Competitive Intelligence Becomes Even More Important

American corporations spend billions of dollars on R&D to develop and market new products and services. But protecting the secrecy of their offerings and their business strategies is typically an afterthought, enabling competitors to quickly copy new ideas, or even win the race to reach the market with them first.

According to Gartner, the business intelligence market is an estimated $30 billion, but competitive intelligence is only a small percentage of that figure. Inc. Magazine reports that about 80,000 people use the term "competitive intelligence" in their LinkedIn profiles.1

Competitive intelligence is the practice of gathering and analyzing information about competitors so your company can make better strategic decisions. Keep in mind a key distinction: Competitive intelligence is legal, while industrial espionage is illegal.

To make this distinction clearer, consider the case of industrial espionage committed by Chinese immigrant Walter Liew and Robert Maegerle, a retired DuPont engineer. In 2014, the two men were the first to be convicted on such a charge by a jury since the Economic Espionage Act was passed by Congress in 1996, according and article by the Associated Press.2

Liew set up a California company and hired former DuPont engineers, paying thousands of dollars for secret documents that revealed how to make a patented DuPont pigment called titanium dioxide that makes items such as paper and cars look whiter. In turn, companies controlled by the Chinese government paid $28 million to Liew for the secrets, which would enable them to build a plant by following a stolen DuPont manual stamped "Confidential."

Spying by foreign companies and governments on U.S. companies to steal trade secrets is nothing new, and it is a serious problem.

Our focus in this trend, however, is on competitive intelligence, which is best illustrated by a classic case described in a New York Times Magazine article published in 2000.3 In 1997, a Minnesota food company called Schwans Sales Enterprises was selling frozen pizzas under the brand name Tonys. It was also working on a "rising-crust" frozen pizza to be marketed under the name Freschetta.The problem for Schwans was that Kraft Foods, the industry giant, was already dominating frozen pizza sales with its Tombstone and Jacks product lines. Kraft was also test-marketing its own rising-crust frozen pizza called DiGiorno.

There was no secret to how such pizzas were made: Yeast was injected into the raw crust, which then expanded as it was heated. Both DiGiorno and Freschetta were essentially working on the same product. What was important, however, was a critical piece of intelligence: how quickly Kraft planned to roll out its offering, so that Schwans could adjust its strategy accordingly.

More specifically, it needed to discover the production capacity of a Kraft plant in Sussex, Wisconsin, including what type of equipment was being used, the number of production lines, and the types, sizes, and number of pizzas being produced there on a daily basis.

Schwans hired a corporate intelligence expert, Marc Barry of C3I Analytics. A day and a half later, he had finished gathering all the information that was crucial to Krafts strategy, without leaving his office in New York.

After doing some research on the Internet, Barry called the Sussex Chamber of Commerce, the town assessors office, and the town building inspector. He learned that Kraft was paying taxes on a new plant that measured 143,914 feet. Posing as an environmentalist writing an article, he persuaded the building inspectors secretary to look at the plants permit and reveal the number of compressor rooms, the number of spiral freezers and high-rise freezers, the size of the loading dock, and much more.To determine how many pizzas were being produced, Barry called the companys purchasing department and pretended to be the president of a small corrugated box company. The employee told him the plant used hundreds of thousands of cardboard disks per day. Next, in the same role, he called the loading dock and talked to an employee who told him the plant was producing 300,000 pizzas per day.

At that point, he knew the plants current operating capacity, but he still needed to know its full production capacity. So he called the plants production lines manager, pretending to be a graduate student writing a paper on food production. The manager told him that the plant was only using three of its five production lines, meaning that it could ramp up to producing 500,000 pizzas per day.The helpful manager then confided that the Kraft had subcontracted the production of rising crusts for its Tombstone line to another company.

With all of this information, it was clear that Schwans could not afford to move slowly. Kraft was planning to move aggressively to dominate the rising-crust pizza market under both its frozen pizza brands, so Schwans would have to increase production quickly, and invest heavily in marketing.By the end of the decade, rising-crust pizzas accounted for $2.3 billion in sales, or more than 30 percent of the frozen pizza market, according to the New York Times.4 DiGiorno seized the top spot, but Schwans used its corporate intelligence to climb from sixth to second by the end of 1999.Corporate intelligence missions typically begin with Internet research. Companies divulge a wealth of information in SEC filings, incorporation records, annual reports, court filings, job listings, blog postings, magazine profiles of CEOs, and business press articles about the companys plans and products.

The next step is to find the right people to talk to in order to elicit information that isnt in the public domain. LinkedIn profiles and Facebook pages of employees often yield information, such as clients a salesperson has friended on social media. A site called Jigsaw enables members to swap contact information; by providing phone numbers and email addresses of corporate contacts, members can access contacts others have provided.

What types of information can be accessed through corporate intelligence? According to an Inc. Magazine article by competitive intelligence consultant George Chidi, his estimates for the probability that he can get the following information, and the time it would require, are:5

* The cell-phone number of your competitors main contact with Walmart: 80 percent chance; five minutes.
* The names and contact information of the people suing your biggest rival: 80 percent chance; 30 minutes.
* The market segmentation your competitor is using in its advertising: 95 percent chance; one to three days.
* Staking out your competitors manufacturing facility to see how much stuff its making: 95 percent chance; three days to three weeks.
* The names of your competitors top five salespeople and their salaries: 80 percent chance; margin of error +/- 10 percent; three days.
* Identifying which of your competitors former executives are most likely to come work for you: 80 percent chance; one week.
* The profit margin of your privately held competitor: 50-50 chance; margin of error +/- 10 percent; five to ten days.

Based on this trend, we offer the following forecasts:

First, competitive intelligence will become increasingly important to the quality of a companys decisions.

When it is collected legally and ethically, competitive intelligence improves a companys strategy by giving decision makers a more realistic and comprehensive view of the competitive landscape.Second, the growing use of social media will make competitive intelligence even easier to gather?and even harder to defend against.

Employees who post information on Facebook about their new jobs or relocation to a new city where their company is entering the market are giving competitors insight into their employers strategy. LinkedIn profiles of executives that reveal news of promotions or layoffs are also good sources of insight into a companys plans for competitors that are savvy enough to join those executives online networks.

Third, the companies that benefit the most from learning about competitive intelligence will be those who use it to safeguard their own secrets from prying competitors.

By using competitive intelligence tactics to test your own defenses, you can spot the weaknesses that your rivals could exploit. Explore your website, your press releases, and your marketing materials to see what secrets you are revealing. Google your companys name and the names of key executives to see what information that should be confidential is readily available to anyone with an internet connection. Create a fictitious persona and try cold-calling retail store managers, loading dock employees, or purchasing personnel to see how much intelligence you can acquire that should be off-limits. Once you know where the leaks in your companys intelligence are, establish policies and practices to seal them.

References

1. Magazine, February 2013, "Confessions of a Corporate Spy," by George Chidi. ⓒ 2013 Mansueto Investors. All rights reserved.
?http://www.inc.com/magazine/201302/george-chidi/confessions-of-a-corporate-spy.html?

2. Los Angeles Times, July 10, 2014, "California Man Sentenced to 15 Years for Corporate Spying on DuPont," by Associated Press. ⓒ 2014 Los Angeles Times. All rights reserved.
?http://www.latimes.com/business/la-fi-espionage-sentence-dupont-20140710-story.html?

3. New York Times Magazine, December 3, 2000, "The Pizza Plot," by Adam L. Penenberg and Marc Barry. ⓒ 2000 The New York Times Company. All rights reserved.
?http://partners.nytimes.com/library/magazine/home/20001203mag-penenberg.html?

4. Magazine, February 2013, "Confessions of a Corporate Spy," by George Chidi. ⓒ 2013 Mansueto Investors. All rights reserved.
?http://www.inc.com/magazine/201302/george-chidi/confessions-of-a-corporate-spy.html?