department of Agriculture, says that while the government does not necessarily use the term CI, its capacity-building programs certainly encourage individuals to develop the instinct and skills to be able to do this sort of intelligence. Thorpe says in today's world farming has to move from a pure production focus into management, and that requires farmers increasingly to use tools such as CI to help them to market their product. "We are focused on trying to support the sector to bring itself more into line with traditional business approaches to building its capacity," he says.

Getting It Right

"Remember, competitive intelligence is not just about your competitors, it is about your ability to compete," says Bensoussan. "You may lose market share not as a result of existing competitors but of existing technology or of new technology.

"The problem that we have is that most organisations tend to focus on internal data, yet as Peter Drucker has said so often, change occurs outside the organisation. We have executives far too enchanted with what their internal computers generate, and not what the external environment is creating."

Therefore, most CI experts agree that the first step in any competitive intelligence project is to determine the strategic issues, the strategic decisions and the strategic risks. From that comes a notion of the kind of questions the organisation should be asking. It is also important to work with senior decision-makers to determine the issues. "The objective of your answer is to enable executives to make decisions that are well-informed, instead of making decisions in a vacuum," Bensoussan says.

And there's the rub. For a CKO or CIO to make progress on competitive intelligence they must first get people to recognise and acknowledge their own ignorance in particular subject areas — never an easy thing to achieve. Hall says this was one of two main points to come out of the most recent half-yearly competitive knowledge forum run by SCIPAust.

"To get people to ask questions, is saying implicitly: 'Look, you're ignorant, why don't you ask a question instead of going around bombastically telling us what to do?'," Hall says. "Part of the whole [CKO] role is engaging in change management to get people to recognise the need to ask questions and ask the right questions so that they get the information that is useful for them for decision making."

The second is that mentioning the words change management in association with CI is an invitation for people to become defensive about their jobs. Better, Hall says, to tell people that the project is about getting better information about one's competitors and making sure the information is being used most effectively. "Therefore the enemy is not the guy in the office next door who might take your job, but the people down the road or up the road who are competing with you."

Hall says his research shows there are two great weaknesses that stand out in most organisations' failures to understand what their competitors are doing.

The first is that most firms have no disciplined way of following up on rumours. C-level executives usually rely on a number of conventional sources for their information including information from their sales team, reports in newspapers, the gossip and friends and so on. "Typically there is no systematic follow-up of those rumours to establish their veracity, but a rumour which hasn't been verified is basically useless . . . the systematic, forensic follow-up of rumours is one of the fastest ways of establishing what your competitors do."

The second area where most Australian firms by their own admission are weak is in keeping an accurate profile of the motivations and capabilities of the competition's executives. A good librarian should be able to trace those people's background, get indications of what motivates them and discover the sort of decisions they have made in the past. "In [Paul] Barrie's book . . . on the One.Tel collapse, the parallels between Jodee Rich's previous company, Imagineering, and what they did with One.Tel are almost one-to-one and apparently nobody followed through and looked to see whether he was doing exactly the same things again. All of this is public record stuff," Hall says.

Another problem is what to do with all that intelligence once it has been collected. Easy, says Farrell — you incorporate it into your strategic plan. vSpy vs CIIs gathering competitive intelligence really spying?

Those in the competitive intelligence industry argue that businesses need to know what their competitors know — and don't know. As a result, competitive intelligence is becoming the latest weapon in the global war of economics and competition, setting nation against nation.

US competitive intelligence expert Dr Ben Gilad, founder and president of the Academy of Competitive Intelligence, was brought to Australia by The MindShifts Group earlier this year. Gilad says CI is not simply competitor information, but a complex system of analysing information about the industry and competition to minimise competitive risk.

He says the key factors comprising the risk that companies needed to manage included the supply chain, competitors, technology and market conditions, with collection of relevant data far less important than how the data is used.

All Along the Watchtower

The MindShifts Group says CI can help with identifying opportunities and minimising the risks involved in operational and strategic decisions about:

-Competitive strategy. -Competitor profiles. - Pricing policy. -Joint ventures. - Market opportunities. -Product/service launches. -Mergers and acquisitions.

CI can also assist with and impact on decisions about:

-Industry and structural risk. - Sales and distribution. - Financial performance. - Production process and operations. -Management and organisational structure. -Production capacity and capacity.

Corporate Espionage: Tricks of the Trade

Protect yourself against the devious tricks that some people in the business employ (whether they'll admit to it or not)

The Head-Hunter Ruse. Say you're a competitive intelligence (CI) investigator working for a competitor of Microsoft, and your assignment is to find out what new product it's cooking up. First, you find current and former employees of Microsoft by searching (keyword: Microsoft) for resumes the company has posted to online job sites like Monster.com or Headhunter.net. Then, you pose as a head-hunter with a fabulous job offer in the wings and interview some of these employees. And presto, you discover all about the important projects they're working on.

How to Protect Your Company. Train your employees not to give out information to anyone, including head-hunters, without first verifying who they are. Employees should first ask if there's a number where they can call the "head-hunter" back; even if that number checks out, search for the head-hunter's company on the Web or check with your human resources department for a list of legitimate head-hunters.

The User Group Gambit. You've been commissioned to find out more about that new arthritis drug that Pfizer is developing. Via the company Web site or a posted resume, you soon discover that Jay Jones, an arthritis specialist at the University of NSW, is a research consultant for Pfizer. You then use a software tool known as a WebFerret to discover all of Jones's e-mail addresses and you search for him on various Web-based user groups. Lo and behold, you find that Jones subscribes to NakedBackpackers.alt and Sydneysingles.alt. So you create a Web-based persona who belongs to the same user groups, and you use that hook to develop an intimate cyberrelationship with Jay Jones. In the process you discover exactly what the eminent scientist is developing for Pfizer.

How to Avoid Getting Suckered. Teach your consultants and researchers to be aware that these kinds of things happen all the time on the Web. Not everyone in cyberspace is who they seem to be.

The Graduate Student/College Professor/Potential Investor Ploy. Unethical CI types use this ploy in a variety of settings, including trade shows, phone calls, even face-to-face interviews. In one real-life scenario that ended up in court, a CI investigator working for a carpet manufacturer in South Carolina got into a competitor's plant by pretending he was a graduate student who needed information about textiles for a research project. The competitor, a textile manufacturer, had the sense to insist the "student" sign a confidentiality agreement pledging that the information was for use only in his personal research. Consequently, when he shared it with the competition, the carpet mill sued and won. (The CI guy didn't lose because he lied; he lost because he violated the confidentiality agreement.)

Lesson Learned. Make sure anyone who wants any kind of proprietary information signs a nondisclosure or confidentiality agreement. As a matter of course, check out the credentials of visitors in advance — especially those with whom you're likely to share any sensitive information. If officials at the above-mentioned textile manufacturer had called to verify that there was indeed a student by that name at the local university, they could have saved a lot of anguish as well as money in legal fees.

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