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JUNE 16, 2000


Spies Like Us

You don't need to be James Bond or IBM to use competitive intelligence. Here's how it works

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TABLE: Tools of the Trade

TABLE: Getting Started

TABLE: When Temptation Beckons

CHART: The Spies Have It

Management Archive


Two old trucks, $16,000, and a great idea--that was all Greg Laube needed to launch The Paint Bull in 1989. Competition was the last thing on his mind. After all, his special system for touching up scuffed bumpers and key scratches quickly turned into a huge hit with used-car dealers. Sales took off and kept growing--until 1994. That was when Laube suddenly realized he wasn't alone anymore. He was starting to lose customers to competitors he never knew he had. "People began to tell us they were 'looking at someone else,"' says Laube. But who?

Laube instituted a crash plan to gather intelligence. Relying mostly on information from customers, trade shows, and automotive magazines, he and his staff combed the marketplace for competitors--and phoned every single one, without identifying themselves as rivals, to find out what they were offering. Then they rigorously reviewed their own products and services to see how they could be improved. One resulting product: a trademarked repair system called Micropatch, which reduces the time for a paint touch-up to one hour.

Since then, Laube has moved from what he calls "primitive" intelligence gathering to a more formal system, hiring computer whiz Peter Avery in 1997 to head up Paint Bull's intelligence efforts. Avery, who is also in charge of vendor sales, keeps tabs on their competitors and the automotive industry with Web monitoring services that cost, in total, about $200 a month.

For years, big corporations have practiced competitive intelligence (or CI)--a system for gathering information that affects a business, analyzing the data quickly, and then taking action. Used properly, CI can speed a company's reaction time to changes in the marketplace, help preempt and outmaneuver competitors and protect a business' own secrets from prying eyes. To be sure, CI is a billion-dollar growth industry of seminars, books, and high-priced consultants. But small companies such as The Paint Bull are learning that CI can help them, too--and it doesn't have to cost a bundle. ("Getting Started," page F.31) "CI enters the small-business person's world first as a mental model, as a way of thinking about who you are in the world," says Pamela J. Noe, a Central Intelligence Agency officer on loan to George Washington University, where she's teaching small-business owners and others the discipline of competitive intelligence. "You may start playing around on the Internet, and discover not only that you have competitors all over the world--'My God, I'm not the only one who does this!'--but that your customers can do the same." Noe teaches, among other things, how to protect trade secrets and spin out competitive scenarios, imagining new products that could threaten yours--even if they haven't been invented yet.

More than anything, competitive intelligence, says Laube, is "a catalyst to product innovation." He credits such astute use of information with helping The Paint Bull discover 10 new competitors, beat rivals' special offers, and develop new services, such as training and research, to stay ahead of the pack. Without those steps, he adds, "I would have lost 40% of my market share." Instead, The Paint Bull has grown to $3.1 million in annual sales with 42 employees.

To the uninitiated, the very mention of the term "intelligence" may conjure up a torrent of John Le Carre/cold war spy fantasies. Don a trench coat if you must. But CI isn't spying. Unless you're willing to serve a prison term for violating the federal Economic Espionage Act, don't plan on bugging your competitors, stealing files to get trade secrets, or assuming a false identity to gain access to your rival's inner sanctum ("When Temptation Beckons," page F.32). And while frontier isn't suggesting you paw through your competitor's garbage (yucky, but legal as long as you don't trespass), do be aware that someone could go after yours. Just ask Michael Smolensky, CEO of Lifeway Foods Inc., based in Skokie, Ill., which sells kefir, a cultured milk product popular in his native Russia. Four years ago, Smolensky, who had developed his own secret recipe, got a call from his supplier, saying: "Michael, someone is trying to steal your secrets." Turns out, a prospective rival had called to ask the supplier for certain ingredients by their secret codes, known only to Smolensky and the supplier. He had picked them out of Lifeway's refuse. Smolensky immediately bought a shredder and hired a commercial espionage expert Boris Parad, author of Commercial Espionage: 79 Ways Competitors Can Get Any Business Secrets in Any Country (Global Connection, 1997). He vowed never to be caught napping again.

Think nobody is watching? Spy shops around the country do a booming business in such gadgets as fountain-pen-size video cameras, encryption devices, infrared viewers, and other espionage tools. Sean Rogers, a manager at the Spy Shop in downtown Washington, says most of his store's sales are to "corporate customers." Investigator James M. Atkinson, whose Granite Island Group in Gloucester, Mass., sweeps offices for "technical surveillance" devices, tells of a videoconferencing camera that turned itself on and began recording a board meeting of a client, a small East Coast medical company, to the astonishment of everyone in the room. Atkinson traced the culprit to a rival company halfway across the world in East Asia, where someone who had visited the company months earlier had found a way to activate it remotely. Richard J. Heffernan, a corporate security specialist in Branford, Conn., says that sort of thing "happens all the time."

Page-turning stuff. But, the truth is, you won't need any high-tech listening devices to get the information you need. The resources are rather prosaic, and mostly in the public domain. Information can be gleaned by surfing your competitor's Web site, reading the local paper, or hanging out at the bar where your rival's staff congregates (If you ask point-blank for information, they might just volunteer it). Also useful: trade shows and pcations, your local library, and your own employees.

You never saw James Bond poring over census data, but it's a useful resource for competitive intelligence. It's how Paul and Vicki Scharfman, who run their $7.5 million Specialty Cheese Co. out of an old farmhouse in Lowell, Wis., zoomed in on an underserved but growing demographic--Hispanic and Middle-Eastern families--and carved out a competitive niche selling specialty ethnic cheeses to those groups rather than battle the Krafts of the world. "We make good cheese in small batches," says Paul Scharfman. "But our most important ingredient is information."

The techniques for finding and analyzing that information are easily taught. The Canadian government considers CI such an important tool for small companies, which account for 98% of the country's enterprises, that it has been sponsoring seminars and mentoring programs since 1992 to help them survive in a global economy. "If you're Coca-Cola, and you read the market wrong, you can buy your way out of the problem," says Jonathan Calof, who directs the two-year-old Canadian Institute of Competitive Intelligence, a research and advocacy organization. "If you're a small business, and you read the market wrong, you're dead."

That has been Scharfman's ongoing concern. Constantly keeping abreast of business trends and his competitors, he has successfully launched, repackaged, or withdrawn many products over the past decade because of dogged market analysis. Two years ago, he studied market data and retailers' comments that pointed to the growing popularity of low-carbohydrate foods, and quickly came up with a plan to reposition his unsuccessful gourmet baked-cheese snack. He repackaged and relaunched it as "Just the Cheese." It's now featured on diet doctor Robert C. Atkins' Web site, with a link for easy ordering. Sales have grown to 7% of revenues and now account for a third of the company's profits. What took this out of the realm of ordinary marketing and made it competitive intelligence was the alacrity with which Scharfman moved to transform this slow-moving "gourmet" iteook for, but if you can get them to play nice and share their toys, you're on your way."

Scharfman has made such information sharing an integral part of his corporate culture. He routinely tells his employees and suppliers to feed any relevant news, good or bad, "up the ladder to Paul." That's how he surmised that a competitor was on the verge of raising prices. In 1996, one of his vacationing employees went 20 miles out of his way to pass a rival's cheese plant in a drought-stricken area. He made two vital observations and related them to Scharfman when he returned: The plant was not only running on the weekend, when milk could be bought more cheaply, but also accepting delivery from larger trucks (a tip-off they came from far away).

Scharfman grasped the significance of this right away: This competitor was evidently in distress if he was going to such lengths to stay open. Evidently, local milk was scarce and expensive. Soon, he would have to raise his prices, Scharfman reasoned. So he took advantage of that opportunity to roll out a new line of Hispanic cheeses in Chicago, his rival's stronghold. Sure enough, the competitor hiked prices and Scharfman's new cheese took off, getting the toehold it needed in the marketplace.

Scharfman's CI costs are negligible, but some small companies, especially in the hotly competitive high-tech and pharmaceutical fields, will pay big bucks for fancy consultants and sophisticated databases to ferret out juicy market data. Bill Lipsin, CEO of Ironside Co., a manufacturer of business-to-business software based in Pleasanton, Calif., last year spent more than $100,000 on Web-based monitoring and analytical services, such as Current Analysis, that he says helped him to outflank two of his rivals. He learned by analyzing industry reports that his competitors were about to introduce e-commerce software that could check the status of prices and orders. So he beat them to the punch with a more affordable system. As a result, he says, his revenues climbed 50% in the last four months of 1999, and his 91-person staff grew by more than half.

Others, more concerned with the defensive aspects of CI, go so far as to hire high-priced security consultants and counter-espionage experts. Kristine Doyle of Clik Communications, a New York company that creates reports and presentation materials for financial institutions, couldn't land certain clients without ironclad guarantees that their confidential merger-and-acquisition data would be safe. So she hired Clarence M. Kelley, the former FBI director, to advise her. He installed hidden cameras, bulletproof windows, an electronic key system that only she can program, fingerprint scanners to alert her if an unauthorized person tries to open a door, and other James Bond-ish paraphernalia totaling $50,000. "I wondered at first if I was being excessively paranoid," she says, but those measures satisfied her most elusive prospects. Within two years, her four-person, $1 million-a-year company has grown to 30 employees, and she expects it to pull in close to $4 million this year.

But CI can be downright basic--as simple as paying attention to a rival's public utterances and ng on them. Jay Bloom's Pet Assure, a national pet health-care provider network based in Dover, N.J., recently took advantage of a rival's naivete. When a West Coast provider of catastrophic pet coverage "pre-announced" the addition of a wellness component (Pet Assure's specialty) in an interview with a tiny community newsweekly, six months prior to launching it, Bloom was notified immediately through a Web-based news monitoring service. This not only gave him time to add catastrophic benefits to one of his own wellness products, it also got his offering to market first. "That's a mistake a lot of small businesses make," Bloom says. "You should never lose sight of the fact that competitors are watching everything you do." Spying? Well, probably not. More likely, just using intelligence.


Tools of the Trade

There is no one set of tools for monitoring every market. Here's a selection of resources, many of which are free or low-cost:

FREE DEMOGRAPHIC INFORMATION:
The U.S. Census Bureau (www.census.gov), The Annual Demographic Survey (www.bls.census.gov/cps/ads/adsmain.htm), The Population Index (popindex.princeton.edu).

FREE BUSINESS DATA:
Thomas Register (www.thomasregister.com): free online version of the $150 sourcebook on U.S. and Canadian companies.

USEFUL CI LINKS:
Fuld Co.'s Internet Index (www.fuld.com/i3/index.html). An impressive list of links of both free and fee-based resources.

WEB MONITORING SERVICES:
KnowX.com (www.knowx.com) Searches public records for bankruptcies, liens, and judgments against individuals and businesses for $15 or less.

TRACERLOCK:
(www.peacefire.org/tracerlock/) A free service that notifies you by e-mail of any new Web site that contains a name or keyword you've entered.

GAME:
CI Intelligence Organizer (www.fuld.com/ciStrategiesOrganizer.html) A free game board that helps you focus on different business situations, such as a rumored product introduction by a rival, and the type of intelligence you'll need to respond.

PROFESSIONAL SOCIETY:
Society of Competitive Intelligence Professionals (www.scip.org). For timely news about conferences, seminars, resources, CI ethics, and Web links.

BOOK:
Millennium Intelligence: Understanding and Conducting Competitive Intelligence in the Digital Age, Editor, Jerry Miller, Information Today, 2000. Includes a chapter on small-business applications.


Getting Started: Competitive Intelligence 101

To begin your own competitive-intelligence program, you need to set up a system for gathering, analyzing, and acting on information

-- Decide what kind of information you need. Analyze the factors that have won or cost you business.

-- Tell your employees what to look for. They should pay attention to subtle shifts in the marketplace, such as changes in a competitor's pricing patterns.

-- Create an information-sharing system. Employees who come across something interesting should know how to share it, whether through an "idea box" or groupware such as Lotus Notes.

-- Make competitive intelligence everyone's responsibility. But designate one person to catalog the collected information and keep it up to date.

-- Give your employees feedback. Use a newsletter or e-mail to let them know how the information was used.

-- Seek multiple sources. Don't make a decision based on a single source of information.

-- Be aware of your blind spots. It's the things you "always" or "never" do that might keep you from acting upon information and seizing a new opportunity.

-- Imagine "what if." Use the information you gather to imagine possible scenarios, such as how your competitor would react if you rolled out a product or what you would do if the market shifted.


When Temptation Beckons

What's legal and what's not? The Society of Competitive Intelligence Professionals clearly condemns any illegal activities to gather information and has strong ethical guidelines. Some hypotheticals:

THE SITUATION: On a client's behalf, a consultant is trying to research a competitor's strategy for a soon-to-be-introduced product.

LEGAL: Review all information in the public domain; interview competitor's suppliers, ex-employees, and customers; interview current employees if you identify yourself in advance.

UNETHICAL: Say that you're doing a benchmarking study for various companies in the industry when you're really working for one company only.

ILLEGAL: Pay rival's current employees to provide information.


THE SITUATION: During a long flight, your seatmate leaves a document entitled Marketing Strategy for Product X--a plan written for a direct competitor--on his seat.

LEGAL: You shouldn't look at it. When he returns, advise him that you work for a competing company. If he chooses to keep reading, it's at his own risk.

UNETHICAL: Take notes on key elements of the plan, then put it back where you found it. (Some might argue that you can't protect him from his own stupidity.)

ILLEGAL: Hide the document in your bag.


THE SITUATION: You've just hired a rival's longtime employee who worked on a product that directly competes with yours.

LEGAL: Ask general questions about the industry and her old company's known strategies. Ask about product strategies not identified as confidential during her employment there.

GRAY: Ask about something you know is protected under trade secrets law, although the competitor didn't necessarily make that clear to the employee.

ILLEGAL: Ask for details of her former company's structure, products, future plans, and forecasts that were labeled confidential, proprietary, or a trade secret.


The Spies Have It

As a CIA officer, Pamela J. Noe has tracked weapons of mass destruction. Now she's on loan to George Washington University in Washington, where she teaches students--including many small-business owners--how to use competitive intelligence. She recently spoke with reporter Carole Ashkinaze. Some excerpts:

Q: You still work for the CIA. Are you teaching students how to spy?
A:
Absolutely not. Competitive intelligence is not industrial espionage. This is not about clandestine information. You've got to comply with the laws. Don't violate a single law. You can be hugely successful without ever having to do that.

Q: Then what exactly is competitive intelligence and why do small businesses need it?
A:
It's a system with which you constantly reevaluate what it is you do, and the environment in which you do it. Harry Truman created the CIA to integrate the information the government had in lots of different offices related to security and surprises. This concept is especially important to small businesses, which feel the impact of market fluctuations and competition sooner than large, diversified ones. You don't know what's around the corner. Your biggest threat may come from a product that doesn't exist yet.

Q: How can small companies afford competitive intelligence?
A:
You don't have to set up a huge, sweeping program all at once. If you have a phone, a PC, and an Internet hookup with e-mail, and you're going out to seminars, lunches, and other events, you've got the basics. Now what you need is to pause, evaluate what you've got, scrub all your previous assumptions, and make notes.

Q: How can you protect your trade secrets?
A:
The Economic Espionage Act of 1996 provides stiff penalties for theft of trade secrets, but only if you've taken "reasonable measures" to protect them. Start with an inventory of your trade secrets. Make sure your employees know what they are. Write them down.

Q: How can I learn what my competitors are up to?
A:
You can legally ask anybody anything as long as you don't misrepresent yourself. You can go to your competitor's firm and say, "What percentage of the market do you think you're going to get with your new product next year?" And you know what? Eighty percent of the time they'll tell you. It's amazing.


By Carole Ashkinaze

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