This is one of the most common questions that I receive from business managers who confused competitive intelligence and industrial/economic/corporate espionage. The former is a perfectly legal activity when conducted by professionals like me who follow a code of conduct. The latter is a crime.
What is the difference between corporate espionage and competitive intelligence? In answering this question to my very confused clients, I use a simple example. Let us say that you are a gas station owner and you compete mostly with the gas station across the street. If you would want to collect competitive intelligence on your competitor, it is perfectly legal for you to
- Watch their prices daily from the sign and enter into a spreadsheet.
- You could even hire an intern to count the type and number of vehicles pumping gas (an easy way to calculate how much gasoline is sold everyday by assuming that the average amount of gallons pumped at your station is no different than theirs; from the type of vehicles, you could develop customer profiles, for example, Lexus-owning rich mothers who prefer full service versus bargain hunting cheapos).
- You could even go to your local town office and file a request for all the documents filed by the business (typically it is best to do this through a consultant since the owner of the business will eventually have access to individuals who has viewed their records). These documents can give you details on layouts, equipment, etc.
- You can also contact various government agencies to inspect documents filed by the business (yet again, something that should be done through third parties).
- You can hire their current or ex-employees.
- You can interview their customers and suppliers.
- You can conduct searches online to read what their employees, customers, suppliers, and others are saying.
- Since the station is open to the public, you can visit as often as you like.
What counts as espionage? What you cannot do are hack into their computers/phones, surreptitiously install cameras on their property to monitor something, bribe or threaten employees/customers/suppliers to divulge proprietary information or trade secrets or provide documents to you, or use deceptive methods to pry information out of them. All these actions amount to espionage and are illegal.
Obviously, the data collected through competitive intelligence is not exactly what you want but experts like me are trained to comb through several data sets and develop fairly accurate models. In any case, you should not want to access confidential information on your competitors.
Chances are that some of your major competitors are privately held and you are wondering how to collect competitive intelligence on them. The short answer is that consultants like me do this all the time, but before I say more on this, here are a few things to remember:
- It is easier to collect competitive intelligence on large, public companies than on privately held companies, particularly if they are also small.
- The culture of privately held businesses varies and the amount of information they put out varies (while there are differences among public companies as well, they are mandated to publish some types of information by law). Many private companies use the media to drum up business and end up giving out valuable information, while others are run by very secretive folks.
- Collecting intelligence on private companies is costlier, the data is less reliable, and in some cases, despite best effort, answers to key questions may not be found (particularly in the timeframe that many clients specify).
So how do I go about digging up information on private companies?
Because it is harder, not surprisingly, competitive intelligence professionals like me get hired more often to work private companies. Many clients prefer to gather intelligence on public companies internally because they can do so on an ongoing basis by simply compiling public information (though, it is not always enough and outsiders are often needed to find information not available through traditional means).
My preferred sources of information, obviously, are the documents that are filed even by private companies (they are a lot harder to find and since they leave a paper trail of who accessed them, it is best to let a CI professional do it for you). The other great resource is conversations with employees who have retired or are no longer with the firm. Even better are Internet forums where employees often talk about their work and end up giving up out nuggets of information that are worth their weight in gold to the competitors.
I conducted one assignment in which a Fortune 500 companies wanted to know who the private label supplier was to their key accounts. It was such an important piece of information for them that they were willing to pay me tens of thousands of Dollars to dig it up. Obviously, I used all the tools in my toolbox, but the breakthrough came when an intern I hired to conduct web searches had a breakthrough (it is very tempting to believe that a quick Google search will dig up everything on the topic you are researching, but it is important to know that not every single page on the Internet is searchable with Google — professionals like me use other tricks to find information that is not included by search engines). She ran into a forum for women in the town in which the manufacturing plant was located. Without realizing how much useful information they were giving away, these innocent women were discussing whatever their spouses were talking about with them about their jobs — salaries, bonuses, mean bosses, customers, brands, sales, profits, etc. We spent a few weeks in that forum, collected what we needed, and then simply verified that information through other means. In the end, I was spot on. Not only did I tell the client who the competitor was, but also was able to provide them with complete details on high-level financials, strategy, and cost structure.
In order to compete effectively, particularly in sectors where price is a significant factor in product/service selection, it is critical to know where you rank in terms of costs. In any case, for the sake of running a profitable enterprise, you want to know if you have the best-in-class cost structure.
It is also important to know the manufacturing cost situation of your competitors in making pricing decisions. For example, if you know your competitor’s cost, you can raise or lower your price since you know where your competitors stand. That is exactly what happened in a recent engagement for a client who was losing the Walmart business to a private label competitor. They just could not figure out how their competitor was able to drive them away from Walmart and they wondered if they had a cost advantage.
So is it really possible to find the manufacturing cost structure of a competitor?
Indeed, it is, and competitive intelligence professionals like me use our manufacturing cost economics analysis to do that. Obviously, not all situations are the same and levels of accuracy can differ. Plus, some assignments can take 6 weeks to develop that data while others might take a year (it does not mean that you have to pay extra for a project that takes longer; it is just that you need to be patient because competitive intelligence is not about just putting in the hours, it is actually about finding the right piece of information at the right time). As an example, to arrive at a number, you might need a piece of data that the company includes in its regulatory filing that is done once a year. In that case, it is better to wait till that happens.
The way we develop cost details is by collecting diverse data sets that independently by themselves do not provide the answer but once they are put together in context and combined with interviews with professionals in the value chain, can yield a pretty good estimate. It is interesting how information disseminated by companies either as part of their legal requirements or just to push their business can be so effectively used for competitive intelligence. For instance, a company will issue a press release about their new plant that required an investment of $X, created X number of jobs (companies do it all the time to please communities and politicians), and the equipment was purchased from manufacturer X. This may seem harmless information for a company to provide, particularly to the local media who often get to tour the plan, but for competitive intelligence purposes, that can be priceless. I will typically add lots of other pieces of information like this to eventually nail down their costs.