Trend: Corporate RivalryBy Keith Epstein | Posted 08-01-2001
Trend: Corporate Rivalry
It was one sentence among hundreds in a transcription of a dull congressional hearing on the environment, a statement anyone might have missed: Bristol-Myers Squibb Co. was looking to increase its harvest of the Pacific yew, a protected tree. But Wayne Rosenkrans, the competitive intelligence officer at archrival SmithKline Beecham Corp., happened to catch it, thanks to a routine search of competitors' activities on the Web.
Rosenkrans sprang into action. He knew Bristol-Myers' researchers had been testing a substance in the tree's bark as an experimental agent against breast cancer. But why was BM suddenly seeking to cut down 200 times as many yews? Was it ready to put its planned anti-cancer drug, Taxol, into production? Back at SmithKline headquarters in Philadelphia, the news was enough to trigger serious nail-biting in the boardroom. SKB was developing its own anti-cancer drug, Hycamtin, but it wouldn't be ready for another 18 months. Would it beat Bristol-Myers' drug to market? Or would SmithKline Beecham have to speed up its production scheduleand if so, by how much?
Rosenkrans' team wasted no time. It immediately began canvassing conferences and scouring online resources for clues. It tapped into Web sources on the environment and got staffers to work the phones, gathering names of researchers working for Bristol-Myers. It even zeroed in on cities where BM had sponsored experimental trials of the substance.
Sure enough, BM had had been taking out recruitment ads in those areas' newspapers for cancer researchersa sure sign that Bristol-Myers was stepping up its hiring of oncologists specializing in breast cancer. The next clue? From data discovered on financial Web sites and in the comments of Wall Street analysts, Rosenkrans' team discovered that BM was increasing its spending on its oncology group.
That was all Rosenkrans needed to hear: Senior R&D managers were ordered to speed things up, and ended up rushing Hycamtin to market in six months instead of 18preserving SKB some $50 million in market share and millions in drug development costs. Says Rosenkrans, now global intelligence director at London-based pharma giant AstraZeneca plc: "The CIA, the National Security Agency and England's M15 used a form of CI to figure out what the Russians were doing. We can use it too."
SmithKline Beecham's tale of how competitive intelligence saved a company millions is no longer unusual. Indeed, one of corporate America's worst-kept secrets these days is that more and more companies, from Burger King to Nutrasweet to MCI, are spyingand have in-house operations to keep tabs on rivals. The number of large corporations with CI units has tripled since 1995, says the Society of Competitive Intelligence Professionals, and spending on CI is estimated to be around $12 billion annuallynearly double the amount spent just five years ago.
To be sure, data-diving isn't new. As far back as the 1970s, in a now-famous example of excess zeal, The Boeing Company discovered that a Russian delegation visiting one of its manufacturing plants was wearing crepe-soled shoes that would surreptitiously pick up metal shavings off the factory floor to determine the type of exotic metal alloys Boeing was using in its planes. And at Motorola Inc., the former chief of competitive intelligence used to work for the CIA.
But now, thanks to the Net and its ever-growing, low-cost reach and speed, nearly everybody's spying. In a May 2001 survey by marketing firm TR Cutler, Inc., 55 percent of U.S. manufacturing companies with fewer than 1,000 employees admitted to spying on competitors during the previous 12 months, using the Web and posing as potential customers to glean pricing and other competitive tidbits.
Cold War, Revisited
Cold War, Revisited
And here's a real secret: Until recently, most corporate gumshoeing was being outsourced to spy companies with 007-sounding names like WarRoom Research Inc., many of which were founded by ex-CIA, National Security Agency and Mossad operatives seeking work after the Cold War. Now, though, corporate snooping is increasingly being conducted in-houseand for the first time, CIOs are being forced to the front lines. "More and more CIOs are getting responsibility for the intelligence function," says John Nolan, a former U.S. Defense Department intelligence officer and president of Phoenix Consulting Group Inc., a security consultancy in Huntsville. Ala. "And why not? Information is about technology, and information is increasingly a company's competitive edge."
To be sure, companies without the ability to pluck the juiciest scoops from a growing quagmire of data will increasingly lose market share to those companies that can. "This is now a double-edged game," says Nolan, also the president of the Alexandria, Va.-based Society of Competitive Intelli-gence Professionals, whose membership has nearly tripled, to more than 6,900, since 1994. "Those who get spied on are now also spying," he says.
Case in point: The CIO of 3COM Corp., makers of Internet switches and hubs, now supplies employees with two toll-free numbers: one to report any intrusions into corporate secrets; the other to report what 3COM's rivals are up to. Says 3COM CIO Jerry Kenan: "You've got to take the offensive these days, or you're creamed in the marketplace." And the spy-vs.-spy mentality is only being exacerbated by the stiffening competitive pressures of the current economy. Consider the title of one of dozens of new CI seminars and conferences on the CIO conference circuit this fall: "The CI Practitioner's Paradox: What They Ask You to Do, What You Want to Do, What You Should Do."
What is competitive intelligence? Everything from illegal spying and theft of trade secrets to classic intelligence-gatheringwhatever it takes to provide executives with a systematic way to collect and analyze public information about rivals and use it to guide strategy. At its best, it borrows tools and methods from strategic planning, which takes a broad view of the market and how a company hopes to position itself, and from market research, which pinpoints customers' desires. Its goal: to anticipate, with razor-sharp accuracy and speed, a rival's next move, plot new opportunities and help avert disasters.
CI is hottest in the pharmaceuticals, telecom, petrochemicals and consumer products industries, where consumers are the most fickle and where speed and flexibility are especially critical for success. Indeed, some companies, from Burger King to Lucent Technologies Inc., are getting so good at using the new digital tools to sniff out what rivals' customers are eating this week or paying for long-distance that it's enough to rattle even the most rival-savvy marketersand to push a lot of data once commonly available underground.
In July, for example, Wal-Mart Stores Inc. ended a years-long practice of sharing data about its sales of food, beverages, toys, clothing and over-the-counter medications. Gathered by electronic scanners in checkout aisles, the data had been closely monitored by various partiesfrom the companies that make products sold in Wal-Mart's more than 2,600 stores to Wall Street analysts. Explains spokesman Bill Wertz: "It made no business sense for us to continue. We weren't getting as much out of this practice as our competitors were."
Competing at the speed of information can pay off handsomely. NutraSweet estimates its intelligence unit is worth at least $50 million a year in sales gained or revenues not lost. SmithKline Beecham estimates saving more than $100 million and gaining untold protection of market share for any number of products. "All information is being thrown into the digital hopper now, and sliced and diced for clues and leaks," says Susan Steinhardt, former chief of CI at Procter & Gamble Co. "It's a CIO's goldmine."
But the real bottom line? The new business-led push to get better competitive datafasteris also defining new opportunities for CIO leadership at most firms. Says Nolan: "The CIO who is just responsible for wires and equipment and software knows about hacking and penetration. But those responsible for business intelligence activities will really be clued in, and companies who have CIOs like that will have the competitive edge in the years ahead."
Indeed, the growing information glut makes it critical for CIOs to start thinking about how they can support their company's CI snoopstersand do it with as much zeal and imagination as they already apply to building hacker-proof security systems. According to Framingham, Mass.-based International Data Corp., most existing systems and organizations are still ill-equipped to keep pace with the ever-growing amount of information available. "Many companies are still stumbling to process and respond to competitive information as fast as it pours in," says former IDC analyst Gerry Murray. The result: The key to carving out the leading edge of the knowledge gap in one's industrythe difference between what you know and what your rival knowslies in the ability to build IT systems that can scope out the movements of corporate rivals in real time. Murray believes that IT-aided intelligence gathering is so critical that entire industries will be redefined by the companies most skilled at snooping. "Players unable to surmount their bureaucratic inertia will find their existence threatened," Murray says. "And once intellectual and competitive agility becomes more commonplace, competitive advantage will be both harder to come by and increasingly expensive."
Murray's advice: Start now to recruit the technology executives who can build systems that give your company the ability to react in real time to what rivals are doing. Build such systems, and your company also will be able to respond faster to customers. The goal: "To tie technology and business together in a common pursuit of becoming more competitive and more responsive to rivals and customers in the marketplace," Murray says. Observes Herbert Meyer, who runs Friday Harbor, Wash.-based consultancy Real World Intelligence: "CI is to a company what radar is to an airplane. Companies are now installing radar in the corporate cockpit, and that's where the CIO comes in."
At minimum, CIOs should start helping executives to monitor the Web more effectively. Just ask Eamon Allbee, a CTO with Chicago-based Dollens and Associates, a marketing firm. Increasingly, says Allbee, the Net is opening up whole new ways to snoop, giving companies access to material that used to take months or years and millions of dollars to unearth, from satellite photos of rival plant sites to the inside skinny on a rival CEO's off-work activities. And it's legal. Example: The London-based consumer products firm Unilever plc was looking to go into China with a new product. But Allbee, by going on the Web in February, discovered that Proctor & Gamble was developing a similar product. Unilever, Allbee's client, had to decide whether to offer that product at a lower price, add on more features or simply avoid the Chinese market entirely. How did Unilever get wind of P&G's plans? Allbee found P&G's new product report on P&G's own corporate intranetaccess to which Unilever was able to get through Allbee and a common supplier. "Without this information," says Allbee, Unilever "would have gone in [to China] blind."
But it takes far more than watching Web sites to get smart about CI. Compaq Computer Corp. gets it. There, both Bret Breeding, manager of competitive intelligence, and Compaq's vice president of strategy report to the CTO. Because of the increased role of technology in information gathering, Breeding has helped Compaq establish an intranet communications system in which a salesman in Egypt, for examplewhen told by a potential client that Compaq needs to team with another vendor to get a job donecan instantly obtain information about that other vendor and then report back what he learns so other salesmen can benefit from the data. Breeding says he's designed this simple CI system for both "skimmers" who want a high-level view and "deep-level divers," who need to ask his CI team for more information. Such digging recently allowed Breeding to get a client to increase a deal from $1 million to $25 millionsimply by ferreting information about the client's key rivals and their technology plans.
At Royal Dutch/Shell Group, the CIO is part of the CI team and is in charge of helping corporate snoopers gather and distribute key bits of information about rivals to company executives. Shell's CI office provides benchmarks on competitors to the CIO, and the CIO then develops customized search software to help the CI team sift through files. "At Shell," says Breeding, Shell's former CI manager, "CI is all about aiding the decision-making process. It's a mix of technology and people. Ideally, the CIO should be the hub for CI throughout the company."
To be sure, most CIOs are still far more likely to be shopping for technology than actively participating in CI tag teams and strategy sessions. But increasingly, says CI expert Steinhardt, companies like P&G are realizing they cannot move forward on CI without asking CIOs to help tag and distribute priority data to the people inside the company who most need to know.
Companies that ignore the CIO do so at their peril. "We recently came across a large telecom equipment maker with 10,000 home pages on its supply-chain intranet," says Leonard Fuld, CI consultant and president of Fuld & Company Inc. in Cambridge, Mass. "Several hundred of them were dedicated to the competition. But there was no coordination between them. This was a situation where the CIO could have taken charge and made sure the information was in one spot. How many tens of millions of dollars were thrown at that intranet and wasted annually in inefficient man-hours?"
Where to begin? Ideally, Steinhardt says, CIOs can help marketing and sales strategies turn on a dime. CI teams should spend one-third of their time on a project gathering information, one-third in analysis and one-third discussing their findings. "Instead," says Steinhardt, "many companies spend 80 percent of their CI time on collection, most of the rest on analysis and very little on communication that reaches everyone." CIOs can step in and devise ways to improve the ability of executives to focus on information that really matters to them "with filters that take out the junk nobody needs to be looking at," she says.
CIOs also can help determine what the company considers junk. Often, she says, the best competitive information does not appear as highly structured data, such as financial information. More likely, it's something like an offhand comment in a press release, a photograph in a rival's advertisement or a soundbite from a television news show.
Once the best data is tagged for collection, who gets access to it? "If you search, say, for data involving a two-in-one laundry soap and fabric softener, what terms do you classify, and which do you let everyone see?" Steinhardt says. Her point: CIOs can help companies figure out how to tag, gather, store and distribute a wide range of competitive data with differing levels of access and indexingand with standards that are consistent throughout the company, domestically and abroad. "Most companies are sloppy about this," says R. Mark Halligan, a professor of trade secret law at The John Marshall Law School in Chicago. "They haven't marked documents as confidential. And nobody beyond a certain level knows what, specifically, they're looking for. They just know they want something, and fast. And with a proliferation of business relationships these daysjoint ventures, M&As, supply-chain collaborations and so forthyou really need to do an information audit to make sure you know what you have and what you need."
Finally, build teams with diverse membership. Using a library research professional at P&G, Steinhardt found, saved the company time on one CI project and the equivalent of four full-time researchers. "People who understand the concept of organizing information and indexing it could be paired with someone who understands different technology capabilities, such as a relational database showing connections between different terms or items," Steinhardt says. As managers, CIOs have to amass different strengths on a CI project "so you don't have an abundance of hammer holders who look only for nails."
But don't get carried away on the technology. A study conducted by Fuld & Company found flaws with many of the 170 software packages with potential CI applications. Says Fuld: "None of them were able to take companies through the process of data identification, discovery, distribution and analysis. Each did some part of the process, but not the whole thing. The thinking machine has not yet arrived." He warns that no company should buy a software package "in the hope it will build an intelligence process for the corporation. CIOs need to help build that. It won't come off the shelf."
Still not convinced? CIOs confident that their rivals' intranet data is too safe to even try prying open should take a ride with CI consultant Todd Waskelis in Virginia's Dulles Corridor, a throughway outside Washington, D.C. lined with high-tech firms. Waskelis can slip a wireless card into his laptop, drive down Route 7 and pick up one wireless network after another, including the networks of a major credit clearinghouse. "Instead of hacking from the Internet, people can hack from inside on the intranet, albeit from the road, and probably get to the accounting server," he says.
But for all the digital dumpster-diving out there, don't forget that plenty of old-fashioned snooping is still being used by even the most high-tech firms. When Oracle Corp. got caught last summer hiring a Washington, D.C.-based detective group to dig into the dealings of organizations sympathetic to Microsoft Corp., it didn't use even a byte of cybersleuthing. It did it the old-fashioned wayrummaging through the dumpsters of one of those groups by bribing janitors at its Washington office. Says Nolan: "In this business, be aggressive. Take the offensive." And, say CI experts, recall the words of ancient Chinese general Sun Tzu: "Be so subtle that you are invisible, be so mysterious that you are intangible; then you will control your rival's fate."
SKIP KALTENHEUSER writes about technology and legal issues from Washington, D.C. KEITH EPSTEIN is an investigative reporter based in Fairfax, Va. Comments on this article can be sent to firstname.lastname@example.org.
Society of Competitive Intelligence Professionals
American Society for Industrial Security
Tutorial on Use of Freedom of Information Act
Popular online tip sheet for CI pros
The Competitive Intelligence Center at Simmons College, Boston
The Computer Security Institute
Competitive Strategy: Techniques for Analyzing Industries and Competitors
by Michael E. Porter. Simon & Schuster, 1998
Modern Competitive Analysis
by Sharon Oster. Oxford University Press, 1999
by Ben Gilad. Infonortics Ltd. U.K., 1996
55% of manufacturing companies with fewer than 1,000 employees said they spied on rivals in the past 12 months. Of these, 75 percent report industrial spying for competitive analysis, including using the Web and posing as a potential customer to glean pricing and other data.
SOURCE: TR CUTLER, INC.
The cost of economic espionage to U.S. Companies is estimated by the national counterintelligence center at $100 billion annually.