Fortune Nov. 14, 2005 carried a short piece on The Corporate Library (TLC), an independent agency rating corporations for the performance of their board of directors (”Forecasting the next big blowup”, pp. 46-48). If you have not seen this piece, get it. It is an amazing tool in the movement to make our discipline the premiere Early Warning tool for management.

The Corporate Library bases its grades on such thorny issues as CEOs’ compensation packages (which have to be approved by boards), the board’s composition (how many CEOs are on it -lower grade to higher number- how many independent directors are appointed who do not own their loyalty to the CEO), the company’s responsiveness to shareholders, the board’s record on strategic decisions (i.e., how many delusional acquisitions it approved), and so forth. A treasure of early warning signals. TCL anticipated the collapse of Global Crossing, Tyco, Kmart, AIG, years before the companies imploded. You should watch the short video clip of TLC ’s co-founder Nell Minow appearing together with Cotsco’s CEO on ABC 20/20. This is mind boggling demonstration of what good leadership is about (go to www.thecorporatelibrary.com and click on it under News and Events on the RHS on the screen).

There is something very appealing in the reasoning behind TCL’s early warning grading system. Anyone who believes strategy is important, and anyone who believes early warning about strategy going awry must be heeded by top execs, can see why incompetent boards are a sign of a potential forthcoming disaster. The boards who don’t do their job are typically maneuvered by strong CEOs who don’t do their jobs, either. In other words, lack of superior strategy coupled with a thick headed know-it-all leader who won’t listen to anyone but himself is a recipe for disaster. If the boards do not serve as the ultimate strategic think tank, then the company is just waiting to implode. TLC currently warns about Home Depot, Lucent, Wells Fargo and Viacom. Can anyone points to these companies’ superior strategies (aside from being everything to everyone which is not a strategy)?

Go see the profile of your competitors’ boards on TLC’s site. It may be a better EW tool than any tactical competitor’s profile you complie from the typical news feeds. Then see your company’s profile too. Maybe you should start packing now..

Ben

The Academy had the largest Fall program ever, ending this week. Everyone tries to imitate us, and yet we are flourishing. I assume it has something to do with our strategy. I’ll come back to this.

At the end of my last course on Nov. 16 (Value Chain Analysis), Marna came to me and asked, “What should I do for Industry value chain?” The course I teach is about a company’s value chain (from inputs to after sales service). Then Tim came to say Bye and asked “what is the best way to do industry value chain?”. Then someone else did the same. All three asked me the same question independently of each other within the same 5 minutes, and I thought: this deserves an answer.

Industry value chain, the way I understand it, refers to whom in your industry seems to capture the most value (is it you? Your competitors? The suppliers? The distribution channels? Substitutes?), and perhaps more importantly, what new values are being created and captured from your buyers, and should you try and join that game. The way I see it, the analysis must go through the following steps:
1. Define the industry. Who are you looking at? Depending on the client for your analysis (corporate development? Division? BU’s management?) your industry boundaries will change. I personally prefer the narrower definitions where business strategy actually applies. My test is how different are the five forces between segments? If the buyers are different, or barriers are different, or dynamics of competition are different, there is no point in lumping segments (industries together). The industry of commercial aircrafts manufacturing, for example, is not the same as military aircraft manufacturing.
2. Do a five force analysis. The basic tool for industry value chain remains Porter’s old five force model. The model will flash out value creation in your industry. Remember Cramer’s case? It was the suppliers capturing all value by going direct and lowering their cost (learning curves effects). In the Chain Saw case, distribution channels were starting to capture the value (mass merchandisers) and industry players caught in the middle (nor here nor there) declined. Different clusters (from strategic mapping) capture different values, so it may very well be your company is in the wrong cluster. This is not a quantitative analysis. You can place numbers on it if you feel it is necessary: clusters’ average operating profits/sales ratios for example, various suppliers’ margins, buyers’ margins (if not consumers), etc. My feeling is it is not necessary. Flushing out value in a value chain can be done qualitatively by looking at changing bargaining power.
3. From the basic five force model,, identify new industries (products or services differing from your current ones) where you think value is migrating. For those industries, do another five force analysis to determine their reasons for being attractive.
4. Finally, the five force model will tell you if an industry is attractive (allows for value capturing). But it won’t tell you if you can do the capturing. That’s the area of strategy, and that’s why I created the new course “The Role of CI in Strategy”. You have to first identify the most desirable strategic position available for you either through organic growth or acquisition. That requires an analysis of over-served or under-served segments in the industry under focus. According the the new Porter’s thinking (i.e., NOT his generic strategies from competitive Strategy), there are three bases for determining strategic positions in such a setting, and the course in Miami (Feb. 10th) will deal exactly with that. I am inviting anyone who wants to understand strategy and creating a sustainable strategic position to attend. The role of CI analysts in this arena is derived from the essence of what creates a defendable strategic position.

This new course also allows me to test a new teaching methodology. In addition to my usual case studies and Socratic Method of discussion, I intend to use the group for peer review of industries five forces. We will select several industries from among those participating in the course, and dissect their five forces as a group effort. Sometime (but not always!), what strangers can see, familiarity obscures. With my prodding, we will try and see areas where new value is being created and who is capturing it. If we fail, we can always end the session early and go to the beach.

The Burning Bush

Ben Gilad

A recent report released by a team of former CIA analysts, led by a former deputy CIA director Richard Kerr, reveals that in the months leading to the invasion of Iraq, the Bush administration’s policy committee was very receptive to the (wrong) technical intelligence about the non existent Iraqi WMD weapon program, but paid little notice to intelligence on post Saddam Iraq, which correctly assessed the future strife between the various Iraqi factions, as well as the impact on oil markets, the way the war will develop and the links of Iraq to al-Qaeda. The report goes on to conclude that expensive electronic intelligence gleamed from satellites was of little value. According to USA Today (October 12, 2005, front page), the report says that intelligence analysts failed “to question their assumptions” about Iraq chemical, biological and nuclear weapon development, which in turn fell on willing ears at the administration who were trying heavily to make the case for the war. “Heavily qualified intelligence judgments” were quickly converted to “accepted facts” when administration staffers took over.

The report may or may not get the full public attention it deserves. It was published in an obscure (to the public) professional intelligence publication Studies in Intelligence. The Bush administration’s response was classic Bush: never admit fault, never fail to commit a blunder. Whitehouse spokesman Fred Jones hastened to disparage the report as “vehemently disputed.” In my mind, the only thing vehemently disputed is Bush’s qualification to be a president, and I am looking forward to Fred Jones admitting that. And lest you think I am one of those sore liberals, I actually voted for this most incompetent of presidents.

Yet politics aside, this report is very valuable to us in the CI world. Think: if in a domain where intelligence receives top billing, enormous funding, a seat at the President table and a regular top briefing, decision makers still selectively adopt what they like out of intelligence analysis, what can one expect from business executives? My estimate is that 80% of CI collected by CI managers following management questions (those dreaded “CI projects”) is used as confirmatory intelligence to support already declared positions, and not as reality check or strategy forming input. The executive discard what goes against his or her beliefs and gladly adopt the “right” slides. “We need to change a little of your presentation, just make the tone different.” Sounds familiar? If not, do not consider yourself lucky, yet. It might be management does not even get exposed to your analysis.

It is also interesting where the CIA analysts were right – in all those strategic issues that required insight based on mostly open sources and sound minds. The hatred between Sunni and Shi’a is known to anyone who lived in the Middle East for more than 2 days. The impact on oil required understanding of markets and economies, not secret data. The state of Iraqi military preparedness could be gleamed from just watching the funny marches they put on prior to the war. It is when there was little data (as in the case of WMD), analysts started inventing their own, calling in the expensive technology, and getting zip in return. There is no substitute to Humint, and Moses knew it 3500 years ago. And I thought the Bush administration did one thing well – read the bible…

How Much is Your Competitive Intelligence Worth?
By: Jan P. Herring

Intelligence professionals are often asked to assess the value of their business or competitive intelligence (BI/CI) effort. Most say it cannot be done. I disagree! You can measure its value; both quantitatively and how it is perceived, especially by those that use it. Let’s discuss these two objectives and some ways to approach the task.

I first addressed this problem in a research report, Measuring the Effectiveness of Competitive Intelligence, which I produced for SCIP in 1996. Our objective was to find some quantifiable means of evaluating competitive intelligence (CI). In that project, I interviewed some twenty senior executives, representing eight major companies in very different types of businesses, ranging from aerospace to electronics and including financial services. Surprisingly, none were interested in quantitative measures for their BI/CI programs. In fact, the CFO of the financial services firm did not mention financial measurement of any kind during the formal interview. When questioned about the absence, he replied, “We want to see our BI cause the business to take action ¬ – we can always go back and measure its financial value later!” All the executives interviewed stated they expected to see the BI/CI have some “visible” impact on the company and/or its management decisions.

In addition to simple ROI calculations, the SCIP research identified four quantitative and several qualitative measures that might be applied, including:
– Time saving: Savings for both professional and support personnel.
– Cost savings: Elimination or reduction in expenses.
– Cost avoidance: Elimination of planned expenses.
– Revenue increases: Increases in the number of sales or size of sales.
– Value added: Benefits not easily related to specific dollar values, e.g., more effective strategies or better new products and services.

Assessing Project Value
Such measures-of-effectiveness (MOEs), as they are called, can best be applied to specific projects but they should be selected before the project is actually begun since it is difficult to go back and recover project-specific data after it is complete. I suggest selecting a couple of MOEs initially to be sure the expected result is amenable to the type of measurement you have chosen.

A brief example may be helpful. The management of a high-tech firm decided they needed to diversify their product base but still leverage their technological competence. They would use their existing biotech production process but produce an entirely different type of end-product. To do this as quickly as possible they had decided to purchase the end-product technology for $2.5 million from another firm and use their own production processes and facility.

However, because the new product would have to compete in an entirely difference market they needed both marketing support and competitive intelligence for the new product’s intended marketplace. They would hire an appropriate market research firm but decided to form an ad hoc CI team made up of 4-5 current employees (working part-time).

The ad hoc CI team performed all the usually CI operations. In doing so, the team identified a technical conference where the new $2.5 M product category would be featured. This would provide an excellent opportunity to get a look at both competing product technologies and the competitor companies that the firm would be facing in the new marketplace.

The team prepared well for the conference, including both business and technical personnel. The CI that they collected on the new competitors was great – they not only learned who they were but a lot about the competitive tactics used in that marketplace. But the real surprise came from the competitive technology intelligence (CTI) acquired. The firm that was selling the new-product technology gave a public presentation intending to increase its sales, and in so doing divulged a great deal of the technology’s specific composition – probably more than they had intended.

When the CI team returned from the conference, they met with their own scientists and patent attorneys and it was concluded that the technology, which the firm had intended to purchase for $2.5 million, had been publicly revealed. The firm would not have to purchase it!

The CI team had, from its formation, intended to show the project’s cost-benefit. It kept all the cost data, but was not sure what type of performance measure it might use. A simple ROI was the most likely. As it turned out, the $2.5 M not spent, which falls into the category of “Cost Avoidance” (planned expenditures not spent) was an easily recognizable MOE. But because they had kept good records on the ad hoc CI teams expenses, i.e., about $175,000, they were also able to calculate the project’s return-on-investment: $2.5M minus costs ($175K) divided by cost ($175K) resulting in a simple ROI of over 1,300%. Either measure was more than acceptable to the company’s management team.

Assessing the CI Program’s Value
Programs as a whole are somewhat more difficult, but with some effort on the part of all involved the results can be very satisfying. For example, the NutraSweet BI program was estimated by the company’s CEO to have been worth a least $50 million a year over a 5-year period during the early1990’s. That assessment process was a joint effort, with the BI Department identifying the business decisions and major projects that they had contributed to over the five-year period, and the Finance Department assessing the dollar value for each. Not all BI contributions were accepted, however. The final sum, which was a combination of money saved and/or made, resulted in the $50 million/year average. When Bob Flynn, the CEO, reported the finding at the 1994 SCIP Annual Conference in Boston, he stated that it was in fact a very conservative estimate. For a program that cost about a million dollars a year, that was a pretty good ROI! (Though management was quite satisfied with the dollar amount alone.)

Making CI Success a Part of Corporate Culture
However, I believe the best measure of a CI Program’s value comes in the form of “success stories” – told by those that have benefited from the CI. For example:
• P&G’s competitive benchmarking of a competitor’s distribution system saved it some $40 million when they applied the lessons learned.

• Motorola’s successful acquisition of a European firm, credited to its BI Department, increased its yearly European profits by some $10 million – which is a good example of revenue enhancement.

• NutraSweet’s CEO commented that one decision – not to react to a competitor’s perceived initiative – actually saved the company $38 million. (A classic example of the cost saving MOE.)

• GM’s competitive benchmarking program was credited with saving the company hundreds of millions in comparable manufacturing costs.

• Merck’s CI Program was judged to be worth over $100 million in retained sales for one product alone.

The telling of such success stories by a company’s management is not only good for the CI program’s success, it also adds to the shared belief that CI is a good thing for the company – making it a part of the organization’s “corporate culture”.

In the final analysis you can evaluate your company’s CI effort – if you properly define what and how you intend to measure. In my experience, senior level users of BI/CI are not as interested in financial or quantitative measures of your CI products & services as they are in having intelligence that visibly affects their decisionmaking or business actions in a positive fashion. They do, however, expect to see some form of related action. Those actions that result in grater sales, profits, or other measures of business success are the most valued.

An old friend and associate, Robert Steele, probably put it best, “Information costs money … Intelligence makes money!” Essentially, any competitive information that a business manager acts on becomes intelligence. And, intelligence used by a company that makes money … is good intelligence!

By Leonard Fuld

The reason competitive intelligence programs often fail in companies is because the people in charge of developing intelligence make one or a number of potentially fatal mistakes. I list a few of them here. You may believe there are others, or you may disagree with me altogether. Nevertheless, here is my view of reality.

1. Anal retentive analysis: I recently visited a prospective client who wanted to know absolutely how we would uncover every piece of data. It was an unusual meeting, but reminded me about the lessons of the extreme. He wanted 100% assurance that we would develop THE answer. He wanted every piece of a competitor’s strategic puzzle assembled, locked up and fully understood. Anything less then perfect and he would not hire us.

We told him the truth; he did not hire us. Truth is reality. Intelligence is an art. That is the truth. It’s also a game of estimation – perhaps, well-thought out estimation based on corroborated pieces of data and solid analysis – but estimation nonetheless. This client wanted tomorrow’s news today. Impossible. There are no perfect pictures in business. If you want the perfect picture, wait long enough and you’ll find it, with one problem: The market has discovered that same picture and your competitive advantage has disappeared.

Look at reports Fuld & Company supplies clients and you will see analysis based on valid information that we try to corroborate whenever possible. It’s experience that defines good analysis, not necessarily more data. Asking for each data box to be filled in is asking for delay, and strategic failure.

2. I-am-the-victim mentality: Internal intelligence jobs definitely have their share of frustration. You are not always in charge of your own destiny. Someone else is more in “the know” than you are. For these and a variety of other reasons, I have found too many internal intelligence managers taking up the Victim’s banner. That is the absolute worst way to position yourself in a company, especially if you and your intelligence program want to succeed. Act the part of the victim and that is how others will treat you.

Does that mean you have to be obnoxious and dogmatically opinionated? Of course not. Yet, your manager should have hired you to state your opinion, based on fact. Intelligence staffers should stick their necks out from time to time if they strongly believe their assessment makes sense, or may even offer opinions contrary to the others who are senior.

I-am-the-victim voice appears in a number of guises: The anonymously-written newsletter appearing without a by-line or any other contact information. The memos or reports sent to a electronic file folder but not circulated. The analyses that are ghost written for another manager, ownership expunged.

3. Misrepresentation: Too many intelligence reports are simply not what they are advertised to be. Marketing, market research, corporate libraries and corporate intelligence departments have issued competitive profiles under the banner of a competitive “intelligence” profile, as if the addition of the sexy-sounding, alluring word “intelligence” really helps their cause. Intelligence means timely. It is analyzed information to the point where you can make a decision. It does not mean just the same old information repackaged.

Madison Avenue has a long-held maxim: Nothing kills a bad product faster than good advertising. Your internal market knows what good intelligence is. It’s insight, new and almost unique that will offer your company, your division, your product or service competitive advantage. Rehashed information is just that, rehashed. You know it and so does your client. My guess is that over half of the so-called intelligence reports circulating within companies are nothing more than warmed-over, rewritten anthologies of information gleaned from Factiva, LexisNexis and the rest of the business press.

This has got to stop. It hurts your cause, as well as your company’s competitive edge.

4. Playing the wrong part: How do you play your part if your role is to be the manager of your company’s intelligence program? I have seen some very wealthy companies and their managements believe that in order to have a world-class program you need to employ lots of very bright people and slot them into a well-thought out organization chart. In theory, it looks good; in practice, the world of corporate intelligence often works in a different manner.

The best programs I have found grow organically. That is, you start out with one person and see where it goes from here. How much demand will you have from your internal constituency? What kind of questions will your customers give you? Are they technical, or more strategic in nature? Answers to these questions alone, will begin to show you how you might need to build a staff or even if you need to build one at all. Very rarely can you anticipate the exact nature and makeup of such a staff.

You should also ask yourself how you play your cards and your role. If you think you become the answer-man for every customer, you are probably going in the wrong direction. You can never hope to answer everyone’s questions. The most successful intelligence programs are the ones that have developed large, far-reaching people networks of experts. Even a staff of a dozen dedicated analysts cannot know answers to all the arcane issues companies encounter in the market.

Over the past three decades I have seen corporate intelligence departments come and go, mostly for the above reasons. You can’t always blame failure on budget cut backs, after all. The ones that succeed either openly or subconsciously adhere to the straightforward and informal approaches I described here.

Have you found your experiences different than mine?

Leonard Fuld

This is a piece about CI and strategic early warning. If you hate big picture pieces, skip it. If you think your executives already have the handle on most of the important trends in your industry, perhaps you should read it. Read the rest of this entry »

First, thanks for the quick comments! Here are some acknowledgements:
1. China. Mike, don’t let me start on China. I think it is the biggest bluff in decades. I am waiting for the next cultural revolution to nationalize all the suckers who went in. I doubt one in 100 make any real retrun there in the long run (or in the short run.. No one has the real numbers). However, your question is more serious, and have little to do with should or should your company not go in there, which is probably out of your hands anyway (but I say, old chap, shouldn’t you warn the greedy bunch at the top about selling the rope to hang us with??). The issue of the difference in CI approach here and there is important. Let’s see who picks it up (alumni or faculty).
2. Luc - I don’t know how to answer that. Most of those who move out of CI do not keep in touch with me. Grateful sobs…:) But I do know that the natural tenedency, given time pressures, is to do facts not analysis. In that you are definitely correct. Managers have insatiable and instinctive (as shown by research) need for more and more information/data, looking to reduce uncertainty and ambihuity to reasonable levels (and failing to do so in most cases). The ability to do serious analytical thinking (5 forces, for example), real abstract strategic thinking (is this compatible with our strategic position?) , with little facts but more insight (and much more brain effort), is tough. Very tough. If it is no longer your job to do that as a professional, I can imagine the temptation to move to collecting facts and making deicsions on an ad-hoc basis. Why do you think there are so few executives that Michael Porter brings up as examples of strategic thinkers? So, I guess without having first hand experience with CI profs moving out, I tend to agree with the general undertone of your comment. Now do you have someone specific in mind?:)
3. Hugh, my dear plankowner: hold on to your plank. CI has found its voice. This blog is its voice. Now how long do you think it will take for our 7543 alumni to discover that, and make this blog as alive as e-bay? As to your comment about link, I am having our web mster look at it. It makes sense, especially for people looking to network.
4. Laura - read my next comment.
5. GENERAL COMMENT: There are issues and questions which can best be answered by our alumni interacting with each other. So don’t wait for our faculty to pick up the glove. I , for one, have little knowledge on collection issues or specific benchmarking questions (being an enemy of benchmarking I want you to invent everything yourself!), Jan is always away, Mike is traveling, Lenny is busy. Hey, do you hear me??? Help each other!!!! This is one reason we spend money on this blog!

In a few days, I am going to post my first real piece, on straetgy. May the force be. Tell me if I made you cry with delight.

Ben

Every one who is anyone seems to have a blog. We, on the other hand, had an old-world paper Alumni Newsletter. At a certain point, the hassle of printing a newsletter and distributing it to our ever expanding body of graduates became too much. Also, the lack of feedback was discouraging. You must know the feeling… So the brilliant idea of a blog was conceived in a strategic planning meeting of the Academy’s partners. We used a war game and scenario planning, 5-force model and a 4-corner analysis, we drew a strategic map…OK, no, you are right, we just said, why not transform our newsletter into a blog?

So here is what we think: Instead of writing articles for the Academy’s Alumni Newsletter, we will post our thoughts on a blog. Every once in a while, one of the faculty members of the Academy will express himself in the form of a blog entry. If we feel the urge to go for more frequent entries, we will blog more often. So you can expect to see short articles from Jan Herring, Leonard Fuld, Mike Sandman (if he is not traveling), Karl Rose, Jay Paap, and yes, me.

We like you to comment on our pieces. We will try and capture the spirit of our interactive classes here and have some discussions going. Hopefully, these discussions will have some depth and value. Since the classes of the Academy have by now acquire the global reputation of being rowdy and challenging and alive, we hope some of that will rub on this blog as well. I for one, promise to overcome my shyness and polite upbringing and stir as much controversy as possible. Feel free to join me.

The first response we are looking for from you is simple: Tell us what topics you’d like us to address. We will be open to any request from CI to strategy to cooking and interior design. OK, I would not trust us on the last two, but I can guarantee that between the six of us, someone has a strong and completely biased opinion about the first two. And you may just learn something useful you can implement immeditely. So go ahead, post a comment to this introductory entry, and let the fun begins.

It is just one more service from the world leading Academy of CI.

May the force be with you all.

Ben Gilad