Competitive intelligence is both a product and a process. The product is actionable information -- can be used to take specific actions (e.g. prepare a winning sales proposal). The process is the systematic means of acquiring, analyzing, and evaluating it.

Many companies use competitive intelligence to take market share from known competitors. A more productive use is to use it to help formulate long term, noncompetitive strategies. In this role, intelligence can:

• describe the current environment;
• forecast the future environment;
• challenge underlying assumptions about economic, political, technological, or market-related factors;
• identify and compensate for exposed weaknesses;
• adjust an existing strategy to the changing environment or determine when a strategy is no longer sustainable.

The intelligence process
The intelligence process consists of four major parts:

• decide what questions need to be answered;
• gather and process relevant information;
• analyze the information relative to the questions to be answered;
• disseminate the results to the people who need it.

The process can have a discrete beginning and end or it can be ongoing and iterative, designed to gather and disseminate information throughout an individual organization or, ultimately, throughout an entire business ecosystem.

Three key skills
The intelligence process requires three kinds of skills:

• interviewing skills (primary research);
• information retrieval skills (secondary research);
• analytical skills (e.g. financial analysis, management profiling, synergy analysis).

Market researchers, librarians, and M.B.A.'s generally have one or more of these skills. Other employees who have hands-on knowledge of a particular industry can learn research basics through commercial seminars, on-site training sessions, and/or continuing education courses offered through a local university or community college.

Conventional sources
Conventional sources of information for competitive intelligence are:

• internal information (data about what customers purchase, competitor proposals collected by the sales force, employees recruited from competitors);
• published material (newspaper articles, government filings, credit reports);
• interviews with industry opinion leaders, trade association staff, the competition's other competition.

Unconventional sources
To do a good job of challenging underlying assumptions, it is necessary to go beyond the traditional sources. Here are some "unconventional" sources that will prove valuable:

• remarkable people -- both "official experts" and "ordinary" people with fresh insights;
• sources of surprise -- novels and stories, especially science fiction, often contain mind-expanding ideas;
• filters -- editors and anchor people "filter" the news, and their choices are often instructive;
  immersion in challenging environments -- traveling in foreign countries is one example, attending a conference in another discipline is another;
• networked sensibilities -- computer conferencing permits global information sharing on a grand scale.

Legal and ethical issues
In spite of the term "intelligence," which conjures up visions of clandestine spy organizations, a wealth of information can be obtained using public sources and employing legal and ethical methods. However, some intelligence gathering activities can involve potential violations of privacy laws and regulations designed to curb insider trading and restraint of trade.

In general, competitive intelligence researchers should avoid making false representations, do not record conversations without permission, and refrain from exchanging price or market share information.

Information gathering tools and techniques
A choice of tools and techniques is available to the competitive intelligence researcher:

1. In-house vs. outsource. Both primary and secondary research can be obtained from in-house staff (market researchers, librarians, strategic planners) or from independent contractors. Hourly rates for contractors range from $40 per hour for literature searches to $250 per hour for interviewing and analysis.

2. Manual vs. electronic techniques. Much of the published information needed can be obtained in print form from a corporate, public, or academic library or in electronic form through a commercial service. Electronic sources are more comprehensive, up-to-date, and faster to search. Several databases can be searched at once or queried periodically against a user-specified profile.

3. Project vs. system. Intelligence can be conducted on a project or ongoing basis. Increasingly sophisticated software (using artificial intelligence) is being developed to automate certain aspects of a continual intelligence process.

Costs
Costs are influenced not only by the choice of tools and techniques, but also by the ease with which information can be collected. For example, information on public companies that operate on a national or international basis is easier to find than information on small, local, privately-held firms.

A great deal of information is available on highly regulated or concentrated industries, since companies in these industries must file many government reports. Industries that make heavy use of consultants will be covered in specialty newsletters and will be the subject of market research reports. Companies (such as biotechnology firms) embroiled in controversial issues are likely to be widely and frequently covered by the national and local news media.

When there is a dearth of published information, competitive intelligence researchers must use personal interviews and sometimes incur travel costs to view original documents available in the basement of a local town hall. That rapidly drives up costs.

Analytical techniques
Data gathered from literature searches and personal interviews must be processed through several stages to create an actionable competitive intelligence product -- information that can be used in decision making.

After information has been compiled and verified, several analytical techniques can be applied:

• Strength and weakness analysis — do we -- or our competitors -- have what it takes to our maintain our lead or get into this line of business?
• Financial statement analysis — are our current ratios in line with industry averages?
• Industry segmentation — are we ignoring new groups of buyers?
• Technology assessment — how will this new technology impact our business?
• Merger and acquisition analysis — does this firm meet our acquisition criteria?
• Issue analysis — how will health care reform affect us?
• Benchmarking — how do we rank on a certain issue (e.g. technology spending) vs. other firms?
• Critical success factors — are currency rates key to our success?
• Management profiles — a major trading partner has a new president -- how will that affect our relationship?
• Industry scenarios — what are three plausible scenarios for the next 10 - 20 years and how would each affect us?
• Synergy analysis — which companies should we approach for possible joint ventures?
• Portfolio analysis — what kinds of investments constitute a competitor's long and short term assets
• Reverse engineering — can we make a competitor's product better, faster, or cheaper?

Benchmarking
Benchmarking is a very popular type of analysis used to develop "meet and beat" strategies. It has six components:

• decide which functions to benchmark;
• select best-in-class companies (those you want to emulate);
• measure performance in certain functions for the best-in-class companies;
• measure your own company's performance;
• take action based on the results.

The functions to benchmark will vary by company and/or industry. Some common ones are cost, financial performance, and "differentiation" variables (e.g. proprietary technology, control of distribution channels).

Benchmarking has two problems. First, there's the difficulty of companies measuring their own performance. A common problem is that comparable data is hard to come by, making "apples to apples" comparisons difficult. Second, benchmarking focuses on the past, when a more productive approach might be to focus employees on developing innovative ideas and solutions.

The final goal: take action
The ultimate goal of competitive intelligence -- taking action -- can be one or more of the following:

• Try harder;
• Emulate other companies;
• Leapfrog the efforts of other companies, if possible;
• Change the rules of the game, if possible.

Actions are more likely to succeed if the intelligence gathering effort has been participatory at all levels of the organization and has the firm support of top management.

Monitor results
Data gathering and analysis can (and probably should be) an interactive process, designed to measure improvement and "recalibrate" due to changes in the environment.

A final caveat
While the competitive intelligence process can be a very important strategic planning tool, it has its limitations and pitfalls. Focusing on short term problems or one's own industry can prevent companies from seeing greater threats and opportunities. Simply copying techniques identified in the benchmarking process can result in wasted time and money if they don't transplant well into a new environment.

Furthermore, competitive intelligence researchers have two recurring complaints:

1. They lack access to key internal information that could impact their research.

2. Decision makers don't listen to them, even when the stakes are high. People are reluctant to accept bad news or advice that contradicts an established belief system.

About the author
Jean Graef introduced the Internet to the competitive intelligence profession in 1995. Since then, she has conducted CI research and offered CI training sessions for a wide range of companies. Currently, her organization helps organizations develop systems to manage internal knowledge. For more information, see http://www.montague.com