3 Competitive intelligence

CHAPTER 3

Competitive intelligence

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About this chapter

Business success is as much determined by the actions of competitors, as the actions of the organisation itself. For example, the success of Coca-Cola is partly determined by the actions of Pepsi-Cola. This chapter explores the increasingly vital practice of competitive intelligence and examines how organisations can use such a function to support/develop successful marketing strategies. Gathering, analysing and disseminating intelligence relating to competitors’ strategies, goals, procedures and products greatly underpins competitiveness.

■ What is competitive intelligence?

Competitive intelligence (CI) has something of an image problem. The term conjures up an image of elicit activities involving private detectives, telephoto lenses and hidden microphones. While such images are not completely unappealing, they are far removed from the truth. Put simply, CI is a structured, ethical and legal process designed to gather, analyse and distribute data/information relating to current and potential, competitors. The key to successful CI is the ability to turn basic raw data into actionable intelligence. Actionable intelligence involves providing decision makers with timely, appropriate information which facilitates action. Additionally, CI stresses the need to protect business activities against competitors’ intelligence gathering operations.

The need for CI has always been recognised. Indeed, Sun Tzu’s ‘The Art of War’, written in China over 2000 years ago, makes many references to CI.

Know the enemy and know yourself, in a hundred battles you will never be defeated.

(Sun Tzu ‘The Art of War’ 400 BC)

Such reference is equally applicable to today’s business world. Given the established business trends of: (a) globalisation (b) rapid technological development and (c) merger and acquisition, CI is likely to be a strategic priority for most organisations. Currently management information tends to fall into two main categories. Firstly, reporting and control information. This monitors what has happened internally within any given period. Secondly, information relating to key performance indicators providing measures of success/failure relative to pre-set benchmarks (e.g. accounting ratios, profit and loss accounts, etc.). Such data is of course necessary, but managers increasingly need to be forward looking. CI serves this purpose.

Illustrative Example 3.1

Competitious social networking for CI

The next generation of CI vehicles may deploy social network as a powerful analytical tool.

Competitious, an innovative web-based service, offers clients the opportunity to collaboratively share and manage competitive knowledge. Co-founders Kris Rasmussen and Andrew Holt aim to provide tools which allow organisations to collectively build an on-going knowledge base about competitive companies or products. The effective use of such information allows users to identify threats, find opportunities and plan future strategy. The concept can be thought of as a social networking specifically focusing on the client’s completive business environment.

Source: www.competitious.com, Accessed 5/2/07.

CI can provide a number of useful functions within any organisation. These can be summarised as follows: ● Anticipating competitors’activities:The most obvious advantage of CI is in provision of system(s) to consider the likely action of specific competitors. The various strengths and weaknesses of the opposition can be considered and frameworks established to anticipate and pre-empt competitor initiatives. Early warning of competitors’ actions enables the organisation to judge the seriousness of a threat and develop appropriate responses. The process may also uncover potential competitors who are about to target your existing customer base or industry activities. ● Analysing industry trends:By examining the actions of groups of competitors within specific segments and/or market leaders it is possible to proactively establish growing trends. If management can spot the convergence of technologies and operating procedures, it is possible to

‘steal a march’ on competitors. ● Learning and innovation:The CI process offers tremendous opportunities to learn. CI forces managers to have an external focus. By constantly reviewing the opposition, we are better able to develop, adapt and innovate our own product offerings. For example, the process of reverse engineering – involving detailed examination of competitors’ products – can provide a valuable insight into improving our own products. Scenario planning exercises, which anticipate competitors’ actions, can enhance the organisations’ understanding of the competitive environment. ● Improved communication:Key principles of CI are: (a) the delivery of concise, timely information to decision makers and (b) the ability to share information across functional boundaries and provide wider access to knowledge. These general concepts do much to enhance overall corporate communication and promote teamwork. Correctly applied CI concept enable staff to overcome many problems associated with information overload.

The reality is that most organisations have some form of CI. For example they conduct benchmarking exercises, commission market research or monitor competitors’ prices. CI offers the opportunity to bring together the various stands of information which already exist into one cohesive, practical system.

■ The CI cycle

Kahaner (1997) develops the concept of CI cycle (see Figure 3.1). This basic concept is derived from government agency intelligence gathering operations (e.g. CIA).

1 Planning and direction 2 Collection

CI cycle

4 Dissemination 3 Analysis

Figure 3.1

CI cycle (Source: Adapted from Kahaner, 1997)

Planning and directing

The cycle begins with establishing intelligence requirements. It is important to prioritise information needs and set appropriate timescales/reporting periods. This phase requires a detailed understanding of what business decisions are being taken and how information will be used. When prioritising information it is important to differentiate between ‘targeted intelligence’ – collected to achieve a specific objective –and ‘awareness intelligence’ – collecting general information which will be ‘filtered’ in order to build a general picture of the competitive environment. Targeted intelligence is used to resolve specific problems, while awareness intelligence is designed to monitor the competitive environment on an on-going basis. The planning process is concerned with obtaining the correct balance between the two.

Collection

Based on established intelligence requirements, a collection strategy is now developed. Pollard (1999) advocates translating key intelligence requirements into more specific key intelligence questions and then identifying and monitoring intelligence indicators. These intelligence indicators are identifiable signals that are likely to precede particular competitor actions (Table 3.1).

Common sources of competitive information are considered later in this chapter.

Table 3.1 Example of intelligence indicators

Key intelligence question(s)

Is the competitor about to initiate a customer loyalty scheme?

Intelligence indicators

Actively recruiting customer service staff

Buying media advertising space

Analysis

Analysis is concerned with converting raw data into useful information. The process involves classification, evaluation, collation and synthesis. Once information has been processed informed judgements relating to competitors’ intent can be established. The classification stage may involve tagging data as: (a) primary – facts directly from the source (e.g. interviews, annual reports, promotional material, etc.) and (b) secondary –reported by third parties (e.g. newspaper comment, books, and analyst’s reports). Data can then be prioritised in terms of importance. When necessary, triangulation can be used to confirm findings. This involves cross checking an item against a number of sources. The CIA(1999) offers the following guidelines relating to classification of data/information: ● Fact:Verified information, something known to exist or have happened. ● Information: The content of reports, research and analytical reflection on an intelligence issue that helps analysts evaluate the likelihood that something is factual and thereby reduces uncertainty. ● Direct information: Information which can, as a rule, be considered factual, because of the nature of the sources, the sources direct access to the information, and readily verifiable content. ● Indirect information: Information which may or may not be factual, the doubt reflects some combination of sources questionable reliability, lack of direct access to information and complex content. ● Sourcing: Depicting the manner, or method, in which the information was obtained, in order to assist in evaluating the likely factual content.

History teaches us the importance of evaluation and classification. Most military, political and commercial intelligence failure has not been due to inadequate information collection, but due to poor evaluation of available information.

Many analytical tools/techniques exist to facilitate management decision making and such techniques provide vehicles for forecasting/speculating competitive intent. Common techniques included are as follows:

● SWOT/portfolio analysis: The classic SWOT or portfolio analysis (e.g.

Boston Matrix, Ansoff Matrix, etc. see later chapters) are applied to the competitor(s) in question. ● Behavioural traits: While not an absolute indicator of future action, it is true to say that organisational leaders tend to repeat past successful behaviour and avoid previous mistakes. Therefore, to some degree, future behaviour is likely to be predictable. Understanding the behaviour and reactions of rival corporate leaders to given sets of circumstances can be highly revealing of future intent. ● War gaming: In-house teams take on the simulated role of competitors for a workshop exercise. The team is provided with actual data and asked to simulate the strategies/actions they believe the competitor is most likely to follow. Their responses are then analysed in a de-brief session. Numerous advantages stem from this process, such as; identifying competitors’ weaknesses, enhancing teamwork and identifying information ‘gaps’ relating to knowledge of competitors. ● Synthesis reports: Information from numerous sources is collated under common key themes. It is possible to electronically scan large amounts of text for key words (e.g. brand names, patent applications, etc.) and selectively extract/flag information. Techniques such as word and pattern analysis can identify underlying themes and trends. ● Mission statement Analysis: The main aim of analysis is to predict what a competitor will do. Therefore it is possible to analyse competitors’ mission statements in order to establish their goals, values and generic strategies. Analysing how mission states have changed or been interpreted over time is highly insightful. Rumours of likely activity can be checked against a rival stated mission. Does the rumour seem to equate with overall corporate aims?

Dissemination

CI needs to be tailored to meet user needs. Effective dissemination is based on clarity, simplicity and appropriateness to need. CI should (if merited) form the basis of competitive action plans. Auseful test is to consider what are the implications of the intelligence not being passed on? If there are no real implications, it is questionable whether it is necessary. Research shows that many CI projects fail during this phase. Therefore, presentation of CI is critical. Pollard (1999) recommends developing structured templates for reports, as follows: (i) information – bullet points,

graphics, etc. (ii) analysis – interpretation of information (iii) implication –what could happen and (iv) actions.

■ Sources of competitive

information

As outlined above data/information can be classified in a number of ways and the source is important in establishing its reliability.

Competitive information comes from three general areas. Firstly, ‘public domain’ information – information available to anyone. Most industries are heavily regulated and any publicly listed company has legal obligations to make certain information available. Additional promotional materials, product advertising, annual reports and recruitment activities are, by nature, publicly available. Secondly, ‘internal’ information. It is often surprising just how much information organisations already hold on competitors. The problem is one of analysis and dissemination. The sales force and customer service staff are a primary source of CI. They are well positioned to ‘pick-up’ CI from customers, suppliers and industry contacts. Organisations need to establish mechanisms, such as internal networks, to facilitate this process. It is also possible to set up internal systems to monitor competitors (e.g. monitoring competitor’s prices on a weekly basis). Finally, ‘third party’ information – specific sources not directly connected to the competitor (e.g. market research agencies, media/journalists, credit rating organisations and consumer groups). Many electronic sources exist, providing powerful search engines enabling detailed inquires to be made. The Internet provides a vast array of free and fee paying information services. Some commonly used Internet sites are listed in Table 3.2. However, the problem is often dealing with the sheer volume of information Internet searches generate.

Table 3.2 Common Internet sources

Search engines

www.google.co.uk www.yahoo.com

Meta search engines

www.Askjeeves.com www.MetaCrawler.com

Financial/business information

www.FT.com www.thisismoney.com www.realnames.com

Specialist search engines

www.DejaNews.com www.Newsbot.com

Note: realnames.com has been established to alleviate the problem of matching company and products names to actual web addresses. Essentially, it operates as a specialist search engine.

■ Summary

CI provides an increasingly vital function, which underpins marketing strategy. The process provides numerous benefits including anticipating competitors’ actions, improved teamwork and promoting learning and innovation within the organisation. CI is based on a four-stage cycle. The cycle starts with planning and direction then moves on to collection, analysis and dissemination. Internal and electronic data sources have greatly widened the availability of data/information.

■ References

Kahaner, L., Competitive Intelligence, Touchstone, New York, 1997. Pollard, A., Competitor Intelligence, Financial Times Pitman Publishing,

London, 1999.

■ Further reading

Pollard, A., Competitor Intelligence, Financial Times Pitman Publishing,

London, 1999. Taylor, J., Competitive intelligence: a status report on US business practices,

Journal of Marketing Management, 8(2), 1993.

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