Competitive Intelligence - C. West(1).pdf

Also by Chris West

Market ResearchCompetitiveIntelligent

Chris West

.; Chris West 2001

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First published 2001 byPALGRAVEHoundmills, Basingstoke, Hampshire RG21 6XS and175 Fifth Avenue, New York, N.Y. 10010Companies and representatives throughout the world

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West, Christopher, 1940-Competibve intelligence / by Chris West.

p. cm.Includes bibliographical references and index.ISBN 0-333^78669-61. Business intelligence. 2. Strategic planning. 3. Competition. I. Title.

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Contents

Preface XI

1 Competition 1Virtual Monopolies 3Definition of Competition 4Where Do Companies Compete? 5Marketing and Competitive Strategies 6The Competitive Environment 9Mechanisms By Which Companies Compete 10Scale 10

2 Intelligence 12The Applications for Intelligence 13Companies to Watch 14Narrowing the Field 17Alternative Applications for Intelligence-Gathering

Techniques 18Alternative Routes to Intelligence 21

3 The Development of Competitive Intelligence 24The Development of Competitive Intelligence as a

Formal Activity 25Factors Influencing the Growth of Competitive Intelligence 28Factors Inhibiting the Growth of Competitive

Intelligence 31

4 Framework for Competitive Analysis 33Mapping the Competitive Landscape 34Drivers of Behaviour and Change 38Types of Intelligence 42Key Intelligence Topics 44Format for Collecting and Presenting Intelligence 45The Time Dimension 48

VII

HI^m I7m \ Vlll Contents Contents IX

5 Overview of the Sources of Intelligence 50Primary and Secondary Sources 50Determinants of Methods Used 52

6 Secondary Sources of Intelligence 56Internal Intelligence Sources 56External Secondary Sources 59Locating External Secondary Intelligence 71

7 Intelligence on the Internet 74Search Engines and Web Crawlers 75Intelligence Content of the Web 76Short Cuts 83Discussion Forums 83Newsgroups (or Bulletin Boards) 84Monitoring the Internet 84

8 Primary Intelligence Collection Techniques 86Internal Primary Sources 86External Primary Intelligence 92Obtaining Intelligence Directly from Competitors 99The Demise of Primary Intelligence? 108

9 Market Research as a Source of CompetitiveIntelligence 109Market Research and Competitive Intelligence 109Customers as a Source of Intelligence 110Surveying Markets for Intelligence 111

10 Analysis - Filling the Gaps and Stretching theData 115Filling the Gaps in an Incomplete Picture 117Extending the Level of Understanding 118Environmental Analysis 121

11 Verifying Intelligence 123Verification of Published Intelligence 123Verification of Primary Intelligence 127Sanity Checks 129

12 Competitive Intelligence Resources 130In-House Resources or External Agencies 130

The Internal Competitive Intelligence OrganisationCompetitive Intelligence StaffIdentifying Potential External SuppliersAssessing the Suitability of Competitive Intelligence

AgenciesCompiling a ShortlistApproved Research ContractorsThe ProposalAssessing Alternative OffersPresentation of ProposalsNegotiations

13 The Intelligence BriefingThe Briefing DocumentThe Briefing Meeting

14 Controlling the Intelligence CollectionProcessProject Briefing or 'Kick Off MeetingReview of Discussion GuidesProgress ReportsReviews of the Information YieldFinal Review of Findings

15 Legal Factors and Ethical GuidelinesCriminal LawCopyright LawCompetition and Antitrust LegislationThe Economic Espionage ActData Protection LegislationCodes of EthicsNon-DisclosureConflicts of InterestMarket Research and Competitive Intelligence EthicsDeliverablesSanctionsRegional Variations

16 Processing and Distributing IntelligenceWritten ReportsMeetings and Other ForumsE-mail

132134135

137141142142143145145

147147153

155156158158158159

160161162162162163164165166166168168169

170171171172

Contents

Corporate Intranets 172Management Information Systems 173Knowledge Management Systems 175Tailored Competitive Intelligence Systems 177Access to Competitive Intelligence 178

17 Measuring the Effectiveness of CompetitiveIntelligence 180Quality of Intelligence Provided 180Use Being Made of Competitive Intelligence 181Development of an Intelligence Culture 182Event Analysis 182Market Share 183

18 Counter-intelligence 184The Structure of Counter-intelligence Activity 186Assigning Responsibility for Counter-intelligence

Programmes 187Identifying the Potential Sources of Threat 190Identifying the Means By Which Intelligence is Being

Sought 192Identifying and Assessing the Vulnerabilities 194Categorise Information 200Reducing the Chances of Intelligence Being Obtained 202Testing the System 211Monitoring the Threat 211Publicise Willingness to take Legal Action 212Implementation 212

19 Deception and Misinformation 215Intelligence Held on the Company 216Channels of Communication 217Internal Sources of Information 217Types of Deception 218Ethical Considerations 220Propaganda 221

Appendix: The Competitive Intelligence Checklist 222

Further Reading 229Index 231

Whenever there is more than a single source of a product or service,competition is an inevitable and natural consequence. Suppliers takeas many steps as they can to insulate their activities from aggressivecompetition but they invariably have to engage in some form of battlewith each other in order to obtain a share of customers' business. Theonly question is whether it is a minor skirmish or all-out war.

Although military analogies are common, competition is moreconventionally described as 'gentlemanly', 'fierce' or 'cut-throat',depending on its intensity and the manner in which it is conducted.Over time there has been a tendency to gravitate away from the'gentlemanly7 towards the 'cut-throat'. This coincides with a progres-sive transfer of power from suppliers to customers.

The last few decades of the twentieth century have seen a markedreduction in suppliers' ability to control markets. Monopolies andnear monopolies, common in the nineteenth century, have almostdisappeared. The cosy world of cartels and other supplier agreementsthat limit competition and seek to maintain orderly price regimes hasalso been severely restricted. This has been achieved by governmentcompetition policies which seek to ensure that customers (that is,voters) get good service and value for money by virtue of the fact thata number of suppliers have to compete in order to win their business.In consumer markets the process has been accelerated by the impactof consumer and other pressure groups that have encouraged andfacilitated more informed buying as well as stimulating manufacturersto be more competitive.

A further inducement to compete has arisen from the fact that ithas become increasingly difficult for companies to shield their custo-mer bases from competitors. Traditionally suppliers have used geo-graphical, product, service or even emotional barriers to create nichesin which they are sole or dominant suppliers. However, improvedphysical communications, reduced product differentiation, betterinformation flows and more discerning buying have not only given

XI

XI1 Preface

suppliers the ability to seek out and exploit wider customer bases,they have also enhanced the ability of customers to break out of theniches into which they have been classified and broaden the supplyoptions for themselves. E-commerce represents the ultimate in thisprocess since it maximises information flows and creates markets thaiare unrestricted by distance, nationality or language.

In competitive markets the quality of the competitive strategy isnow as important as customer strategies in determining companyperformance. All strategics require information and competitivestrategies are no exception. As a result there is an existing andgrowing requirement for competitive intelligence.

Although there has always been an interest in the activities ofcompetitors, competitive intelligence as it is now practised wasformalised in the USA only in the 1970s and 1980s. A major stepin the formalisation process was the formation of the Society ofCompetitive Intelligence Professionals, which created a forum withinwhich a wholly ethical intelligence-gathering process could be devel-oped. This was essential if the business was to break away from theinevitable, but unacceptable, association with industrial espionage.The transfer of techniques to Europe took place initially in the late1980s and early 1990s but really gathered momentum between 1995and 1999 when a series of public conferences promoted competitiveintelligence to wider audiences.

As we stand, competitive intelligence is still in the formative stagesof its evolution. The more obvious techniques have been codified anddescribed but new developments are constantly being reported in theprofessional journals. The Internet has had a profound effect oncompetitive intelligence, just as it has in other areas of research, but Iam sure that equally important innovations will be discovered andintroduced in the coming years. The reason for thinking so is that theinnovations work both ways. As intelligence gathering becomes morewidespread so do the techniques for restricting the outflow ofinformation from companies. Counter-intelligence may be growingeven more rapidly than competitive intelligence, thereby creating aspiral in which each side of the equation needs to find methods ofcircumventing initiatives taken by the other.

The main reason for writing this book is that although interest incompetitive intelligence is growing extremely rapidly in Europe, thereare very few published works which consider the subject from aEuropean perspective. Books written by American authors arc cer-tainly of generic interest; the principles of competitive strategy and

Preface xin

competitive intelligence are the same on both sides of the Atlantic.Furthermore, some American works provide extremely useful guidesto European information sources. There are, however, fundamentaldifferences between competitive intelligence as it is currently practisedin the USA and how it is likely to emerge in Europe. These revolvearound the extent to which information from government sources isfreely available, the rules of disclosure, data protection legislation, theattitudes of company executives towards intelligence gathering andthe ease with which it is possible to make contact with informationsources. In some instances intelligence gathering is easier in the USAand in others Europe is a more open source.

Many of the early practitioners of competitive intelligence in theUSA and Europe were former employees of security and militaryintelligence services and the police. They brought with them wideexperience in intelligence collection and analysis techniques but alsogave the business a 'James Bond' spin which, whilst undeniablyexciting, tended to suggest a relationship between competitive intelli-gence and espionage. Since then a large number of practitioners inEurope have entered the business through market research and othermore conventional channels. These entrants have neither had, nordesired, any military training and have had to develop their craftwithout resorting to subterfuge, illegal access, phone tapping, raidingdustbins or theft. They have to rely on diligence, ingenuity anddeduction, which require a completely different mind-set and signifi-cantly different set of skills. In 1998 1 had the pleasure of listening to apresentation to competitive intelligence professionals by PhilipKnightly, the respected investigative journalist responsible for someof the major stories carried by The Sunday Times. He commenced hispresentation by stating tljat journalists obtain their information inthree ways: they could be given it by those who wish to publicise acause, they could buy it or they could steal it. Would that competitiveintelligence was that easy.

Despite the unfortunate associations, many of the current textsdescribe competitive strategy and competitive intelligence in militaryterms. The military analogy can be helpful in getting the messageacross but there are too many activities and techniques that areentirely appropriate in warfare but are not acceptable in corporatecompetition and competitive intelligence. This is particularly true ofthe spy for whom the end will always justify the means. Spies stealintelligence and get medals for doing so; competitive intelligenceprofessionals who are caught stealing information get locked up.

XIV Preface

This book will take a less dramatic line. Its primary focus is on thetechniques for collecting and analysing competitive intelligence.Although I have not ignored the applications for the intelligencemy stance is that of an information provider rather than a user. Manyother books with the same title are happier delving into competitivestrategy using descriptions of long-forgotten battles as analogies.They skim over intelligence gathering itself, which in my experienceis by far the most difficult and mysterious part of the process.

The book has been written for the following readers: Competitive intelligence staff active within companies, particularly

those confronted with the prospect of having to obtain competitiveintelligence for the first tune

Competitive intelligence professionals working within CI consultancies Market research professionals Marketing staff seeking competitive intelligence Business strategists using competitor informationFor those who are unfamiliar with competitive intelligence I hope thatit will open their eyes to what can be achieved. For those who havehad practical experience I hope it will open up some new methods bywhich research can be carried out.

The book is based on experience gained during a career inindustrial market research and, latterly, competitive intelligence.Unlike our consumer research cousins, industrial market researchersinclude detailed examinations of competitors' activities in most of ourprojects, though in the early days the means by which we obtained thedata were distinctly amateur. Aubrey Wilson, one of the first prota-gonists of industrial market research in the United Kingdom, tellshow when conducting a survey on the woollen textile industry in theearly 1960s he attempted to interview the owner of a mill in Scotland.This dour respondent insisted on taking down a hand-written note ofevery question that Aubrey proposed to ask before he would answerany of them. On reaching the final question he lifted his head, glaredat the hapless interviewer from beneath shaggy eyebrows and shouted'Get oot! Yer spying on me!' It has never been easy.

I first entered the specialist world of competitive intelligence in1990 when Ruth Stanat of SIS International introduced me to thesubject. I have always been grateful to her for what might haveseemed at the time a minor piece of enlightenment. Since then I haveworked on a wide range of projects in which it has commonly beenessential to define the methods by which information could be

Preface xv

obtained or deduced and then presented in an acceptable manner toclients. In many cases we undoubtedly had the dubious pleasure of're-inventing the wheel', a process which I hope readers of this bookwill be able to avoid. It was nevertheless enjoyable and I am gratefulto my former and current colleagues in Competitive IntelligenceServices and to our many clients for the contribution they have madeto the learning process.

Chipstead, Surrey Chris West

Competition

Competing is as natural as breathing and although the competitiveprocess is not always enjoyable, winning is one of the most pleasur-able human sensations. The desire to be a winner, to gain the prize orto succeed makes the effort or the pain of competing worthwhile.Competition pervades every aspect of personal, institutional andcorporate activity. As individuals we spend our lives competing forsuccess in school, in sport, for jobs, for partners and for recognition.Political parties compete for voters, government departments com-pete for funds, societies compete for members, charities compete fordonations, tourist attractions compete for visitors and companiescompete for customers. There are those for whom competition is amajor reason for living; they are said to 'thrive on competition'. Thereare others who, in the interest of a quiet life, would prefer to get whatthey want without competing for it but. in the real world, theyinvariably find that it is impossible to avoid confrontation andcompetition completely. Companies would prefer not to compete,since doing so absorbs resources and reduces margins, but theyrecognise that competition is almost inevitable and, whether explicitor implicit, methods of dealing with competitors are an integral partof their business strategies.

The only way that companies can avoid competing completely is tobe a monopoly but the opportunities to achieve this status are (now)extremely limited. Legislators and the economists that advise themhave an unfortunate, though understandable, belief that monopoliesare bad for customers. This is because historical evidence suggeststhat monopolists have a natural tendency to abuse their position byrestricting supply below the level of demand and raising prices. Incontrast, economists have defined 'free competition' as highly bene-ficial for customers, since it maximises supply and reduces prices to

1

Competitive Intelligence

the level at which it is just worthwhile for suppliers to remain in thebusiness. Although Adam Smith was describing a world which wasconsiderably less complex than that existing at the beginning of thetwenty-first century, his summation of the difference between mono-poly and competition is timeless:

A monopoly granted either to an individual or to a tradingcompany has the same effect as a secret in trade or manufactures.The monopolists, by keeping the market under-stocked, by neverfully supplying the effectual demand, sell their commodities abovethe natural price, and raise their emoluments, whether they consistin wages or profit, greatly above their natural rate.

The price of monopoly is, upon every occasion, the highest thatcan be got. The natural price, or the price of free competition, onthe contrary, is the lowest that can be taken, not upon everyoccasion indeed, but for any considerable time together. The oneis upon every occasion the highest which can be squeezed out of thebuyers, or which it is supposed, they will consent to give; the otheris the lowest which the sellers can commonly afford to take, and atthe same time continue their business.1

Although once common, it is hard to conceive that a true mono-poly would be sustainable in today's global economies. Apart fromcompetition laws aimed at preventing companies gaining a positionfrom which they can dominate markets, global communications andfast, low-cost transport has permitted larger numbers of suppliers toseek access to all markets. Where once local shops supplied vegetablesgrown in the neighbouring fields, today's supermarkets displayvegetables from all parts of the globe and, apart from price variations,the notion of seasonal vegetables has all but disappeared. VariousEuropean state monopolies in telecommunications, postal services,transport, tobacco, drinks and minerals survived until the 1980s and1990s but almost all of them died on the altars of privatisation andderegulation. Apart from the fact that governments no longer sawowning or running commercial enterprises as part of their mandateand had alternative uses for the funds that privatisation released, theyhad also realised that running businesses was not one of theirstrengths. One of the main arguments against monopolies - particu-larly state monopolies - was less to do with the fact that they chargedhigh prices and more to do with the poor service they provided totheir customers. Bureaucrats have always displayed a surprisinginsensitivity to the needs of those they are charged with administering,which, when transposed into a commercial environment, resulted in

Competition

the antitheses of the customer care strategies that normal businesseswere forced to embrace in the final quarter of the twentieth century.

By way of example, compare the prices for air travel on transat-lantic routes with those that apply between major European cities.The cost of budget fares per transatlantic mile is in the order of7 pence whereas between European destinations it can be fourteentimes higher. There are a number of reasons why this is so but one ofthe most significant is the fact there is an abundant supply of seats ontransatlantic routes whereas in Europe agreements between govern-ments restrict seat supply. In other words, limited monopolisticpractices are permitted in Europe, with a predictable effect on prices.Of course, the opposite of monopoly is not necessarily competition.In some markets a failure to control competition may result in a lackof supply because suppliers are unwilling to make the investmentsrequired to develop products or services which then fail to make anadequate return. The supply of Pharmaceuticals, for which develop-ment costs are astronomic, is highly controlled for a period of time bypatents and by the system of government approvals. This ensures thatdevelopers of new pharmaceutical products have sufficient time torecoup their development costs, and more, before they are exposed tothe full force of competition.

Virtual Monopolies

The advantages of being a monopolist and the disadvantages ofhaving to compete are sufficiently powerful to induce those thatcan to seek to create a quasi monopolistic situation for themselves.The main mechanism by which suppliers can avoid head-on conflictwith competitors is a process well-known to marketers as product orservice differentiation. This concept is closely related to the 'UniqueSelling Proposition', first expounded by Rosser Reeves of Ted Batesas a key ingredient for successful advertising campaigns.2

Most suppliers accept that competition is inevitable but wouldprefer a situation in which it was unnecessary. Considerable research,design, development and creative resources are therefore devoted toefforts which will result in products or services which are clearlydifferentiated from those of competitors and may be perceived bycustomers to be unique - in other words, to create a form ofmonopoly. Unique products and services can result from or becomplemented by a unique operational environment that clearlydistinguishes the supplier from other companies active in the business.


Uniqueness can be real, in that a product has features or attributesnot provided by competitive products, or it can be perceptual. Theneed to create perceived differences between products arises moststrongly when real differences are difficult, if not impossible todevelop and demonstrate. McDonald's does not have a monopolyof the hamburger market but it is widely perceived as a unique playerwithin that market. This has happened because of its history as thefirst to develop a global burger business, its culture, its valueproposition and its intensive promotional activity.

Differentiation can be sought in any aspect of a company's opera-tions. Traditionally in the marketing process companies have soughtlo differentiate themselves from their competitors by: Production technologies Product features The raw materials used Price levels Discounts and rebates Distribution channels Delivery methods Delivery speed and reliability Promotional methods The perceptions they create for their brand Service offers Their location The company culture The staff they employ

Many of these are visible and therefore obvious to the competition;others are the invisible drivers of an end result, which is itself visible.For example, unique production technology or a unique source ofraw materials can result in production cost advantages that translateinto competitive prices.

However achieved, uniqueness is usually transitory in competitivemarkets. Unique product and service features can eventually becopied and even intangible advantages can be eroded over time byconsistent promotion and publicity. The only long-term defence ofunique positions is to innovate and create new forms of uniqueness.

Definition of CompetitionA company's competkors are those organisations that can have anadverse effect on sales through their own success in winning business.

Competition

The most common definition of competitors is the narrow one ofdirect competition, which includes only those companies offeringcomparable products and services into the same target markets. Inthese situations the competition is head on and customers make achoice between suppliers that are all perceived as being capable ofmeeting their requirements in broadly similar ways.

However, competition also exists indirectly between suppliers thatoffer alternative and sometimes very different solutions to the sameproblem. In the traditional telecommunications market (often re-ferred to as POTS - Plain Old Telephone Service) BT, AT&T, FranceTelecom, Deutsche Telecom and their other national equivalents wereonce monopoly suppliers. After privatisation, deregulation and thebreak-up of the monopolies competitors from very different back-grounds (cable TV and the utilities) emerged as direct competitors, aswell as a host of new specialist telecommunications companies.Names such as Sprint, MCI, NTL, Telewest and Encrgis and a hostof smaller companies offering low cost calls via calling cards or accessnumbers carved niches for themselves in the market, but the servicewas essentially the same.

However, the analysis of the competitive situation would beseriously flawed if it considered only the fixed line operators. Themobile communications market now accounts for a significant pro-portion of the total communications business and is competed for bya different set of suppliers in addition to the traditional carriers. Theanalysis would be further flawed if it excluded e-mail and textmessaging, both of which are displacing voice communications,and, looking forward, effective voice communications over the Inter-net could cause a significant reduction in long-distance connections.The broadband technology that services the voice and data commu-nications market also enables the transmission of pictures. Thispermits telephone companies to compete with terrestrial televisiontransmissions and even the airline business, if video conference callingever succeeded in reducing the amount of business travel.

Where Do Companies Compete?

There is a widespread and wholly understandable impression that theprimary form of competition is that which takes place betweencompanies for customers, in other words, thai the main competitivebattlefield is the marketplace. However, in the context of competitiveintelligence it is important to recognise that this is very far from the


case. Companies compete across the full spectrum of their activitiesand whilst the marketplace is extremely important, it is by no meansthe only competitive arena. Some of the key areas in which competitiveaction can have a profound effect on a company's performance are:

Strategic - competition for acquisitions Technology - competition for patentable products and processes or

for licences People - competition for the best staff Finance - competition for investors and funds Locations - competition for manufacturing, warehousing and

office sites Suppliers competition for raw materials or components Distribution - competition for shelf space Markets - competition for customersIn all these areas competition is significant only when there is anactual or impending shortage of whatever resource companies areseeking. In the battle for acquisitions the shortage is acute because atany one time there is normally only a few companies available to beacquired and a number of potential suitors. Competition for financialresources is rarely significant since the supply of funds that areavailable for good investments is not constrained to the point thatcompanies need to fight for a share. In times of full employmentcompetition for people can be acute, but at the bottom of theeconomic cycle supply can far outstrip demand. Similarly the supplyof raw materials can oscillate from abundance to shortages.

Even in markets shortages of customers are not necessarily thecase. There is rarely a shortage of demand for a real bargain. In suchsituations customers will soak up whatever supply is available, if onlyto stockpile. Demand is driven by a host of factors that include priceand performance but also customers' anticipation of the future supplysituation. Threatened shortages of essential products, such as food orpetrol, will result in buying sprees that quickly deplete stocks. In suchsituations competition is irrelevant; customers will buy from whom-ever at whatever price they care to charge.

Marketing and Competitive Strategies

The principles of marketing were developed and codified in thepostwar period when demand was growing rapidly and competitivepressure was relatively low. In many markets manufacturers could sell

Competition

all they could produce and although they risked being left behind assuperior products were developed, competition was not at the top oftheir list of worries. Marketing focused entirely on customers and wasdefined as a process for winning by offering products that metcustomer needs at prices they were prepared to pay. In his seminalwork. Innovation in Marketing, written in 1962, Theodore Levittbarely mentions competition.3 He concentrated on what was thendeemed to be important, namely, customer retention, the evolution ofmarkets and product development. Although outfoxing the competi-tion was an inevitable part of this process, the emphasis was on theproduct and service stratagems that would be deployed, rather thandirect competitive action. In a key chapter entitled 'ManagementMyopia',4 Levitt attributes low growth to a management failure tospot developments that would make current markets obsolete. Tar-geted competitive action was relevant only for suppliers that wereseeking exceptional growth and therefore needed to make gains inmarket share. The sequential recessions of the early 1970s, 1980s and1990s resulted in an slowdown in overall economic growth and anoverall trading climate in which even modest rates of growth requiredan increase in market share, unless companies were operating inspecific high-growth niches.

At the same time the pressure on companies to compete morestrongly has intensified.

This is a result of a number of clearly defined forces, which include:

Higher financial performance demands placed on suppliers. Increas-ing financial demands of owners and shareholders have resulted inan injection of the killer instinct. The management of companiesare required to meet ever more ambitious targets and certainlycannot afford to fail. They therefore defend their existing positionsin their markets vigorously and are also driven to seek expansion

Diversification. The need to protect and enhance the future growthof the business will often be interpreted as a need to diversify intonew markets. If the markets they target are themselves new,competition may not intensify, as may also happen if the diversi-fication is made by the acquisition of an existing participant.However, if a company enters an existing business as a new playerthen competition is automatically intensified

Globalisation or geographical diversification. By reaching out intonew countries global players intensify the competitive environment

Technology. Developments in technology, and particularly theconvergence of technologies, are enabling companies to challenge


incumbents in new markets and radically alter the competitiveenvironment

Outsourcing. The trend towards outsourcing of key processes tothose organised to carry them out more effectively and at lowercost can improve competitiveness by permitting companies to focuson the operations that they do best. The growth of 'virtualcompanies', which outsource all functions other than productdesign and overall management, is the ultimate expression of theoutsourcing process. Providing the supplier of outsourced servicesperforms well, outsourcing reduces the number of functions thatcompanies need to control and manage and therefore the scope tocreate problems for themselves. By eliminating the need forinvestment in fully serviced companies, outsourcing reduces thecost of entry into markets and therefore encourages the formationof new competitors

Improved information /low. The economist's definition of perfectcompetition includes the requirement for customers to have perfectknowledge of the products that are available and the prices forwhich they can be acquired. In the real world perfect knowledgerarely exists or is confined to small geographical areas (such as astreet market). Suppliers have therefore been able to operate inmarkets that have been partially protected by ignorance. Long-term improvements in communications have gradually eroded suchprotection but the advent of the Internet has created a forum inwhich perfect information on product availability on a global scaleis a real prospect

As a result of these changes, defending an existing market positionfrom attack or growing market share became serious marketingobjectives and share gains arc difficult to achieve without engagingin an outright battle with competitors.

Marketing has therefore evolved to embrace two separate streamsof strategy:

The customer facing strategy, which is concerned with satisfyingthe needs of customers

The competitor strategy, which is designed to win customers but byensuring that the company and its products and services beat,outmanoeuvre or outflank the oppositionFor maximum effect, customer and competitive strategies work

hand in hand, complementing each other in the common objective ofwinning business. However excellent, a competitive strategy wittno*compensate for serious deficiencies in a customer strategy; tot

Competition

length of time, though it may provide breathing space whilst defectsin the product or service offer are rectified. Similarly, however superb,customer strategies will eventually be unravelled and undermined bycompetitors.

The Competitive Environment

Writing in the 1980s,5 Bruce Henderson described two extremes ofcompetitive activity, natural competition and strategic competition. Hedescribed natural competition as an evolutionary process in whichcompetitive activity progressed incrementally by trial and error. In nnatural competitive state competitors adapt slowly to each other andto changes in the market environments in which they are operating. Incontrast, strategic competition is revolutionary and 'seeks to make avery large change in competitive relationships'. Strategic competitioncan be initiated by suppliers who, for whatever reason, feel they cangain market share by engaging in an extreme bout of competitiveactivity. It increases the normal level of business risk and tends to beshort-lived. However, a successful period of strategic competition willtend to encourage the perpetrator to repeal the exercise. If a compe-titor initiates a programme of strategic competition, retaliation isessential for survival. Those that are attacked will be required todefend their market positions or lose share. A successful defence mayseverely disadvantage the attacker and discourage further incursions.

Bouts of strategic competition are evident in many industries butparticularly in retailing. In 1999 the major British supermarketchains, which had coexisted more or less peacefully for some years,were struck by a scries of events that initiated a burst of strategiccompetition. Asda, the up-and-coming contender in the market, wasacquired by Walmart, a majrfr discount retailer in the USA. Thismore or less coincided with a period in which:

Tesco, the market leader, had been gently flexing its muscles The British media were making increasingly loud protests about the

differences between British and foreign prices for food and otherconsumer goods

Three other rivals, Sainsbury's, Safeway and Marks & Spencer, hadall been experiencing problems stemming from a failure to keeppace with developments in the marketplace

Asda and Tcsco immediately embarked on a price war, whichwas heavily promoted as being in the consumers' interest. The

10 Competitive Intelligence

weakened competitors were forced to follow suit or lose part of theirconstituency, the last thing they needed when trying to regroup andreorganise.

Mechanisms By Which Companies CompeteCompetitive strategy is often likened to warfare. Marketing warfarehas been written about extensively and most of the analogies areperfectly valid at a strategic level. However, there is one majordifference between armed struggle and competing for customers,which means that the nature of the battle is radically different. Inwarfare the opposing forces fight over terrain. The primary measureof success is territorial gain and the subsequent domination orsubjugation of those who live on it. In business competition is forcustomers and resources; they are, in effect, the terrain that is foughtover. Unlike the landscape, customers and resources are activeparticipants in the competitive process. It is their choices thatdetermine the outcome of the battle. The landscape cannot reject itsconquerors but customers can certainly refuse to be won, distributorscan refuse to allocate enough shelf space and staff can refuse to berecruited. Force is not an option to overcome such resistance andmust be replaced by persuasion which is effective only when itmaximises the attractiveness of the offer, uses appropriate commu-nication channels and maximises the financial benefit to the target. Ina market environment this would be called marketing - persuadingthe target to do what you want them to do (that is, buy from you) bymeeting their requirements more effectively than anyone else.

Scale

The perception of competition tends to vary according to theseniority and role of the staff member considering it. The perceptionstretches from a highly strategic view to short-term tactical issues. Tothe chief executive competition is defined as organisations andprocesses that can threaten the future viability of the company. Atthe level of the sales representative the competition that matters is anycompany or action that threatens a sale. At the intermediate level ofdepartmental heads, interest in competition spans the short andmedium term. Although concerned with losses of sales due tocompetitive action they are also concerned with performance in thebudget period for which they are responsible.

Competition 11

Strategic competitive objectivesClearly a competitive strategy is an integral part of any marketingstrategy which needs to be shaped to take account of what compe-titors are doing. Where competitors exist the key role of the compe-titive strategy is to: Undermine competitors' offers so that the attractiveness of the

suppliers' own offer is maximised Position the company so that any head-on conflict with competi-

tors likely to drive down prices and margins is avoided Avoid activities in which the most likely outcome is a blood bath Anticipate competitors' actions so that their effectiveness can be

neutralised

Tactical competition

Competitive intelligence has just as big a role to play in tacticalsituations as it does in the formulation of strategy. Indeed, manycompanies will recognise the tactical advantages that can be gainedfrom intelligence more readily than any strategic benefits. Tacticalactivities are short-term responses to day-to-day situations that arise.They are 'cut and thrust' rather than broad sweeping developments.

Tactical competition revolves around the need to respond: When competitors implement unanticipated changes in their activ-

ities - this can include product launches, withdrawal from thebusiness, changes in selling activity, new promotional programmes,changes in personnel

When a change incurs within the customer base or in the supplychain

When economic conditions change

Notes

1. Adam Smith, The Wealth of Nations (1776) Chapter VII.2. Rosser Reeves, Reality in Advertising (New York, Alfred A. Knopf,

1961).3. Theodore Levitt, Innovation in Marketing (New York, McGraw-Hill.

1962).4. Originally published, and better known, as 'Marketing Myopia'. Harvard

Business Review, July-August 1960.5. The Boston Consulting Group, Perspectives on Strategy (New York,

John Wiley, 1998).

Intelligence

Competitive intelligence is the process by which companies informthemselves about every aspect of iheir rivals' activities and perfor-mance. It is an essential ingredient when planning not only marketingcampaigns but also production programmes, human resources, fi-nance and all other corporate activities that competitors can influencedirectly or indirectly. No battle can be fought without intelligence onthe opposing forces. Just as card games arc easier to win when playershave either seen or deduced their opponents' hands and exams areeasier to pass when the questions are known or guessed in advance,competition is easier to engage in when the current and futureactivities of the competitors are known or anticipated. In all compe-titive situations the accuracy and timeliness of the intelligence that isheld may have a determining influence on the outcome of theengagement.

In battle where lives arc at stake it is essential to know the terrainover which the battle will be fought, who the enemy are, theirmentality and the resources at their disposition. It is preferable toknow their intentions and it is extremely useful to know how theyintend to achieve them and when and where they are likely to launchan attack. In fact the more information military commanders have attheir disposal the greater iheir chance of winning. No student ofmilitary history can be in any doubt about the value of militaryintelligence and the major efforts that have been made to obtain it.The same level of criticality cannot be applied to a game of cards oreven success in examinations, but in business, where the financialpenalties for losing can be severe, the case for acquiring competitiveintelligence can be indisputable.

12

Intelligence 13

The Applications for Intelligence

Intelligence on the marketplace within which competitive battles arefought, commonly called market or business intelligence, provides theessential background to all strategic and tactical decisions. It indicatesthe likely severity of the battle and the length of time over which it islikely to take place. It also indicates the marketing and promotionaltools that competitors can use successfully to fight their battles andthe messages to customers that are likely to produce the most positiveoutcome. But, more important than any of these, it provides aforward view of technology, customers and customer requirementsthat forewarns of significant change, thereby providing a basis for astrategy that differentiates companies from their competitors andpermits some radical outflanking manoeuvres. The relationship be-tween business or market intelligence and market research is extre-mely close. Only those who define market research narrowly as beingconcerned exclusively with customer surveys and focus groups willfail to see the connection.

Intelligence on competitors is used in three situations:

Curiosity Emulation Anticipation

The most common, and least useful, is lo satisfy an inevitablecuriosity about other companies active in the same business. The levelof curiosity may be tempered by an arrogant belief that competitorsare irrelevant and is rarely deemed to be worth satisfying at a price.Curiosity is usually satisfied by information that is gathered throughtrade gossip, from staff that have previously worked in competitivecompanies, from published media and from informal contacts. Noattempts are made to verify the information collected and suchcompanies often live in a false competitive environment fed byinaccurate impressions and rumours in which it is impossible todefend themselves from surprise attack or even launch credibleoffensives.

Emulation is a more worthy application for competitive intelli-gence. It recognises that all companies have something to learn fromtheir competitors - even if it is only that they have nothing to learn.The learning process can cover the full gamut of competitors' opera-tions and its usefulness is recognised most readily:


0 When a company has encountered a problem that it is havingdifficulty resolving with its own resources (so how do the compe-titors do it?)

When existing or new competitors have launched an initiative thatappears to be successful

When competitors appear to be using superior technologies, achie-ving higher levels of productivity or performing better financially

Companies that use competitive intelligence only as a source ofinspiration tend to be followers rather than leaders, content with thefact that they will be second to market with innovations and laggingin the performance race, but they are nevertheless benefiting from theknowledge gained by their competitors and leveraging their own skillsand resources.

The most advanced application for competitive intelligence is thatwhich enables companies to recognise current and future competitivethreats and to devise stratagems that will neutralise their effectivenessand gain some form of competitive advantage. Advanced users ofcompetitive intelligence tend to be:

Companies that are active in businesses in which the competitivelandscape is evolving rapidly and subject to major change

Companies active in businesses [hat require heavy investments andlong-term development programmes in order to remain credibleplayers

Aggressive players seeking rapid gains in market share Dominant players with major positions to defend Players that have recognised that they are seriously vulnerable to

attack

Not surprisingly, the major users of competitive intelligence tend tobe in information technology, healthcare (especially pharmaceuti-cals), financial services and e-commerce.

Companies to Watch

When determining the competitors that need to be studied it is wiseto adopt the broadest possible definition of competition. Althoughthe current threats may be obvious it is essential to consider potentialfuture threats, and these can arise from well outside the currentboundaries that delimit the business. As already described, competi-tion is conventionally defined as comprising direct and indirect

Intelligence 15

competitors. It can also be defined as current competition andpotential future competition. The most worrying group in any marketare the potential future competitors: those companies that have nocurrent connection with the business, have not declared their handbut can have a devastating effect if ever they decide to enter.1 Figure 1illustrates the competitive structure that can exist in any market.

Most competitive intelligence is aimed at direct competitors -companies that sell identical products or services at similar prices toan identical customer base. These are the companies that are facedhead to head in the marketplace on a daily basis and constitute themost immediate threat. Direct competitors are usually well-known.Only in new, rapidly evolving or highly fragmented businesses is itlikely that companies are competing against suppliers of whoseexistence they are unaware and even then the competitive processusually ensures that their presence becomes known relatively quickly.

Indirect competitors are those that sell products or services that arenot identical but compete for the same category of customers'expenditure. In the personal transport market cars in the same priceand performance categories are in direct competition whereas man-ufacturers of motorcycles and providers of public transport servicesare indirect competitors. Indirect competitors need to be watched not

UNRELATEDPOTENTIAL

COMPETITION

UNRELATEDPOTENTIAL

COMPETITION

COMPETITORS FROMRELATED FIELDS

UNRELATEDPOTENTIAL

COMPETITION

UNRELATEDPOTENTIAL

COMPETITION

Figure 1 Competitors to watch


only because of the effect they can have on a market but also becausethey may broaden their product range and compete directly.

Outside the ring of direct and indirect competitors lies a furthergroup of companies that are active in related businesses and have theskills and resources to diversify if conditions suggest that it would beprofitable for them to do so. When diversifying such companies seekto maximise the use of the assets they have developed in iheir core ororiginal businesses and in doing so may alter competitive conditionsin the new markets. The emergence of garage forecourts as 24/7grocery retailers is due to the fact that they attract a continuousmobile customer base, have parking space available and are alreadybearing the cost of long opening hours for their primary business. Theentry of the supermarkets into financial services markets createsadditional income earning opportunities from their customer base,uses the equity they have built in their brands and places them onestep closer to being one-stop shops.

Further out still lie companies that have no current connection witha market but could at some stage decide to enter it. Radicaldiversifications are extremely difficult to predict since they arenormally founded on interpretations of a skill base that are invisibleto the outside world. When Virgin was launched as a record retaileronly a brave observer would have predicted that at some future datethe company would enter the airline and then the railway businesses.Now. having observed the power of the Virgin brand and its ability tocarry the company into diverse markets it would be very easy (thoughnot necessarily accurate) to suggest that ferry companies and cruiselines should consider them potential competitors.

Although new entrants from radically different businesses aredifficult to anticipate they are also becoming more common. Thisin itself provides more evidence on which to base predictions. Therealignment of IBM from a company supplying hardware to oneoffering a mix of hardware and consultancy services means that it isless surprising that a company like Hewlett Packard should make abid for the consulting arm of PricewalerhouseCoopers.

One group that is often overlooked as a potential competitor is thecustomers. Despite the trend to outsourcing there is always a risk thatcustomers will decide to make components for themselves or establishservice departments that cut out external suppliers. The risk is great-est when customers' satisfaction with external sources deteriorates tolow levels because quality is inadequate, supply is inconsistent, servicelevels are poor or prices are too high. Items that are deemed to bestrategically important are more at risk than others.2

Intelligence 17

Narrowing the FieldAdopting a broad definition of competition has one major disadvan-tage - it can throw up large numbers of companies to watch. Studyinghundreds of companies is clearly impractical, at least on any regularbasis, and there therefore needs to be some mechanism by whichcompetitors are placed in priority order. Obviously the companiesthat it is imperative to observe are ihose that can do the most damageto sales and profits in the short term. Within the ranks of direct andindirect competitors this can usually be determined by reference to:

Size - large competitors generally have the resources and the powerto do more damage than small competitors

Management - superior management teams with proven records ofsuccess require closer watching than those with a reputation formediocrity

Aggression - competitors that have a record of being aggressive inthe marketplace are likely to be more dangerous regardless ofwhether they are successful or not. Periods of aggression initiatedby one supplier can cause turmoil in the market, to whichparticipants have to respond

Technology competitors that are using significantly better tech-nology have the capability to disturb the competitive balance,particularly if it can be converted into a product, performance orprice advantage

Product - competitors with identical or similar products requirecloser monitoring since they can be used as substitutes more easilyand their actions can have an immediate impact on performance

Customer base competitors that service the same accounts orsimilar types of customers are inherently more dangerous thanthose that operate in more remote segments of the market

Geographical proximity - this can arise when raw materials areshared, when the market is concentrated in a particular region orwhen one company is a breakaway from another. Competitorsoperating out of nearby locations are often close in many othersenses; a high proportion of staff may have worked (or are beingtempted to work) for the competitors and other resources may beshared, thus blurring distinctiveness in the minds of the customers

Success - companies experiencing a run of success in the marketneed to be watched closely

Profits - companies that are earning above-average profits may beestablishing a resource base from which to broaden their compe-titive challenge


Profile - high-profile suppliers, particularly those appearing fre-quently in the media, may be preparing the way for a major assaulton the market

Recruits - the recruitment of new management may also herald achange in pace in competitive activity

In the longer term it is necessary to consider the potential newentrants as well as those already active on the competitive scene. Sincenew competitors can emerge from many alternative sources and givefew clues as to their intent, the problem of deciding which companiesto watch is magnified many times. It can only be done effectively bycarrying out a constant scan that seeks clues that suggest a possibleinterest in the market. The clues can be reasonably definitive orsimply straws in the wind. The former will suggest that a companyshould be placed under close scrutiny; the latter that it should beexamined from time to time to see whether more positive evidence isavailable. The clues that may be picked up in a scan are likely toinclude:

Management statements that suggest that a diversification into anew market is being considered either for growth or as a replace-ment for poor earnings in current businesses

The recruitment of new management known to have an interest inthe market

The development of a new technology thai would facilitate entryinto the market

The establishment of partnerships that suggest a growing interest innew businesses and a mechanism for making an effective entry

The purchase of a licence that could be used to enter the business Patented product developments

Alternative Applications for Intelligence-GatheringTechniques

The term 'competitive intelligence' implies that the techniques arevalid exclusively for examining competitors and the competitiveenvironment. Although the competitive intelligence community hasindeed built its business around the analysis of competitors, thetechniques are equally valid for other purposes. These include theanalysis of companies that are being considered or targeted as: Acquisition candidates (which may also be competitors) Investment prospects

Intelligence 19

Joint venture partnersSuppliersDistributorsCustomers

Acquisition candidates

The acquisition process includes volumes of due diligence whichnormally concentrates heavily on the financial performance andprospects of the target company. The market and competitive envir-onment are not usually ignored but it is rare for them to get morethan a cursory examination by the teams of bankers, accountants andlawyers that comprise the typical acquisition team. Competitiveintelligence techniques, which study the company covertly, can injectvaluable insight into acquisition decisions on those aspects of thecompany that are unlikely to be revealed either by the figures or oftenthe target company itself.

The main inputs are analyses of:

The identity of current and potential competitors to the acquisitiontarget

The competitive positioning of the company within the markets itservices

Its strengths and weaknesses relative to significant competitors The types and levels of competitive pressures it is facing The sustainability of its market share and its ability to grow sales

A more refined use of competitive intelligence in an acquisitionsituation is to obtain insight into the internal structures, resources andcultures with a view to determining the degree of fit with the acquiringcompany. Cisco Systems, a voracious acquirer that made 70 acquisi-tions between 1994 and 2000, uses its competitive intelligence re-sources as an integral part of its acquisition team. A high proportionof Cisco's acquisitions are young companies just out of the earlyrounds of financing. With such companies it is essential to hold on tothe key staff and for this to happen the company has to fit with theCisco culture. Advance study of acquisition candidates considers theircultures and their leadership style and practices. This is used toidentify those that stand a reasonable chance of being integratedwithout heavy staff losses. The success of this process can bemeasured by the fact that Cisco retains 70 per cent of the CEOs thatit acquires.3


Investment prospects

Investments in companies by venture capitalists or trade investors areinvariably preceded by a programme of due diligence to test theassumptions being put forward by the prospect. Data supplied by thecompany itself should rightly be treated with caution and verifiedindependently. Whilst this is commonly accepted for the assumptionssupplied about the market environment in which the company isoperating it is rare to test the statements that the company makesabout its organisation, internal workings and strengths. Competitiveintelligence can be used to bridge this gap.

Joint venture partners, suppliers and distributors

The performance track record of all companies with which a potentialrelationship is being considered should be tested, particularly if therelationship is critical to future performance. It is essential to knowwhether a business partner is capable of living up to the promises theymake, and researching their true capabilities and their reputation withother partners is more accurate than taking trade references and lessexpensive than finding out by trial and error.

Many of the so-called joint ventures between companies in theformer east European countries and western partners were predicatedon the assumption that the western partners would supply thefinancial resources that the eastern companies could use to expandtheir businesses. In a high proportion of cases the eastern companieslacked the management skills to use the finance with which they wereprovided and it soon became clear that without a major injection ofmanagement skills as well as finance, the joint ventures would fail.What was thought at its inception to be a joint venture soon became afull acquisition, which was not what the negotiators of the dealsexpected.

Customers

When pitching to business customers an in-depth and independentassessment of their activities, needs and satisfaction with currentsources of supply can provide a basis for a winning bid. Suppliersthat show an awareness of their customers' requirements are generallyviewed more favourably than those that are ignorant and a bid that

Intelligence 21

touches on real problems encountered by the customer in the past willadd spice to the offer. It is even more helpful to know that specificaccounts are dissatisfied with their current sources of supply and areopen to competitive offers.

Alternative Routes to Intelligence

Any company seeking competitive intelligence has a number ofalternative sources to turn to. In addition to those professionals thatspecialise in competitive intelligence using the techniques described inthis book, they can consider:

Companies that offer intelligence databases Market research companies Private detectives Companies that specialise in the investigation of corporate fraud Companies and individuals that carry out industrial espionage

Intelligence databases

Companies that have built databases of news and information oncompanies and markets have been quick to spot their usefulness forcompetitive intelligence and have repackaged their services accord-ingly. There is no doubt that a good database and clever searchfacilities are a major asset to analysts since they can save considerabletime, speed up the search process and probably increase the amountof intelligence that is obtained.

Market research

The market research route to competitive intelligence has been inexistence for many years. It has been part of the standard offer ofresearch agencies that study industrial markets since the 1960s andthe agencies that study consumer markets also have a long trackrecord in providing basic sales and market share data for competitors.The use of market research for competitive intelligence is discussedfurther in Chapter 9 but it has to be appreciated that researchagencies work on the fringes of competitive intelligence and notwithin its mainstream.

22 Competitive Intelligence Intelligence 23

Private detectives

Private detectives are also on stronger ground for certain types ofinformation. Their origins are usually in the police or militaryintelligence and their culture is one in which the end justifies themeans. Whilst they will not engage in activities that are illegal theywill have a different interpretation of where the ethical boundaryline lies.

Corporate fraud

Companies that investigate corporate fraud are close in approach toprivate detective agencies, largely because they employ the same typesof investigators. The clients they act for are under threat fromactivities that are illegal and it is judged fair to fight fire with fire.Although such companies study competitors, they are not a part ofthe competitive intelligence community as defined for this book.

espionage can almost guarantee that they will be able to obtain whatis required. Where competitive intelligence will yield reasonabledeductions on competitors' plans, the industrial spy will offer copiesof documents and recordings of company meetings.

Notes

1 See D. Frances, K. Sawka and J. Herring, 'Competitors - Who to Watch.What to Watch, Who to Ignore and How to Tell the Difference',Competitive Intelligence Review, vol. 7, Supplement 1, 1996, pp. 95-100.

2. Deborah Sawyer, 'Defining Your Competition: Competition from With-in: When the DIY Bug Bites Your Customers', Competitive IntelligenceReview, vol. 7, no. 4, 1996, pp. 79-80.

3. Ammar Hanafi, 'CI at Cisco Systems: An Acquisitions Success Story1,Competitive Intelligence Magazine, vol. 4, no. 1, Jan. -Feb. 2001.

Industrial espionage

Even though no real link exists between the methods by whichcompetitive intelligence is gathered and those used in industrialespionage, there is a perceived link between the two activities. Thisis despite the fact that competitive intelligence is a natural and legalcomponent of the competitive process whereas most of the techniq tiesused for industrial espionage are completely illegal. Much is in the eyeof the beholder. There arc those that regard any attempt to collectinformation on their activities as a gross invasion of their privacy andwill go to extreme lengths to stop it. In this they are aided by a pressthat much prefers stories about spies to anything as mundane andconventional as competitive intelligence. Press stories all too fre-quently elevate the most innocuous intelligence-gathering exercise tothe equivalent of a spy ring organised by the former Stasi. Unfortu-nately the broader community that often aligns itself with the provi-sion of competitive intelligence sometimes gives them cause to do so.

The temptation to initiate a programme of industrial espionage isstrong amongst those with low ethical standards or whose need is sogreat that they are prepared to ignore their usual scruples. Compe-titive intelligence stands a reasonable chance of obtaining the datathat are required but in many cases those that practise industrial

The Development ofCompetitiveIntelligence1

Market research has traditionally focused on the analysis of custo-mers. This has never been to the exclusion of all other participants inmarkets, but 'customer focus' has been rhe distinguishing character-istic of an organisation that has embraced the marketing concept. Thecustomer is the ultimate target of all marketing activity and under-standing the customers' activities, requirements and expectations is,and will remain, an essential ingredient for the development ofmarketing strategics. However, customer analysis has never been ableto provide answers to all marketing questions and other participantsin markets have been studied and analysed regularly. These includedistributors, specifiers, advisers and competitors. Each of them is avaluable source of intelligence for those attempting to define awinning strategy, though, to date, customer analysis has taken ihelion's share of research budgets.

In many markets an unexpected consequence of widespread andtotal dedication to satisfying the needs of customers has been anintensification of the competitive environment. Products and servicessucceed best when they are genuinely unique. Market research canincrease the chances of being unique, but only if competitive suppliersabstain from examining customers' requirements. What has happenedin practice is that most if not all suppliers have researched thecustomer base extensively and, surprise, surprise, they have all arrivedat exactly the same conclusions - or at least solutions which are sosimilar that the customers can barely differentiate one product orservice offer from the others. Suppliers of products that are identicalin specification and performance to those offered by competitors(such as most commodities, cement, steel, petrol and base chemicals)

24

The Development of Competitive Intelligence 25

have had to find methods other than product features by which todifferentiate their offers. Typically they have relied on image-build-ing, superior service strategies, deals with distributors, competitivepricing and discounting to create a differentiated offer. However,image, service, distribution and pricing requirements can be studiedjust as easily as product needs or even copied, therefore neutralisingany market advantage that has been gained. In the absence of anyfurther information, reducing prices or raising discounts may seem tobe the only workable methods of winning customers, but it is a roadto financial ruin. The consequence of these developments has beenthat companies have been forced to consider methods of attackingthe competition whilst at the same time perfecting their offer tocustomers.

The prominence of customer analysis is not exactly under threatbut as soon as trends in the research business, in the broadest sense,arc examined, it is clear that an increasing proportion of resources isbeing allocated to the study of competitors. In Europe the sums spenton competitor analysis are stilt relatively small but dependence oncustomer analysis is being diluted as an increasing number ofcompanies appreciate that overdependence on customer-driven stra-tegies is increasingly likely to give rise to problems.

Competitive intelligence is far from new. Information on competi-tors has always been a component of tactical and strategic marketingplanning. For centuries before marketing was a gleam in a Harvardprofessor's eye, companies have at least watched their competition, iffor no better reason that to learn and pick up useful ideas. What weare considering is the development of competitive intelligence as aformal activity. In this sense it is following the path previously takenby marketing, customer analysis, strategic planning and a host ofother business disciplines that have been converted from intuitiveprocesses carried out by general management into specialist functionscarried out by staff with formal training.

The Development of Competitive Intelligence as aFormal Activity

Having access to information on competitors is not the same as astructured competitive intelligence programme. In order to predict thedevelopment of competitive intelligence in Europe it is thereforenecessary to understand the forces that make companies take theanalysis of their competitors so seriously that they engage in intelli-


gence programmes initialed and run by staff members with formalresponsibility for the eollection, dissemination and use of competitiveintelligence. Normally, this process is not one which occurs in a singlestep but takes place over a period of time during which there is agrowing awareness of the need to have a competitive strategy that isevery bit as important as the customer strategies that are alreadycommonplace.

In terms of their use of competitive intelligence, companies seem tomove through a series of stages as illustrated in Figure 2. The first iscompetitor awareness. This stage is entered soon after a company isformed or even before, when the start-up is being planned. Beingcompetitor-aware means that the key competitors are known and thatthere is some knowledge - usually incomplete and certainly unverified- about their products, their prices, the clients they have succeeded inwinning business from, the market sectors they service and the staffthey employ.

The organisation that is competitor-aware rarely uses the data thatit holds other than for occasional ad hoc tactical exercises, such ascompetitive pricing decisions, or as an input to a business plan thathas to be submitted to an external organisation, such as a bank.

As companies grow they tend to become competitor-sensitive - bothin terms of their awareness of the damage competitors can inflict ontheir business and the need to win orders by competing moreeffectively. Unfortunately, being competitor-sensitive does notalways increase the demand for information on competitors. Analarming proportion of competitor-sensitive companies continue torely exclusively on informal information flows through their salesforces, business contacts and scans of the trade press, rather than astructured intelligence programme. When they do step outside theinformal information channels the prime motive is usually emulation.

Figure 2 The path to competitive intelligence


They seek to copy what they perceive to be the best of theircompetitors' practices. There is nothing wrong with emulation as abusiness process, providing it is factually driven using techniques suchas reverse engineering and competitor benchmarking, but it repre-sents a very limited application for data that can be derived aboutcompetitors' activities.

The organisation which is competitor-intelligent is one that devotesserious resources to studying their competitors and anticipating theiractions. This includes identifying competitors' physical and intangibleresources, studying their organisations and their methods in as muchdetail as is practical and developing knowledge of their strategies andpotential game plans. The competitor-intelligent organisation is setup to anticipate competitors' activities. It is continuously aware of thethreats posed by competitors, the nature and seriousness of thosethreats and what needs to be done to counteract them. It recognisesthe need to look forward and predict the likely responses to actions itis proposing to take itself. It is also aware that the most seriousthreats may arise from companies that are not yet active in itsbusiness sector and may come from new entrants.

A summary of the conditions which apply in the three stages ofcompetitive development is shown in Table 1.

There is a close parallel between the growth in competitor analysis,as described above, and the development of customer analysis. Therewas a time when organisations were only customer-aware. They knew

Table 1 The three stages of competitive development

Competitor

Aware

Sensitive

Intelligent

Data Applicationscollection

Informal Curiosity

Informal/ Emulationformal

Formal Anticipation

Orgunisution

None

Marketingmanagementinformationofficer

Competitiveintelligencemanager

Systems formanaging Cl

None

Marketinginformationsystem

Manual orcomputer-based CIsystems


they had customers but took little account of customer requirementsin their product and service planning processes. Companies weremanaged by staff with a technical or a commercial background, suchas engineers, chemists or accountants, and sold what they felt theycould produce best or most profitably. The sales representatives' taskwas to dispose of the company's output at the best possible prices.Progress was by a form of natural selection. The companies that grewand survived were those that were lucky enough to develop productsfor which there was a healthy demand. The rest fell by the wayside.Those that survived were not guaranteed to continue surviving sincetheir products could always be superseded. Unless they kept pace withdevelopments in the market - often initiated by competitors - theywent under. Customer analysis was adopted when companies realisedthat luck and natural selection were extremely poor ways of securingthe future of the business, especially when the tools were available tomake reliable predictions of customers' requirements from suppliers.

Factors Influencing the Growth of CompetitiveIntelligence

The progress from being competitor-aware to competitor-intelligentis illustrated in Figure 3. It is driven by:

The need to have a competitive strategy The ability to use the intelligence once it is gathered to contribute

to the bottom line The ability to study competitors

Many organisations perceive a need but have no idea how to fulfil it.Others may be aware that information can be collected but have noidea how to develop a competitor strategy.

The need for a competitive strategy

The perceived need for a competitive strategy is determined by thelevel or intensity of competition in the market serviced by thecompany. If there are no competitors or if the competition is weak.benign or inactive, there may be no point in wasting resources on acompetitive strategy. The industries that have been the quickest toembrace competitive intelligence are those which experience the mostintense competition or where the competitive environment is changing


ABILITY TO STUDYCOMPETITORS

NEED FOR COMPETITIVEINTELLIGENCE

Figure 3 Probability of competitive intelligence being used

rapidly. In Europe, telecommunications, Pharmaceuticals and finan-cial services all fall into this category.

Around the world there have been a series of developments orevents that have resulted in a major intensification of competitionbetween suppliers. In summary these are:

Privatisation Deregulation Liberalisation Global marketing Periods of economic recessipn

There are many industries that have led, and in some cases stilllead, a life which has been heavily sheltered from the full blast ofcompetition. The state monopolies and nationalised industries are theleading exponents of this happy condition. Telecommunications,electricity, gas, water, steel, the airlines, broadcasting and some ofthe automobile manufacturers have all been protected at some stagein many countries. Privatisation signalled the end of protection andhas resulted in an intensification of competition, sometimes to analarming extent.

Deregulation has similarly intensified competition. The accoun-tancy and legal professions and the airline business have all becomefar more competitive when the regulation of those businesses ceased.


Once the gloves were taken off, even the most traditional organisa-tions have become addicted to the bare-knuckle fighting required todefend their business or increase their market share.

Global marketing programmes have resulted in more companiesseeking to supply national markets. These have often importedinnovative products and marketing techniques from their homecountries or regions which have disturbed the status quo in the newterritories they have entered.

Periodic economic slowdowns and full recessions can also intensifycompetition. When markets grow quickly suppliers can achieve theirgrowth ambitions without impinging on their competitors' territories,as long as they are not overambitious. When markets slow down ordecline, growth can be achieved only al the expense of competitors byincreasing market share. This requires a clear competitive strategy.

The ability to use competitive intelligence

There is generally a high awareness of the tactical applications ofcompetitive intelligence. It requires neither training nor experience towork out that knowledge of competitors' prices, sales techniques,staffing policies, training programmes and terms and conditions ofbusiness would facilitate a winning sales pitch. What is less welldeveloped is the strategic use of intelligence to position a company sothat future competitive threats can be anticipated and countered. Theskills to do this are still a rare commodity,

Interest in competitive strategy was kindled and nurtured by thepublication of books such as Michael Porter's Competitive Advantageand Competitive Strategy in the 1980s.2 This was accompanied by ashort flirtation with marketing warfare which focused on beating thecompetition by adopting military tactics. Although marketing war-fare was great fun it was rarely practical. Many of the analogies werestretched far too much to be really useful. Nevertheless, businessschool courses and external training programmes have led to greaterawareness of the elements of competitive strategies and have heigh-tened the need for intelligence on which they can be based. They arealso increasing the supply of analysts that can use the data.

The ability to study competitors

The final driver of development is the ability to obtain a regularsupply of accurate intelligence. As already stated, most companieshave access to internal sources in the form of published reports,


industry newsletters, company websites, the trade press and their ownsales forces. Whilst these sources are capable of providing a founda-tion level of intelligence, they are rarely harnessed fully and, eventhen, are rarely adequate. A surprisingly high proportion of compa-nies are unaware of the fact that primary data collection andanalytical techniques exist to provide a full analysis of individualcompetitors and provide a tool for predicting competitor actions.

This situation is changing gradually as more professionals areallocated to the task of competitor analysis and budgets for theacquisition of intelligence are being established. In this respectEuropean business lags behind the United States by several yearswhere the competitive intelligence profession has already maturedand has become an established part of the armoury of managementtechniques.

Factors Inhibiting the Growth of CompetitiveIntelligence

There are also some serious constraints on the growth of competitiveintelligence. The most important of these are:

Data protection legislation that has been enacted at national andEuropean Community levels

Fears that competitive intelligence is unethical Counter-intelligence Failure to deliver on promises

Very broadly, data protection legislation places severe restrictionson the amount of information that can be reported on individuals,The collection and analysis of information on companies is notconstrained, except to the extent that it involves an analysis ofowners, directors or individual staff members. In many situationsthis is not a serious problem but the legislation has a much widereffect on competitive intelligence than the legal stipulations.

In addition to the actual constraints data protection legislation canreduce respondent willingness to cooperate because of the fear thatthey might be infringing the law. It can be used as a convenient excusefor those that do not wish to cooperate.

Fear of engaging in unethical activity is also a powerful constraint.Discussions on competitive intelligence very quickly turn to thesubject of industrial espionage, which in the view of many people isthe same thing. It can take a lot of explaining to convince marketing


staff that it is possible to collect useful intelligence by wholly ethicaltechniques and that because it is useful it does not have to have beenstolen. To the cynical, the code of conduct under which competitiveintelligence is carried out suggests that it will rarely come up withanything useful. This is far from true but the case needs to bedemonstrated convincingly.

Counter-intelligence measures, which seek to control the outflow ofpotentially sensitive information, are already installed in many com-panies. Their effect is to frustrate not only competitive intelligenceexercises but also legitimate market research activities. Not surpris-ingly, as the profile of competitive intelligence rises so does interest incounter-intelligence. This may result in the cart arriving before thehorse with counter-intelligence techniques in place before competitiveintelligence becomes established as a substantial business.

The final threat to the development of competitive intelligencewould be a failure to deliver on its promises. This could happen ifcompetitive strategies do not result in the gains that are expected or ifthe data that are specified could not be obtained. There is a realdanger of both, especially the latter. Much of the data that are beingspecified for competitive intelligence exercises is highly sensitive andthere is always a significant chance that they cannot be obtained at acost which is regarded as acceptable or even at all. There are, forexample, cases of companies wishing to know who is bidding forparticular contracts and what prices they have included in their bids.This is an unreasonable expectation but pointing this out can causedissatisfaction with the process.

Notes

3.

This chapter is based on a paper given by the author at an ESOMARConference Marketing and Competitive Intelligence: Understanding theImpact, Geneva, 1999.M, Porter, Competitive Advantage, Macmillan, New York, 1985; M.Porter, Competitive Strategy, The Free Press, New York, 1980.See Chapter 15.

Framework forCompetitive Analysis

The intelligence needs of any organisation must be driven by theapplications for which the intelligence is to be used. This appliesacross the board regardless of whether it is marketing intelligence,business intelligence or competitive intelligence that is being consid-ered. The need for competitive intelligence derives directly from anorganisation's competitive strategy and from a wide variety of tacticalsituations in which the organisation squares up to competition on adaily basis.

At a strategic level intelligence is used to define: How an organisation can be positioned (or repositioned) in order

to win business from eompetitors The likely responses that competitors will make when challenged by

a new market initiative Future changes in the shape and structure of the competitive

environment that may enhance or detract from the organisation'sability to sellPositioning against the competition requires a clear understanding

of each competitor's own stance in the marketplace and their appar-ent objectives. All markets are made up of a mixture of: Competitors that seek to lead, in terms of technology, innovation,

service and price, and others that are content to follow Competitors that seek to dominate in the market-share rankings

and others that exploit favoured niches Competitors that are aggressive attackers and competitors who

defend the territory they have already won Competitors that rely on their size and those that exploit the

nimbleness that is a common consequence of being small

33


Within this environment the organisation must select a competitivestrategy that it feels will enable it to meet its own corporate objectives.Depending on the characteristics of the competition it may also feelthat the objectives themselves should be reshaped to ensure that theyare realisable. An important ingredient in both activities is anassessment of the competitors' ability to sustain the positions theyhave chosen and their vulnerabilities to competitive attack.

Competitors' responses when under attack can be observed overtime and are a function of their objectives and their resources. Theyalso reflect the personality of the leadership and their interpretationof how best to wage competitive war. With a few notable exceptionsbusiness leaders tend not to have profiles which are as high as those ofgenerals in battle but this does not mean that they are any lessimportant in determining how a competitive action will be fought,only that by being less well-known they are less predictable.

No competitive environment is static. It changes its shape accord-ing to the activities of companies that are in the business, theemergence of new entrants and changes in the various marketplacesthat the competitors service. The actions of companies in a marketmay be influenced strongly by what is happening in other markets inwhich they are operating. It is quite possible for a competitor toreduce its activity level purely because it is experiencing problems inanother market.

Mapping the Competitive Landscape

Companies coming to competitive analysis for the first time generallyrequire a map of the competitive landscape within which they arcoperating. Although the major direct competitors may be well-known, competitors that are active in specialist niches and on theperipheries of the business may be less clearly visible. Companies instart-up situations or entering new markets obviously have a greaterneed for maps of the competitive la

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