Competitor Intelligence (III)

Part One

Part Two

In the first two installments, I looked at some of the implementation and cultural issues that hinder the competitor intelligence function in corporations. In the interest of fairness and completeness, this post looks at the pessimist's case: those issues that suggest that the CI function may not be cost-effective for many businesses.

One problem is that good intelligence must, by its very nature, be kept secret. However, the stock market cannot value something that it does not know about. CEOs like to tout their company's special competencies in order to increase share price. A secret competence in CI does nothing for short-term shareholder value. Therefore, it is hard to justify a heavy investment in it.

When we look at how real-world intelligence agencies operate, it is amazing how much drudgework takes place. Huge amounts of seemingly trivial material have to be gathered (often from open sources) and then organized before it is analyzed. In matters of war, peace and terrorism, this investment can be justified. It is harder to do so for corporations since the payoff is less certain.

It is also much harder for corporations to retain their secrets and their CI assets. The CIA and KGB had relatively few moles and defectors. Corporations lose employees (including CI people) everyday to their competitors. Thus, investing in CI means investing in an asset that depreciates rapidly.

In war the most critical external factors for strategic success are the plans and actions of the enemy. It is a two-player, zero-sum game. This is seldom the case in markets. Technology, the general economy, consumer attitudes, etc., are often as important as the actions of competitors. Further, competitors can rarely hinder one's actions in the same way that an opposing army does as a matter of course. Finally, surprise which is often decisive in war is rarely so in business.

If we look at the most successful intelligence agencies and operations in history we see that they tend to share the same context: a weak nation or military facing a strong enemy that directly threatens its existence. This is true for Elizabethan England facing Philip II of Spain, Israel for most of its history, Britain in the fall of 1940, the US Navy in the spring of 1942, and the Soviet Union circa 1917-1922.

The prospect of hanging focuses a man's mind and the same holds true for a nation and its spies. Without that focus, intelligence performance declines.

When agencies have to scan a multi-actor environment they, of necessity, will produce a lot of reports on a variety of threats. Only some of these threats will become critical. The reports that cover non-critical subjects (or aborted threats) increase the ratio of noise to signal around their reporting on critical matters. Hence, the paradox-a well-funded agency made up of conscientious, talented analysts will lower its own value to policy-makers. They will not sound clear warnings on the questions that matter most.

(See also part two on the importance of strategy and doctrine to intelligence performance and this post on which discusses how British anti-fascist actions actually aided Hitler in the critical years of 1935-36.)

Businesses rarely face a single, dominant competitor whose actions are the primary factor in success or failure. They, instead, operate in a multi-actor environment where scanning (with its inevitable problems) is the normal mode of operations.