The Competitive Intelligence Continuum - Taking Wisconsin to the World

The Competitive Intelligence Continuum Taking Wisconsin to the World Arik R. Johnson 5 th Annual Northeastern Wisconsin Global Development & Leadership Institute Trade Conference - Green Bay, WI CEO & Managing Director, Aurora WDC Morning 1-Hour Session Arik.Johnson@AuroraWDC.com Tuesday 03 April 2007

Defining Objectives for Today
Rewind 25 Years to See What Competitive Intelligence Is Today and Where It Has Come From
Understand the Latest Techniques in Use Today to Understand & Produce High-Impact Competitive Analysis Based on the Core Theories of Innovation
Learn How to Implement an Intelligence Program More Gradually to Help Ensure Long-Term Success

Typical Climate of CI Initiative
Crisis response in reaction to market surprise – arising from a new competitor, regulatory environment, business model shift, customer/vendor backward/forward integration, etc.
Avoiding this climate requires discipline in contemplating strategic scenarios to drive key intelligence topics (KITs).

Traditional CI Follows a Disciplined Process for Information Collection and Analysis Deliver, Inform & Recommend Planning & Direction Secondary Research Analysis & Production Primary Research Tactical Users & Strategic Decision Makers Needs The Traditional CI Cycle

Competitors, Customers & Technologies Are Complex Interdependencies CI is About Learning to See Clearly through Market Illusions

Three Intelligence Trends
Organizational Acculturation – Everyone in the Firm is a Virtual Member of the CI Team
Corporate Governance – Board-level Priority for Ensuring Reliability of the Earnings Forecast (Vioxx/Celebrex Impact, SarbOx 402, etc.)
Disruptive Innovation – Predicting Outcome of Competitive Battles based on Product Strategy & Predictable Dynamics

CI is About Better Decision-Making
Strategic Decisions
What Business are We in and Where are New Opportunities for Growth?
Operational Decisions
How do we structure those business units to most effectively compete for and win Market Share?
Tactical Decisions
Which customers are available to us and how can we convince them to select us over any and all functional equivalents?

The Product Life Cycle

Strategic & Tactical Realms of Competitive Advantage

CI is a Critical Element in Strategy COMMERCIAL MARKET STRUCTURE & RESOURCES Strategic Position Strategic Position Competitive Position Market Attractiveness Scope & Context Strategic Issues Insight Stakeholder Score Card Financial Position Growth Economic Profitability Critical Success Factors & Key Performance Indicators Performance Monitoring & Incentive Compensation Organizational Design Projects & Resources CAPITAL MARKET MANAGED PERFORMANCE Chosen Strategy Scenarios & Options Creativity Strategy Execution Strategy Formulation

Porter’s Five Forces Model

Impacts on Planning & Execution Your Company’s Plans and Execution Vision and Grand Strategy Strategic Plans Market Success Operational Projects and Programs Tactical Execution Other (More-or-Less) “Uncontrollables” Competitors’ Plans and Actions New Forms of Competition X Y Z P Q R A B C Indirect Competitors Direct Competitors Government and Regulatory The Economy Technology Market Trends Industry Rationalization Other Unknowns

The 12 Application Priorities of CI
Current Competitor Activities and Strategy Monitoring
Customers, Vendors and Other External Allied Monitoring
Operational Performance Benchmarking
Product/Service Sales and Marketing Support
Strategic Probabilities and Possible Futures
Internal Knowledge Management
Intellectual Property Exploitation and Protection
Mergers, Acquisitions, Alliance and Investment Support
Long-Term Market Prospects & Spotting Weak Signal Blindspots
Counter-Intelligence & Information Security
Legislative and Regulatory Activity and Impact on Business Issues
Executive Decision-Support, Risk Management & Strategy Planning

Research Collection Sources
Where does the information come from?
Primary Research
We may share customers, prospects and suppliers who can be interviewed.
Every company has knowledgeable employees with loose lips.
Secondary Research
Companies release information for promotional, image and regulatory purposes.
No Company Operates in Isolation Information is exchanged everywhere money is exchanged.

Analysis is Key The Difference Between Data and Intelligence “ The competitor would make a good acquisition candidate. Its lean & mean structure would fit well with our current operations.” Intelligence: The insight that will allow you to make an informed decision “ After gathering more operational information and running a side-by-side profit & loss analysis, it appears the competitor has become highly efficient. It exceeds industry standards and has become a best-in-class facility.” Analysis: Distilled information “ Based on the D&B and the salesperson’s report, it appears the competitor has lost business.” Information: A pooling of these bits of facts, observations and rumors 2001: “The D&B report told us that the competitors plant had 100 employees.” 2004: “One of our salespeople just passed by the competitor’s plant and spotted only 30 cars in the lot.” Data: Scattered bits and pieces of facts, observations and rumors

Two Fundamental Competitive Analysis Examples SWOT Analysis Core Competence

Strategic Intelligence
Principles of Defensive Warfare
Only the market leader should consider playing defense.
The best defensive strategy is the courage to attack yourself.
Strong competitive moves should always be blocked.
Principles of Offensive Warfare
The main consideration is the strength of the leader's position.
Find a weakness in the leader's strength and attack at that point.
Launch the attack on as narrow a front as possible.
Principles of Flanking Warfare
A good flanking move must be made into an uncontested area.
Tactical surprise ought to be an important element of the plan.
The pursuit is just as critical as the attack itself.
Principles of Guerilla Warfare
Find a segment of the market small enough to defend.
No matter how successful you become, never act like the leader.
Be prepared to bug out at a moment's notice.
-- Jack Trout
Guerilla
Small Players
Finding market small enough to defend
Prepared to bug out at moment’s notice
Flanking
New Players
Moving into uncontested area
Element of surprise
Offensive
No 2 or No 3
Avoiding leader’s strengths
Attacking leader’s weaknesses
Defensive
Market Leaders
Attacking themselves with new ideas
Blocking competitive moves
The Strategy Square

Growth Vector Analysis
Growth Vector Analysis (GVA) reviews the different product alternatives available to the firm in relation to its market options, not already being pursued by competitors. Four complimentary characteristics are used for defining common threads of strategy:
Product-Market Scope specifies particular industries to which a firm confines its position.
Growth Vector indicates the direction a firm is moving relative to current product-market posture (market penetration, market development, product development and diversification).
Competitive Advantage defined as particular properties of individual product markets conveying a strong market position.
Synergy is the combined effect on the firm’s resources that is greater than the sum of its parts.
Present Products Improved Products New Products Existing Market Market Penetration Product Extension Product Development Expanded Market Market Extension Market Segmentation / Product Differentiation Product Development / Market Extension New Market Market Development Product/Service Extension & Market Development Diversification

Tactical CI Project Example: Cost Analysis

Level of CI Involvement in M&A Stage ID Evaluate Due Consum- Criteria Targets Analyze Diligence Recommend Negotiation mation Integration Level of CI Involvement High Low Intelligence Research Business Units Finance Technical Assessment Legal Executives M&A Specialists Transition Team Logistics HR

Seven Steps to Effective Competitive Benchmarking
Determine functional areas within your operation to be benchmarked . This is likely to be those areas that will benefit most from the benchmarking process, based upon the cost, importance and potential of changes following the study.
Identify the key factors and variables with which to measure those functions. Two general forms – wherewithal/resources and goals/strategy.
Select the best-in-class companies for each area to be benchmarked -- those companies that perform each function at the lowest cost, with the highest degree of customer satisfaction, etc. The companies you select will be those that do whatever you’re measuring better than you do and/or are ones you wish to emulate or copy.
Measure performance of the comparison companies for each benchmark being considered.
Measure your own performance for each variable and begin comparing the results in an "apples-to-apples" format to determine the gap between your firm and the best-in-class examples.
Specify programs and actions to meet and surpass the competition based on a plan developed to enhance those areas that show potential for compliment.
Implement your improvement program by setting specific improvement targets and deadlines, and by developing a monitoring process to review and update the analysis over time. This will also form the basis for ongoing monitoring, revision and recalibration of measurements in future benchmarking studies.

Key Intelligence Topics (KITs)
Process of Interactive Dialog with Decision-Makers through KIT Interviews; Consists of 3 Protocols w/Subtle Differences:
Strategic Decisions/Issues
Key Marketplace Players
Early-Warning Topics

KITs – Strategic Issues
Strategic Investment Decisions: Identify and assess changes in the competitive environment, possible future investments, including alliances, acquisitions, etc.
Should we expand our current production capacity or build new capacity with a more cost-effective manufacturing process?
What plans and actions must we take to maintain (our) technological competitiveness as compared with competitive alternatives?
New Product Development and New Market Launch: Assessment of leading competitors and the status of competing technologies.How and when will the competitors respond and how could they affect our plans?
Sales & Marketing Strategy as Positioning in the industry.
Protection of IP and proprietary information and technology: Competitors efforts to acquire or undermine it, and are there others interested in it?
Provide advice for developing the company’s ongoing strategic plan by assessing the role of risks and opportunities in achieving our business goals.
Globalization & Outsourcing in the Industry: How/with whom should we proceed?
International Market Development: Assess the current competitive situation and describe the most likely future situational scenarios.

KITs – Key Players
Context-specific Company & Market Profile Assessments of our competitors, including strategic plans, competitive strategies, financial & market performance, organization & key personnel, R&D, operations, sales & marketing, etc.
Identify Emerging Competitors, particularly those coming from different industries.
Describe & Assess Current & Future Competitive Environment, including: customers and competitors; markets and suppliers; production and product technologies; political and environmental; and the industry’s structure, including changes and trends.
New Customers, their changing needs and future interests: What are they and how are our competitors trying to satisfy them?
Identify and assess new industry/market players, including: suppliers, distributors, customers and/or competitors, that are considering entry into our business.
New Technology Development: Who are they and what are their plans and strategies for competing in our industry?
Marketshare and Historical Growth Data, including that of our competitors for comparison.
Management support for regulatory and environmental activities for decision making.
Industry, financial & customer community views, attitudes and perceptions regarding the Positioning or Value of our brand, products and services.
Perceptions by Financial & Investment Community of our Business & Industry

KITs – Early Warning
Potential Areas for Disruptive Technological Breakthrough that could dramatically affect our current and future competitiveness, positively or negatively.
Technological Process Developments affecting either production capabilities, costs or product development, and their uses by competitors and others.
Performance of Key Suppliers - financial health, cost & quality issues, potential acquisition or alliances.
Potential for Disruption in Supply Chain and Change in Industry Procurement Practices.
Change in Customer & Competitors Perceptions of our company, products and services.
Companies and/or Combinations of Companies, considering possible entry into our business or markets.
Changes in international political, social, economic, environmental or regulatory situations that could effect our competitiveness.
Regulatory Issues: near-term changes and deviations in long-term trends; legislative changes that could impact current regulatory status quo.
Intelligence on Alliances, Acquisitions, and Divestitures among our Competitors, Customers and Suppliers: Understanding the forces causing them and purposes of each deal.

Creating the Integrated Watch List
Norm-Deviating Behavior & Explanatory Hypotheses
Three Methods for Developing KIT Indicators (Watch List):
Inference (Anomaly Scanning, Sensing & Weaving)
Scenarios (Planning for Alternative Futures & Potential Outcomes)
Ex Post Facto (Historical Change Indicators)
Pattern Recognition & Linkage Analysis are Key to Postulating About the Future
Connecting the Dots

Source Extraction & Pattern Recognition Aggregate content, tag & categorize Hypertext links to similar content Personalization from forms/questionnaires geodemographic profiling Searching for information E-mailing information to relevant recipients Reformatting for multi- channel delivery, e.g. PDF to XML Answering customer inquiries via a help desk Manual Processes Process Automation Aggregation Automatic Categorization Hyperlinking Profiling Personalization Collaboration Delivery Retrieval Routing Alerting Integration Through Understanding Information Theory and Bayesian Inference Notes News Feeds Email Internet Database Files Document Management XML Audio/ Media

Success Breeds Complacency
“ It is a classic conundrum for business titans: How much money and attention should be focused on a new, but growing, operation that is far less profitable than the core business?”
- Prof. Clayton Christensen, The Innovator's Dilemma

The Duality Continuum of Intelligence Both Decisive & Incisive Sensing Incisive Scanning for Trends, there is no “Decision” to be made Recognize “Pattern Vector” History Framework for Interpretation Implications for the Reader Bottom-Up Exposition Driven by Trends Outcome is Observation Emergent & Theoretical Decisive Frame of Reference is the Decision, Less Trend-Dependent Framework for Current Analysis Compares Options & Outcomes Recommendations and Trust Top-Down Imposition Driven by Issues Decision & Action vs. ‘Nariyuki’ Factual & Hypothetical

The Insight Method
Take Nothing at Face Value
Get to the Facts at the Heart of an Issue
Explain Difficult Concepts, Don’t Write Around It
Speak to As Many Relevant People as Possible
Use Simple, Obvious Questions to Open Subjects
Don’t Echo Main Source, Find Other Views
Every Company, Person & Issue Has a History that Drives Behavior Today
Sunday Times

The Ideal Analyst = Investigative Journalist
e.g. Maria Bartiromo (CNBC)
Argument/Idea Evangelist
Entrepreneurial Passion
Quick Study with Intense Curiosity
Instinctive but Empirical
Project/Deadline Manager
Librarian/Information Manager
Hard-Core Interviewer
Pattern Recognizant
Great Communicator
Persuasive Position Advocate

Different Missions, Different Approaches Specialist Slower Production Less Output, More Analytical Agenda Driven by Contact Network Lots of Subject Matter Knowledge Seeks Explanation of the Subject Investigative Very Slow, Curious, Historical Little Output, Highly Analytical Questions Official Positions, Listens to Nonspokesmen Operates Outside Routine Agenda of the Publisher Generalist In a Hurry Lots of Output, Less Analytical Agenda Driven by the Publisher Little Knowledge of Subject Matter Seeks Volume of Public Interest

Consumers “Hire” Products to Do “Jobs” for Them Concentrate Less on What Customers “Want” and More on What Customers “Need”

Disruptive Innovation Theory Sustaining Innovations Better Products Brought to Established Markets Low-End Disruptions Target Overshot Customers with a Lower Cost Business Model New-Market Disruption Compete Against Nonconsumption Difference Performance Measure Time Nonconsumers or Nonconsuming Contexts Performance

Disruptive Technology

Value Chain Evolution Theory
Disruptive Business Models: Vertically Integrating VC to Improve What’s “Not Good Enough” in the company’s products and services judged by customers.
Performance Defining Subsystems: Companies must control all those activities and combinations of activities in the value chain that drive the product performance characteristics that matter most to customers.
Specialists will seek to control performance drivers based on differences in motivation and skills around a modular interface in the VC. (Sword & Shield)

RPV Theory: Building Capabilities Processes Ways to Turn Resources into Products/Services Hiring/Training Product Dev. Manufacturing Budgeting Research Values Prioritization Criteria for Decision-Making Cost Structure Income Statement Customer Demand Opp. Size Ethics Resources Assets the Firm can Buy or Sell, Build or Destroy People Technology Products Equipment Cash/Brand/Distr.

Consumer Demand & Signals of Change
Non-Market Contexts: External Forces (Government, Economics, etc.) Increasing or Decreasing Barriers to Innovation
Undershot Consumers: Opportunities for Up-Market Sustaining Innovations
Overshot Consumers: Opportunities for Low-End Disruption, Shifting Profits by Specialist Displacements (Modularity) and the Emergence of Rules
Non-Consumers: Opportunities for New Market Disruptive Growth
Established Companies almost always Lose to Disruptive Innovators

Process of Predicting Industry Change Signals of Change Strategic Choices Influencing Success Likely Outcome of Competitive Battles

Assessment Development Pilot Test Evaluation Implementation MONTHS 1 2 3 4 5 6 7 8 9 10 11 12 15 18 21

In-depth interviews with top management
define the role of CI in the company
gauge existing level of CI awareness & acceptance
match requirements with present capabilities
identify intelligence gaps
determine a potential communication structure for efficient flow of actionable CI
Assessment Development Pilot Test Evaluation Implementation Threshing out Global Chemicals’ specific needs for Competitive Intelligence Key Intelligence Topics Evaluating current CI practices, systems, difficulties & expectations CI Capabilities & Uses

Designing a customized CI system
Some key considerations:
team leadership
number of CI professionals in the team
required skill or qualification
location of the CI unit (regional, local or both)
reporting lines (CEO, Marketing, Strategic Planning, etc)
communication facilities & protocol
links & access to internal resources
level of external resources required to fill CI gap
CI process flow
roles in the CI effort (regional, local, business unit)
standards & procedures (collection, analysis, reporting)
use of technology
Assessment Development Pilot Test Evaluation Implementation

Experimenting with a tailored CI prototype Acceptance Authority Education Designation Project Execution Monitoring Assessment Development Pilot Test Evaluation Implementation
by top management of the prototype
ensure cooperation of pilot unit
conduct CI information campaign
assign & discuss roles
integrating CI within the system
launching specific tasks & projects
provide guidance & trouble-shooting

Measuring value & fine-tuning Assessment Development Pilot Test Evaluation Implementation Process Outcome Costs Effort Acceptance Usability Setting output standards Gauging goal attainment Through observation, survey & in-depth discussion with key users & executives from both regional & local offices Making required adjustment
Re-align
Re-set
Re-focus
Re-define
Re-examine
Remove
Review
Re-test

System roll-out to other business units Assessment Development Pilot Test Evaluation Implementation ADJUST
to enhance performance feature
to adapt to changing needs & skills
PLAN
final system design
implementation design
EXECUTE
by business / geographic unit
conduct system-wide project
EVALUATE
as a stand-alone unit
as part of the regional structure

CI needs vs. capabilities landscape
Improvements on coordination, project management, KM inputs
Prototype CI structure & system
Pilot implementation plan, training manuals
Result of test project
Effectiveness of pilot program
Recommended system adjustments
Final structure, roll-out plans, resource requirement
Result of system-wide test project
System evaluation & recommendation for improvement
Periodic review & consultation
Assessment Development Pilot Test Evaluation Implementation

External Competitive Environment Key Executive Users of Intelligence 3rd Party CI support Central CI Unit
regional & local coordination
network of in-house experts & analysts
collection workforce
internal databases
Internal CI Initiatives
CI research support
on-going process consultation
online databases
External CI Sources

The CI Think Tank Model TASKING > SENSING > INTERPRETATION

Questions or Comments?
www.ReconG2.com www.AuroraWDC.com
Arik R. Johnson Intelligence Leadership Institute [email_address] +01-715-720-1616 Derek L. Johnson Research & Analysis Bureau [email_address] +01-608-268-3470

The Competitive Intelligence Continuum - Taking Wisconsin to the World

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