Creating More Value to CI Function

8/8/2019 Creating More Value to CI Function

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Creating More Value to the CompetitiveIntelligence Function

By Avner Barnea, Ono Academic College, Israel1

The discipline of Competitive Intelligence is favorable in monitoring external business threats

and identifying new opportunities. It is evident that a successful understating of signals,ignoring noises and being able to deliver insights to the senior management has a great value

and sometimes can save the firm from severe setbacks and even from a failure.

One of the greatest restraints in the long way to make CI relevant and a recognizable

discipline is the difficulties to prove its added value and to point how it is incorporated with

other business disciplines.

There are different ways to measure the value of CI and to evaluate its contribution, but I

have doubts regarding the validity of these tests. Intelligence, is in the "business" of quality

research and strengthen the understanding and not in the "business" of quantity of results (also

known as statistical inference) which is certainly more measureable but less precise in this

mater.

It is almost impossible to isolate the unique contribution of the CI from other elements that

are participating in the process of the decision making . Recently, one of my clients was

looking at the added value of its CI unit and has sent a detailed questionnaire to different

executives and also interviewed some of them and then analyzed the replies to gain insight. I

do not recognize this analysis as having a lot of value. Unfortunately, there are not yet proofs

of a concept that performs better.

Drawing lessons from critical failures of many companies in a wide spectrum of sectors

reveal that it is possible to prevent many of these hazards by better understanding of signals

that appear in various forms. One of the firms' capabilities that can be of assistance is the CI.

1Published in Competitive Intelligence Magazine, Vol. 13, No. 1, January/March 2010 pp. 63-66.
http://www.pdfonline.com/easypdf/?gad=CLjUiqcCEgjbNejkqKEugRjG27j-AyCw_-AP


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The contribution of CI is based on focusing on external threats (and opportunities) rather than

multi tasking practices qualified by other business functions. If this assumption may be

proving right, CI would find itself in a different position, better supporting other business

disciplines.

When growth stalls

A new article by Matthew S. Olson, Derek van Bever, and Seth Verry2 that won the 2008

McKinsey Award for the best articles published in the Harvard Business Review magazine,

analyses the reasons that successful companies lost momentum, while the management did

not recognize that the stall came. The writers claim that a "few on the senior team see the stall

coming and the core performance metrics often fail to register trouble on the horizon". Olson,

van Bever, and Verry have completed a comprehensive analysis of the growth experiences of

some 500 leading corporations in the past half century, focusing particularly on stall

pointsthe term for the start of reversals in company growth, as opposed to quarterly

stumbles or temporary corrections. The companies in the study included more than 400 that

have appeared on the Fortune 100 since that index was created, some 50 years ago, along with

about 90 non-U.S. companies of a similar size. The study revealed various patterns in the

incidence, costs, and root causes of growth stalls.

The article offers advice how to avoid these hazards, drawing from practices currently in use

at large, high-growth companies to foresee possible stalls and head them off. It explored why

management is so often blindsided by these events.

Professor Daniel Kahneman, Nobel laureate, notable for his work on behavioral finance and

hedonic psychology, have said recently in an interview to an Israeli business magazine that

"people tend to attach to a certain anchor, usually caught by false "reality" and do not try to

act rationally, to gather information and to integrate it in the decision making process".3

"Stall points" is not referred to situations of gradual loss of market share and profit margins as

happened to IBM. During the 1980's IBM was the most admired company in the Fortune 500

survey but during the 1990's, there were rapid changes in the industry and technology which

2 Olson, M. van Bever, D. Verry, S. (2008), "When Growth Stalls", Harvard Business

Review, March.

3The Marker, (Israel), 2nd. April 2009. See also in Kahneman, D., (2005),Rationality,

Fairness, Happiness. Ketter Publishing, Israel. Chapter 6.


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were ignored by IBM. In 1994 the company had losses of $USB15 and its market

capitalization had gone from $USB105 to $USB32. However, it survived after major changes

on its business strategy.

At this moment, a large number of global companies may be perilously close to their own

stall points. Knowing how to avoid growth stalls begins with understanding their causes and

recognizes alerting signals.

The case of Levi Strauss

Senior management at Levi Strauss & Company could be forgiven for not seeing it coming.

The year was 1996. The company had just achieved a personal best, with sales cresting $7

billion for the first time in its history. This performance extended a run of growth in which

overall revenue had more than doubled within a decade. Since taking the company private in

1985, management had relaunched the flagship 501 brand, introduced the Dockers line of

khaki pants, and increased international sales from 23% to 38% of revenue and more than

50% of profits. Growth in 1995 was the strongest it had been in recent years. From that high-

result of 1996, company sales went into free fall. Year-end revenue results for 2000 were $4.6

billiona 35% decline from four years prior. Market value declined even more precipitously:

Analysts estimate that it went from $14 billion to $8 billion in those four years. The

companys share of its core U.S. jeans market dropped by half over the 1990s, falling from

31% in 1990 to 14% by decades end. Today, with a new management team in place, Levi

Strauss has undergone a companywide transformation. It may be regaining its position, but it

has yet to return to growth.

Stalls are recognizable

87% of the companies in this research group have suffered one or more stall points. On

average, companies lose 74% of their market capitalization, as measured against the S&P 500

index, in the decade surrounding a growth stall. More often than not, the CEO and senior

team are replaced in its aftermath. And unless management is able to diagnose the causes of a

stall and get the company back on track quicklyturning it around in a matter of several

yearsthe odds are against its ever returning to healthy top-line growth.

That paper turned attention to why companies stall. Out of the 500 companies, those have

selected for in-depth case research 50 that were representative of the whole in terms of

industry mix and age. The researchers assembled comprehensive folders on all of them,


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drawing on the public record of financial reports and published materials, on case studies, and

on personal interviews. This enabled them to identify the top three factors contributing to

each companys growth stall. After all these analyses they were able to identify the root

causes of stalls and the major categories they fell into.

A careful analysis of 50 representative companies that experienced growth stalls revealed nearly

as many root causes for them: external, strategic, and organizational factors are responsible for the

failures. They were identified as the factors contributing to each companys stall while 87% of

them have been identifies as in the management control.

Most organizations actually accelerate into a stall, experiencing unprecedented progress along

key measures just before growth rates tumble. When the momentum is lost, its as if the

pillars have been knocked out from under their corporate strategy. It is intriguing to see thatfew on the senior team see the stall coming and do not recognize the trouble on the horizon.

Deeper analysis sheds light on the most common causes of growth stalls, which turn out to be

preventable for the most part. In fact most stalls occur for reasons that are both knowable and

addressable at the time. It is evident that the root causes of stalls are not so varied or complex

that it is impossible to see patterns.

The research demonstrates that the vast majority of stall factors result from a choice about

strategy or organizational design. They are, in other words, controllable by the management.

These intriguing findings are raising questions as to the abilities to avoid stall points and thus

keeping the companies on track and prevent painful revenue stalls.

Stalls and the role of the senior management

It is evident that in most of the cases the senior management was not aware to the coming stall.

There is a question whose responsibility is to look at the external factors and identify signals

4

thatmay indicate that the business environment is changing, to recognize in time to what direction and

to alert the management. It is obvious that the change is a process that could take a long time.

Most of the time there is no specific sign for a change. There are many conflicting alerts and

various pieces of information that need a careful, comprehensive and ongoing analysis. Who will

be tasked to do it?

4For comprehensive discussion on signals, look at Day, G., Shoemaker, P., (2006).Peripheral Vision:

Detecting the Weak Signals That Will Make or Break Your Company. Harvard Business School Press.


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The senior management is usually preoccupied with running the business and making sure that the

enterprise will move on smoothly. In addition, we have learnt from the current economic

downturn that executives were inclining to get caught by a certain "anchors" that prevented them

from looking at the situation rationally. Unfortunately, these intuitive motives are powerful and

tend to be a fertile ground for further mistakes while assume wrongly that what happened in the

past will probably happen repeatedly. Forever!

Possible solutions to avoid stalls

My hypothesis is that recognizing the threats is a process that can last for a long time alongside

with signals that can be detected and analyzed and thus creating a quality early warning. It

depends very much on the existence of a functional responsibility inside the firm that has been

tasked to look at this mater continuously and is examined by its performance.

The solution that I propose is to build up a first class capability that will monitor continuously

three environments and will identify threats as early as possible. Otherwise, there is a risk to the

growth of the company and in some cases even to its survival.

The CI unit will be granted the responsibility to address the insight obtained from the following

three environments:

Figure No. 1: Integration of the three environments

Macro

Environment

Firm

Environment

Competitive

EnvironmentCI unit


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1. The macro environment- Assessment of the external factors including the economy,

political situation, social circumstances, new technologies and regulations updates in

the competitive marketplace where the company is performing. A possible result: An

alert of a significant change in this environment.

2. The firm's environment Assessment of the internal information already exists in the

firm's systems regarding the firm's performance and its possible meanings. A possible

result: Foreseeing difficulties arise that need a quick response.

3. The competitive environment Assessment of the changes in the external

environment including moves taken by competitors, by strategic suppliers and

strategic customers and also the potential threats by new entrants and its immediate

and future impact on the firm. A possible result: Detecting early move by a new

competitor that can impact on the firm's plans.

The systematic process of gathering information from these three environments must be

followed by an assessment that will be presented to the executives in the process of the

decision making.

Following specific signals that may exhibit or point towards significant changes is not

enough. There is often a need to receive support from an interdisciplinary team that will take

responsibility to absorb the assessments and discuss their relevance. This team will also be

responsible to direct the intelligence efforts towards essential information and to obtain better

observation of the threats.

One of the key success factors backing the decision making process is the high standard of

insights based on the information that have been gathered.

Factors playing an influential role in the assessment phase

The assessments prepared by the CI capability have to be distinguished by the following

criteria:

1. Timely- Reports have to relate to the time line of the threat. And also they have to be

delivered to the relevant people in time. The basis is periodical reports and special

reports in time of immediate threats.

2. Actionable Reports have to be comprehensible as much as possible to enable the

decision makers to understand their meaning and implications.


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3. Future focused Reports have to indicate towards implications of the threats and the

potential consequences in case the required steps will be postponed.

4. Insight- Reports have to include also projections and to evaluate the results of steps

that will be taken by the firm or the price of overlooking significant changes in the

marketplace.

To make sure that stall points will be dictated in time, it is crucial to avoid a situation that the

top team of the firm is siloed. CI function has to expand its vision and share the signals of

relevancy. One of the guiding principles is sharing information and moving the top

management towards horizontal direction as a process of efficiency. This has to be guided top

down hoping to relate with the threats in real time.

The final report based on these criteria has to be brief and includes key insights. This will be

an agenda for further discussions as to the implications and the moves that may have to be

considered by the management.

The matrix of impact and likelihood

I have acquired wide experience by using the following model which is extremely

recommended to CI professionals. The following matrix is remarkably useful to evaluate

complex situations, especially when it is hard to recognize the signals or to isolate noises5.

The matrix is based on two variables. Likelihood- is the probability that the signal (or set of

signals) will become a significant threat. Impact- is the potential harmful effect of the signals

gathered on the development of the firm and its performance. Each threat is positioning on the

matrix according to the combined score of likelihood and impact as was evaluated carefully

by the CI and other executives involved in this effort.

5Ibid.


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Figure No. 2: Assessment of threats

1. Threat C- The potential impact is estimated as low while the likelihood that it will

happen is considered medium. Conclusion- the overall threat is evaluated as low. No

further steps are needed at this stage as the cost of a mistake on the company isnegligible.

2. Threat B - The potential impact is evaluated as high while the likelihood that it will

happen is evaluated as low. Conclusion although the overall threat is evaluated as

low executives have to be on alert in case the evaluation was wrong and the impact of

a mistake on the business could be costly.

3. Threat A Both the impact and the likelihood are evaluated as high. Conclusion the

threat is considered high and it deserves an immediate management attention.

The precise score given to each threat is a result of cautious assessment based on the

information gathered and the assessment criteria mentioned above. It is practically evident

that threat A will receive a management priority in the strategic deployment of the firm if the

executives will accept this assessment. It is brought to the attention of the decision makers by

the CI enables them to relate to the advancing threats.

Impact

Likelihood

A

B

C

High

Low High


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Conclusions

Stall points cannot be explained by the "Black Swan" theory refers by Nassim Taleb6 as "a

large-impact, hard-to-predict, and rare event beyond the realm of normal expectations".

Unlike the philosophical "black swan problem", the "Black Swan" theory refers only to events

of large consequence and their dominant role. A Black Swan is a metaphor for something that

could not exist and predicated.

In our case, it is evident that deeper analysis sheds light on the most common causes of

growth stalls, which turn out to be preventable for the most part. We have to remember that in

fact most stalls occur for reasons that are both knowable and addressable at the time.

Actually, ignoring signals that cause stall points cannot be described better than Taleb who

have said recently7: "People are ignoring the major impact that rare events can make on their

decisions. They prefer to cross the street while their eyes are covered."

The question is raised with regards to the reasons for blind eye by executives. It may be right

to look at another theory which will help to understand this phenomenon. "The Tragedy of

the Commons" is an influential article written by Garrett Hardin and first published in

the in 19688. The article describes a dilemma in which multiple individuals acting

independently in their own self-interest can ultimately destroy a shared resource even

when it is clear that it is not in anyone's long term interest for this to happen. The

phenomenon of the "tragedy of the commons" has particular relevance in analyzing

behavior in the fields of economics, evolutionary psychology, game theory, and

politics.

One could take as an example a football stadium crowded with exciting supporters. The

strategy of the individual is to stand in order to maximize his view while the collective

strategy is that all will stay in their seats to enable to watch the game. In our case, it seems

that the right step is that the CI will take the initiative and become the "individual" that will

point to the alerting signals and will not stay in calm assuming that this is the best way,

believing wrongly that the common strategy cannot miss.

6Taleb, N. (2007), The Black Swan: The Impact of the Highly Improbable. New York:Random House.7 The Marker, (Israel), 2nd. April 2009.

8Hardin, G. (1968). "The Tragedy of the Commons". Science, 162(1968):1243-1248.


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About the Author

Avner Barnea is a former senior member of the Israeli Intelligence Community holds a MA

from the Hebrew University of Jerusalem and graduated from the Top Executive Program in

Marketing Management from the Tel Aviv University Graduate School of Business

Administration. He is a strategic consultant in the field of competitive intelligence and

business strategy in Israel and abroad. He is lecturer on competitive intelligence in the MBA

program of the Ono Academic College and a guest lecturer on competitive intelligence at the

Hebrew University of Jerusalem Business School, and in various business executives training

programs. Avner has an intensive experience in the integration of competitive intelligence

systems into Israeli corporations. Avner can be reached at: [email protected]

The Tragedy of the Commons" is an influential article written by Garrett Hardin and

first published in the journal Science in 1968. The article describes a dilemma in


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which multiple individuals acting independently in their own self-interest can

ultimately destroy a shared limited resource even when it is clear that it is not in

anyone's long term interest for this to happen.

The tragedy of the commons has particular relevance in analyzing behavior in the

fields of economics, evolutionary psychology, game theory, and politics.

One could take as an example a football stadium fall with exciting fans. The strategy

of the individual is to stand in order to maximize his view while the collective

strategy is that all will stay in their seats to enable to watch the game.

The clustering that is at the heart of our findings is clear: Four categories account for more than

half the occurrences of root causes we catalogedpremium-position captivity, innovation

management breakdown, premature core abandonment, and talent bench shortfall.

When Growth Stalls

ByMatthew S. Olson,Derek van Bever, andSeth Verry

Successful companies lose momentum for four main reasons. All are withinmanagements control if spotted in time.

Senior management at Levi Strauss & Company could be forgiven for not seeing it

coming. The year was 1996. The company had just achieved a personal best, with sales

cresting $7 billion for the first time in its history. This performance extended a run of

growth in which overall revenue had more than doubled within a decade. Since taking the

company private in 1985, management had relaunched the flagship 501 brand,

introduced the Dockers line of khaki pants, and increased international sales from 23% to


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38% of revenue and more than 50% of profits. Growth in 1995 was the strongest it had

been in recent years.

And then came the stall. From that high-water mark of 1996, company sales went into

free fall. Year-end revenue results for 2000 were $4.6 billiona 35% decline from fouryears prior. Market value declined even more precipitously: Analysts estimate that it went

from $14 billion to $8 billion in those four years. The companys share of its core U.S.

jeans market dropped by half over the 1990s, falling from 31% in 1990 to 14% by decades

end. Today, with a new management team in place, Levi Strauss has undergone a

companywide transformation. It may be regaining its footing, but it has yet to return to

growth.

While more dramatic than many, this is the story of a revenue growth stalla crisis that

can hit even the most exemplary organizations. It shares many elements with other stalls,

at companies as varied as 3M, Apple, Banc One, Caterpillar, Daimler-Benz, Toys R Us,

and Volvo. What these companies would surely recognize in the story is the stalls

suddenness. Like Levi Strauss, most organizations actually accelerate into a stall,

experiencing unprecedented progress along key measures just before growth rates

tumble. When the momentum is lost, its as if the props have been knocked out from

under their corporate strategy. (See the exhibit No Soft Landings.) Typically, few on the

senior team see the stall coming; core performance metrics often fail to register trouble

on the horizon.

No Soft Landings

An analysis of the growth histories ofFortune 100 and Global 100 companies that

experienced stalls between 1955 and 2006 reveals this composite pattern. After a burst of

energy, growth does not descend gradually; it drops like a stone.

As part of our ongoing research into growth, the Corporate Executive Board recently

completed a comprehensive analysis of the growth experiences of some 500 leading

corporations in the past half century, focusing particularly on stall pointsour term for

the start of secular reversals in company growth fortunes, as opposed to quarterly


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stumbles or temporary corrections. The companies in our study included more than 400

that have appeared on theFortune 100 since that index was created, some 50 years ago,

along with about 90 non-U.S. companies of a similar size. The study revealed patterns in

the incidence, costs, and root causes of growth stalls. (Our research approach is described

briefly in the sidebar The Search for Stall Points.)

The Search for Stall Points

On the quantitative record alone, we can attest that Levi Strauss is in good company: 87%

of the companies in this group have suffered one or more stall points. We can also

appreciate the consequences of such events. On average, companies lose 74% of their

market capitalization, as measured against the S&P 500 index, in the decade surrounding

a growth stall. More often than not, the CEO and senior team are replaced in its

aftermath. And unless management is able to diagnose the causes of a stall and get the

company back on track quicklyturning it around in a matter of several yearsthe odds

are against its ever returning to healthy top-line growth.

Deeper analysis sheds light on the most common causes of growth stalls, which turn out

to be preventable for the most part. There is a common assumption that when the

fortunes of great companies plunge, it must be owing to big, external forceseconomic

meltdowns, acts of God, or government rulingsfor which management cannot be held

accountable. In fact most stalls occur for reasons that are both knowable and addressableat the time. The exhibit The Root Causes of Revenue Stalls reveals the factors that lay

behind the stalls of 50 companies we went on to study in depth; clearly, a company can

falter in many ways. One might almost think that sustaining growth in a very large

company depends on doing absolutely everything right. But the root causes of stalls are

not so varied or complex that we cant see patterns.

The research demonstrates that the vast majority of stall factors result from a choice

about strategy or organizational design. They are, in other words, controllable by

management.

The article offers advice for avoiding these hazards, drawing from practices currently in

use at large, high-growth companies to foresee possible stalls and head them off. It

explored why management is so often blindsided by these events. At this moment, a large

number of global companies may be perilously close to their own stall points. Knowing

how to avoid growth stalls begins with understanding their causes.


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HBR.org > March 2008 > When Growth Stalls

The Search for Stall Points

To understand the prevalence of serious growth crises in large companies, as well as their costs

and causes, we analyzed the experiences of more than 400 companies that have been listed on the

Fortune 100 since its inception, in 1955, and of about 90 comparable non-U.S. companies. Some

500 companies over 50 years gave us 25,000 years worth of historical data and information to

mine for insights. A pattern that emerged from these histories yielded the useful construct of the

stall pointthat moment when a companys growth rate slips into what proves to be a prolonged

decline.

We began by analyzing the revenue growth records of every company in our study to identify

which companies had experienced stall points and when. Specifically, we calculated the

compound annual growth rate (CAGR) of each companys revenue for 10 years before and 10

years after every year in the past half-century for which data were available. To qualify as having

stalled in a given year, a company must have enjoyed compound annual growth of at least 2% in

real dollars for the 10-year period prior to the potential stall point; the difference in CAGR for the

10 years preceding and the 10 years following must have been at least four percentage points; andthe CAGR of the subsequent 10 years must have fallen below 6% in real dollars. One stall point

identified in this manner is shown below.

We then turned our attention to why companies stall. Out of the 500 companies, we selected for

in-depth case research 50 that were representative of the whole in terms of industry mix and age.

We assembled comprehensive dossiers on all of them, drawing on the public record of financial

reports and published materials, on case studies, and on personal interviews. This enabled us to

identify the top three factors contributing to each companys growth stall. After all these analyses

we were able to identify the root causes of stalls and the major categories they fell into. We

arrived at our framework purely inductively, from the bottom up. (See The Root Causes of

Revenue Stalls.)

Readers may be wondering why we chose revenue rather than profit, value, or some other measure

on which to focus our analysis. That is a fair question, and we considered our choice at length. It

rests on two premises. The first is that revenue growth, more than any other metric, is the primary

driver of long-term company performance. This is not to say that revenue growth without profits is

desirable, but high growth through margin management alone is unsustainable. The second


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premise is more mundane: Its hard to manipulate the top line over time, and market value and

profit measures are much more variable. Revenue growth guided us to the most meaningful

turning points in corporate growth history.

We would be pleased to discuss any aspect of this methodology or detail of our findings withanalysts wishing to learn more or to replicate our approach. We maintain an updated list of FAQs

about this initiative on our website, at www.stallpoints.executiveboard.com.

One Companys Stall Point

Tracking the growth of the BF Goodrich Corporation over a 20-year period, we can clearly see its

stall point. Annual growth rates are shown for a decade before and a decade after what proved to

be the stall year. The turning point in Goodrichs fortunes came in 1979, after which the

companys growth fell into secular decline.

Subscribe to Harvard Business Review

The Root Causes of Revenue Stalls

What the exhibit demonstrates is that the vast majority of stall factors result from a

choice about strategy or organizational design. They are, in other words, controllable by


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management. Further, even within this broad realm, nearly half of all root causes fall into

one of four categories: premium-position captivity, innovation management breakdown,

premature core abandonment, and talent bench shortfall.

In this article well offer advice for avoiding these hazards, drawing from practicescurrently in use at large, high-growth companies to foresee possible stalls and head them

off. More generally we will explore why management is so often blindsided by these

events. As we will show, a large number of global companies may at this moment be

perilously close to their own stall points. Knowing how to avoid growth stalls begins with

understanding their causes. Lets look at each of the four categories.

Sidebar

HBR.org > March 2008 > When Growth Stalls

The Root Causes of Revenue Stalls

A careful analysis of 50 representative companies that experienced growth stalls revealed nearly

as many root causes for them: 42 external, strategic, and organizational factors, which can be

grouped into categories as shown here. We identified the top three factors contributing to each

companys stall and considered those results as a whole in determining how large a role (indicated

by percentage) each category played. The clustering that is at the heart of our findings is clear:

Four categories account for more than half the occurrences of root causes we cataloged

premium-position captivity, innovation management breakdown, premature core abandonment,

and talent bench shortfall.


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Subscribe to Harvard Business Review


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Copyright 2008 Harvard Business School Publishing Corporation. All rights reserved.

Matthew S. Olson ([email protected]) is an executive director, Derek van Bever

([email protected]) is the chief research officer, and Seth Verry

([email protected]) is a senior director at the Corporate Executive Board, an advisory and

performance improvement network of leaders of the worlds largest public and private organizations,

based in Washington, DC. This article is adapted from the bookStall Points (Yale University Press),

forthcoming in 2008.

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