Competitive Intel: What It Is and What It Is Not

The authors of this Protiviti white paper present a more focused definition of competitive intelligence than how it is commonly perceived.  They define competitive intelligence as “the function responsible for the early identification of both market exploitation opportunities…and industry dissonance.”  By focusing on what really matters—using competitive intelligence to gain a comparative advantage in markets—managers can broaden their analysis of the risks associated with the competitive landscape.  That is, competitive intelligence (CI) is not limited to public, quantitative information nor is it constrained to only assessing competitors.  The popular view of CI is that it is costly and synonymous with corporate espionage, or competitor intelligence.  Competitive intelligence, however, contains multiple elements and considers any factor that may hinder or enhance the progression of a company’s ability to compete. 

Competitive intelligence as a function (CIF), concentrates on the elements (described below) that is the most pertinent to their respective business environments.  The authors model a “Competitive Intelligence Universe” which is comprised of five elements and the organization itself.  The elements of the CIF and general information that can be useful include:

  • Customers-level of product knowledge and available choices or alternatives
  • Suppliers/distributors-source of industry knowledge
  • Competitors/substitutes-percentage of market share, and developing new strategies
  • Social/demographic changes and technological innovation-pace of change and risk responses to change
  • Macroeconomic trends-geopolitical developments and overall economic outlook

Competitive Environment Risk Management as an Essential Function

The competitive intelligence process has typically focused on one component of the competitive environment in the past—operations.  This was due to much more predictable markets than in previous decades.  With much less uncertainty and external risk, companies gravitated toward cost efficiency and performance management.  However, the 2008 financial crisis revealed the vulnerability of companies lacking a risk management program and contingency plans.  Managers were forced to expand their view of the competitive risk environment to more than direct competitors.  Indirect competitive forces are unpredictable and without a set plan of action when those crises occur, companies rush for an answer and have limited alternatives to choose from.  Highly automated processes, globalization, accelerated technological innovations, and rapidly changing social trends increase the likelihood of businesses being caught off guard by rare, adverse events.  When competitive intelligence is aligned with strategic objectives and business models, managers mitigate the surprise factor of rare events. 

Objectives of Competitive Intelligence

After the authors set the stage of the current business environment, they take a step back to ask what are the key objectives of competitive intelligence and the underlying assumptions affecting them.  There are two core strategic objectives of competitive intelligence that are based on mitigating risk and maximizing reward:

  1. Maximize market opportunities:  That is, leveraging competitive information to capitalize on emerging market trends.  If a company gathers intelligence that suggests the environment has drastically changed, management may consider reconfiguring their current business model to sustain or accelerate competitiveness.
  1. Minimize industry dissonance risk:  Industry dissonance risk is the risk that assumptions underlying the company’s strategy are behind the actual industry environment.  Businesses experiencing industry dissonance may concur that their strategies have been irrelevant or even obsolete for a period of time due to assumptions that no longer reflect the reality of the marketplace.

Managing industry dissonance risk requires increased foresight capabilities that ensures an actionable plan will be executed in the case of a “black swan” event.  The authors describe a black swan as an extremely rare event that has a substantial impact on the company.  One way to strategically plan for black swans is to conduct a contrarian analysis.  Basically, this entails assuming the exact inverse of and negating management’s assumptions of the business environment as a reality.  Using such an analysis is one way for companies to enhance their ability to foresee and plan on unpredictable events.

Tailoring the Competitive Intelligence Function and Structure

The aforementioned elements of the CIF universe are not to be equally weighted for all companies.  Instead, managers should assess each element’s sensitivity to swift market changes and developments.  Those elements with the highest sensitivity level should be given more attention and resources to mitigate the risk of rare, detrimental market events.  While focusing on relevant elements for businesses to address in their respective markets, managers challenge their “blind spots”, or biases of the future of market direction.  If management assumptions are misaligned with evolving market actualities, they increase their strategic risk exposure and thereby industry dissonance.  

Additionally, the structure of an enterprise’s CIF can be tailored to better match their market position.  Three potential alternatives for structuring the CIF include:

  • Decentralized-more actionable for diversified, distinctive markets
  • Centralized-better for smaller companies or businesses operating in similar markets
  • Federated-optimal for a CIF that has direct access to C-level executives

The Competitive Intelligence Life Cycle: An Approach to a Sustainable CIF

The authors model the competitive intelligence function as a whole that starts at the top with management’s strategic assumptions and how they relate to the competitive landscape.  They then describe how companies should go through a process of filtering information down to the most relevant pieces.  Most importantly, the process of managing the CIF is predicated on early risk indicators and response systems.  These risk warnings are considered throughout the competitive intelligence life cycle which consists of:

  1. Monitoring risk warnings/indicators.
  2. Assessing industry opportunities and industry dissonance risk.
  3. Communicating to top management to ensure managers have all the relevant info to decide amongst risk responses.
  1. Acting upon risk response plans.

Summary

Competitive intelligence is the result of processing and adding value to competitive information.  It can be utilized to identify risk warnings, provide alternative risk responses to mitigate rash decision making when surprise events do occur, develop recommendations for strategic adjustments to align with swift market shifts, and execute actionable plans all in order to gain a competitive advantage.