© 2019 All Rights Reserved
© 2019 All Rights Reserved
Showing the value of competitive intelligence (CI) to sceptical management is one of those perennial questions that keep getting asked. Unfortunately the question is one that is not always easy to answer: it can be quite hard to demonstrate the value that effective competitive intelligence gives to organisations. Companies may even only find the value years after cutting their competitive intelligence expenditure, when a competitor springs a surprise and the company is caught with their pants down. Of course by then it is too late
There are a number of ways of answering the question. At the most basic level, competitive intelligence can be viewed as an insurance policy. Imagine the fate of the CEO who, in an effort to cut costs, decided to cancel the fire insurance on the company buildings. And then, one dark night, the building burnt down.
Competitive intelligence can be looked at in the same way as the fire policy – it provides a form of risk insurance, providing the organisation with the information required to protect against direct threats posed by competitors and the environment. Of course there are differences: the fire policy pays out in cash and all that is needed is to prove a claim, whereas the information provided by a competitive intelligence process is meaningless unless it is actually used in decision-making. So, competitive intelligence requires more effort and the results of not doing competitive intelligence may not be immediately obvious – especially if the competitive intelligence process is ineffective. In fact, where competitive intelligence is ineffective it can be viewed as equivalent to abandoning the fire policy as decisions taken on inaccurate and wrong information can lead to major problems or even corporate destruction. If the competitive intelligence department continually produces poor intelligence it is understandable if it is cut!
First, it is important to realize what competitive intelligence is, and what it isn’t.
All of these would have problems justifying their existence: the librarian because the information is generally old and unfocused; the market-research type just duplicates the information that should be collected by a separate marketing research function; the industrial spy… in my opinion, companies that believe that this is an appropriate way of gathering data deserve to find out the hard way that it isn’t (and there are numerous case studies of companies getting caught for such practices!).
In contrast with the above, effective competitive intelligence helps organisations identify opportunities and threats, providing the information required to make decisions that can take advantage of the opportunities and steer clear of the dangers on time and at the lowest cost. Viewed like this, it becomes easier to see the value that competitive intelligence can give. The question becomes not “what does competitive intelligence cost” but “what is the cost of not having the information provided?”
The cost is that of a missed opportunity that could have made millions, or of not preparing adequately for a threat to the business that resulted in a loss. Viewed like this, it becomes obvious that the value of competitive intelligence is that it can give organisations the information that not just saves them money but also helps them make it. The question then becomes how much?
There have been a number of studies that have attempted to answer this question. For example
The 1995 study showed that companies employing competitive intelligence massively outperform those companies with no or minimal competitive intelligence activities. (“A Look at the Link between Competitive Intelligence and Performance” by James J. Cappel and Jeffrey P. Boone, in Competitive Intelligence Review, vol. 6, no. 2, Summer 1995). This study looked at average sales, market share and profitability and showed that for the three measures, companies employing competitive intelligence outperformed rivals without a competitive intelligence department many times for most industries.
The 2002 survey, part of PriceWaterhouseCoopers Barometer Surveys, interviewed CEOs of 405 companies that had been identified as fast-growth companies. Companies ranged in size from US$5 million to US$100 million in sales. The survey showed that companies placing a high value on competitor information grew at a 20% faster rate than the other companies in the survey. However this was not the only measure examined. These companies also tended to increase margins to a greater extent, took on more new employees and had the finances to make more new investments including new product development and technology enhancements.
The 2012 India study carried out research examining whether CI activities have an impact on the market performance of Indian firms. Using a sample of different sized businesses, the study showed that Indian firms with more extensive CI activities ("advanced") achieved better financial performance results than those that had less sophisticated CI operations ("intermediate") who, in turn, performed better than those companies with minimal or no CI activity ("primitive"). (As well as showing the value of CI, the research is also important in that it looked at CI activities in an emerging market, showing the opportunities for growth as the market becomes more mature).
If none of the above convinces your CEO of the value of your competitive intelligence activities then take a different approach. Show how the results of your competitive intelligence efforts are used in decision-making. (If they are not used then you do have a problem!).
You should have records of all competitive intelligence requests.
By showing how your competitive analyses are used you can demonstrate the importance of your competitive intelligence efforts in the organisation’s decision-making processes, and convince your CEO of your value even if you can’t put a precise financial figure to your work.
Note: This FAQ was originally published in the Strategic & Competitive Intelligence Professional‘s membership magazine (Competitive Intelligence Magazine – Nov-Dec 2005)
