Competitive Intelligence 2

Basic Concepts
There is a Chinese saying: Know thy-self, know thy competition, and get it right almost every time. Know thy-self, not know thy competition, and get it right about half the time. Not know thy-self, not know thy competition, and get it wrong almost every time. We now live in a world driven by hyper -competition. Hyper-competition is where too many businesses are pursuing too little business; i.e. there is not enough demand to go aro und for all providers of goods and services. The knowledge base for managing in this hyper competitive environment is called Competitive Intelligence. Competitive Intelligence is a process of giving you insights into what might happen in the near future. T his process requires that we go from data to information to intelligence. Here is a basic example: Data => Prices for our products have dropped by 5% Information => New offshore facilities have lower labor costs Intelligence => Our key competitor is abo ut to acquire a facility in India that will . . . . The differences between data, information, and intelligence can be subtle, but very real: Data => Unconnected pieces of information: Nice to know, but so what! Information => Increased knowledge derive d by understanding the relationships of data: Interesting, but how does it relate to what I do! Intelligence => Organizing the information to fully appreciate the implications and impact on the organization: Oh really, then we better do something! Knowledge is what you are after. Information is the raw material you use. Intelligence is what finds and processes information. - The Intelligence Edge by George Friedman, Meredith Friedman, Colin Chapman and John S. Baker, Jr. Intelligence differs from data and information since it requires some form of analysis. The purpose of this analysis is to derive some meaning from the piles of data and information that bury everyone. By going through analysis and filtering, we can refine it enough so that someone can act on it and understand their options, giving them an opportunity to make forward-looking decisions. When we present intelligence to

Chapter

13

people, they can draw a conclusion and make an important decision quickly. Therefore, competitive intell igence should put conclusions and recommendations up front with supporting research behind the analysis. Competitive intelligence should not simply present the facts, declaring what we found; but instead make a statement, saying this is what we believe is about to happen. Key Point Intelligence should be Actionable Unless someone can take some form of action from knowledge, then your really do not have intelligence. Competitive Intelligence (CI) pulls together data and information from a very large and strategic view, allowing you to predict or forecast what is going to happen. This in turn allows you to effectively strategize in relation to your competitive environment. Therefore, competitive intelligence allows you to remain competitive by improving y our strategic decisions and this leads to better performance against your competitors. Competitive intelligence does not attempt to collect and analyze all information for an exact picture, but attempts to get enough information so that we can tell whats going on. Its like a picture that is out -of-focus. We need to analyze enough details so we can discern the big picture and report it to management. Therefore, competitive intelligence does not chase down all the facts, but gets enough information to draw a reasonable conclusion for immediate action. The Evolution of Competitive Intelligence Competitive intelligence has some basic forms, such as market research and benchmarking. However, good competitive intelligence goes beyond simple research. For exam ple, competitive intelligence attempts to answer specific critical questions that can impact your organization: How is the competitor XYZ able to grow and capture market share? What new products will competitor ABC develop and when will they release these new products? What are the core competencies of competitor DEF? Can we compete with new business lines or should we acquire another company to establish our market presence? Many equate competitive intelligence with other disciplines, such as business intelligence and knowledge management. Although there are major overlaps between all of these disciplines, competitive intelligence tends to be very analytical, very intense, an d very savvy in its approach whereas knowledge management and business intelligence are more automated through technology and less dynamic than competitive intelligence. However, as competitive intelligence becomes main -stream thinking, all of these disc iplines begin to merge. So why hasnt competitive intelligence grown into a basic competency within most organizations? One contributing factor has to do with how competitive intelligence gets 4

done. Good competitive intelligence requires old -fashioned analysis and filtering, somewhat like a detective who wants to solve a case you cant automate the art of solving a crime and you cant automate the insights derived from competitive intelligence. It takes very intense and serious focus in a very short p eriod of time. And this type of skill set is not common in many organizations; especially where competitive intelligence receives little or no emphasis. Regardless of the tools you use, the single indispensable element to CI is the human factor: the smarts, experience, and instinct that can turn huge collections of dead facts into live intelligence that plays a central part in making business decisions. The best competitive intelligence team, experts agree, is one that is distributed, involving the companys entire workforce.
- Special Report: Competitive Intelligence Smart Business Magazine, March 2001

The Importance of Competitive Intelligence No organization can sit still and expect things to be the same month after month, year after year. At some point, something will happen to change your assumptions. And almost every decision (especially a strategic decision) is based on certain assumptions. Over time, these assumptions fall apart and if you fail to adjust with a continuous flow of new intelligenc e, then you will be forced to react in a way that makes it difficult to compete. Competitive analysis is critical for managers formulating corporate or divisional strategies. Executives and planners must be aware of the levels and trends in performance of their competitors to determine the best direction for their divisions and parent corporations. They also must be capable of critically assessing their own organizations performance, over time, relative to its competitive peers. Corporate Strategy by John L. Colley Jr., Jacqueline L. Doyle and Robert D. Hardie Therefore, competit ive intelligence can help test and validate your assumptions. Competitive intelligence also fills in gaps, covering areas that you failed to consider in your assumptions. And of course, competitive intelligence can yield some basic benefits: Source for best practices the only real way to isolate and find best practices is to engage in some form of competitive intelligence; otherwise you end up relying on crude and generic type benchmarking data. Helps formulate strategy through an understanding of your industry, yourself, and your competitors. Competitive intelligence is the essence of strategic business analysis! Helps identify areas for improvement as well as risks and opportunities. 5

Isolates performance gaps in relation to the competit ion.

Key Point Fundamental Intelligence Competitive intelligence should be in hot pursuit of certain fundamental information: Information about your industry (such as monitoring trade journals) Financial transactions (such as credit ratings) Publicly released information (such as regulatory filings by a competitor) Non Confidential Information between buyers and sellers to identify who the competition is
In their book Outsmarting the Competition, authors John J. McGonagle , Jr. and Carolyn M. Vella provide these guidelines on when to use competitive intelligence: Competition increases from firms outside your industrys traditional boundaries. Competition, both actual and potential, increases from non -U.S.-based firms. Consumers and customers become increasingly sophisticated and knowledgeable, demanding more and openly comparing products, services, and sources. Changes occur continuously in the nature and variety of the products and services you must offer to continue to compete. Significant changes occur in the ownership or senior management of firms in your industry, which may bring in new operating or marketing philosophies.

The 80 / 20 Rule Primary vs. Secondary Competitive intelligence follows a two -phase process when it comes to collecting information: Phase I: Secondary Research (80% volume / 20% time) Phase II: Primary Research (20% volume / 80% time) Phase I Secondary Research leads to Phase II Primary Research. Secondary research consists of press releases, analyst reports, trade journals, regulatory filings, transcripts of speeches, and other published sources of information. The bulk of the information (lets say 80% of it) that we collect comes through secondary research. Once we sift through this information overload, we can move to Phase II where the golden nuggets of competitive intelligence reside. Phase II Primary Research is more hands -on and direct, interviewing sources of published information, meeting face -to-face with key decision makers and flushing out the critical unknowns not found in secondary research. It is here, primary research, where we should spend most of our time (80%) on the pertinent information (20%) derived from secondary research. Therefore, we should recognize the 80 / 20 rule of competitive intelligence: Spend less of your time gathering 6 the information Primary Research and spend more of your time analyzing and refining it through primary research.
Secondary Research Volume 80% of Data Time 20% Spent 20% 80%