article

Know Your Enemy

Posted: 09/1997

Know Your Enemy

The Role of Competitive Intelligence in the
Telecom Industry

By Steve Racz

The world’s most stunningly successful companies did not
arrive at their preeminent positions by reading tea leaves to
understand the behavior of their competitors and the direction of
their markets.

Companies like Metropolitan Life, General Electric, Intel,
Microsoft, Hewlett-Packard, Merck, Coca-Cola and Proctor &
Gamble instead embraced the notion that strategic intelligence
gathering, known as competitive intelligence (CI), would create a
crucial knowledge asset that would enable competitive advantage.
Such companies did not take up the practice upon their arrival at
the top, rather, CI helped to take them up and over the top in
industries that by anyone’s estimation are complex and intensely
competitive.

They have all made competitive intelligence a high priority
strategic initiative and have integrated the discipline into the
corporate cultures. This sharpening of the competitive reflexes
has helped these firms to remain in top form. As is often stated,
most companies would rather be the architects of change, than its
victims.

The telecom industry is still in its post-Telecom Act a
ramp-up period, but the storm is gathering and will turn telecom
in to what many see as the most competitive business environments
in modern history. Long distance carriers and resellers have been
in a competitive marketplace for some time now and some
companies, most notably AT&T, have made the plunge into the
CI arena. Regional Bell operating companies (RBOCs), on the other
hand, have been sheltered but have now begun to enter the fray as
competitive local exchange carriers (CLECs) threaten their market
share and a wide range of long distance options open to them. A
gaggle of other satellite, cable and wireless companies will
complicate the markets and drive the industry to the fore of
competitive intelligence consumption.

CI: The Overview

Competitive intelligence is used to secure and analyze
information about competitors’ activities, and general business
trends to enhance market share, profitability and overall
position. It is a behavior that is proactive or supply driven
rather than reactive or demand driven. CI applications are very
broad and can assist in every organizational function including,
but not limited to, research and development, advertising, sales,
marketing, distribution and finance.

It can tell a national sales manager how the competitors sales
force is being compensated and structured, for instance. CI might
also provide a company with information on how much a competitor
is spending or will spend on a product roll out and precisely
where those funds will be allocated. It might also reveal what
your competitors know about you, and perhaps whether or not you
are a target for an acquisition. On a different level, CI might
provide insights into which technology standards are likely to
become dominant which can leverage one’s equipment investments
limiting integration nightmares.

While competitive intelligence can be very esoteric and
"sleuth-like," most CI is conducted using readily
available information sources such as databases, the Internet
home pages and even through obscure uniform commercial code
filings.

In spite of these readily available resources, Business
Week
estimated that fewer than 10 percent of all U.S.
companies have formalized CI function. European and Asian
companies, and their governmental confederates, however, are
deftly using CI to compete. CI is even part of industrial policy
in emerging nations such as Korea, China and Indonesia in their
drive to play "catch-up" on the global economic stage.
The governments of Sweden, Germany, Switzerland and the
Netherlands also are involved in worldwide intelligence
gathering. With the globalization of telecommunications, U.S.
firms should be aware that these groups and others make it their
business to know them well.

In its most benign form, but nonetheless and important
element, CI allows companies to understand the best practices of
other companies whether or not they are true or direct
competitors. US WEST routinely conducts CI to help its employees
learn not only what the competition is doing, but to scrutinize
matters within the company as well. Such large companies have a
need to secure critical information and distill for key decision
makers. This raises a critical point: It is crucial that CI live
and breathe in a well-structured system where the information
becomes knowledge, and the knowledge made actionable. This means
going to the top of the organization, and this requires buy in
and warrant close attention by senior management.

Making It in a Cutthroat Environment: CI and
Teleconglomeration

The 1996 Telecom Act set into motion a spike in startup
companies and intense merger and acquisition deal flows. It began
with SBC and PacTel, and crossed borders with MCI and British
Telecom. These were significant, high profile, if not rather
obvious, marriages which tended to be friendly with the cards on
the table. The industry is expected to see a great deal more
consolidation of this activity, particularly in the subsectors,
including wireline, wireless, international, large-cap and
merging growth companies such as competitive access providers
(CAPS), satellite companies, and PCS, paging, cellular and
enhanced service platforms such as fax-mail, fax broadcast and
other computer telephony services.

  • Industry experts predict that large-cap companies will
    invest in and/or acquire companies in the emerging growth
    telecom arena and that it will effect every telecom
    industry sector.
  • While there expected to be a large number of transactions
    at every level, larger sized transaction will be
    prominent since the 1996 legislation allows for the
    creation of multimedia companies through mergers &
    acquisitions.
  • Mergers and acquisitions suggests that this will affect
    various pipeline providers as well as providers of
    content. The results will be large, global companies with
    broad entertainment portfolios and expanded deliver
    capabilities.
  • On a local level, competitive access providers (CAPS)
    will become attractive takeover targets, and RBOCs will
    attempt to weed out firms that are capturing local market
    share.
  • There has also been an interest in satellites, because
    RBOCs are precluded from satellite investments.
  • RBOCs and cable companies will likely resort to the
    merger and acquisitions market due to having a weaker
    marketing environment, and due to their strong balance
    sheets.
  • There is also a strong trend toward growth on the telecom
    and communications equipment supplier side, many of whom
    are smaller companies who will need to consolidate to
    gain critical mass. There are also many emerging
    companies, IPO’s and a spate of activity.

Mergers and acquisitions is a major application for CI,
particularly in the area of due diligence. It is important never
to assume that one’s consulting firm or attorneys have uncovered
all information necessary to put the pieces of a complicated
puzzle together on an organization with whom a relationship is
pending. It is important to drill down deep to uncover every
important aspect of an organization that is not readily
available.

CI is also of great value in trying to understand whether or
not a company is being sought as the target for a mergers and
acquisitions, as well as to determine who in the market should be
your target, friendly or otherwise.

Protecting Your Turf: CI and Market Entrants

The new environment will make CI more important in learning
who is entering your market, who they are targeting, anticipated
investments, with what mix of products and at what pricing
schemes. The market presents a very confusing picture with a
trend toward telecom companies offering a bundle of services and
products that include video and Internet access services. The
consensus among industry insiders is that marketing in the new
competitive environment would require bundling such services as
local, long-distance, video, data, wireless options, and Internet
access at various price points and through different
technologies. How they opt to do this may be influenced by what
their competitors are doing.

One user of CI, Seattle-based Concord Technologies , a leading
provider of fax-mail, fax broadcast and unified messaging
services, is currently working on private labeling such services
for long distance carriers, RBOCS, ISPs and others in addition to
its own consumer customer base. President Chris Moore, president
of Concord Technologies, explains, "We conduct CI for a
number of reasons–from determining who is planning to offer
similar services to determining whether a potential partner would
be able to integrate our technology and are positioned to market
the services. This helps us focus our sales effort and allocate
our resources efficiently."

So how does CI make sense of this? There are thousands of
moving targets, what with technology allowing for CAPs to control
customer bases as small as a modest high-rise apartment complex.
CI can help to answer the following nagging questions:

  • Who will move into which markets (Technology will open
    the door to thousand of new entrants into local and LD
    markets).
  • What will be their product mix (Apples and apples are no
    longer germane and niche marketing will be important).
  • What about their pricing strategies (in an extremely
    complicated and largely untested pricing environment).
    Example: CAPS will target smaller cities and
    regions–Nextel seeks mobile work groups and Time Warner
    seeks blue-chip, full-service networks-and LEC’s offer
    bargain long-distance and basic cable to retain local
    business. Overall, services will become variously bundled
    and unbundled and become extremely fragmented.
  • Who are their third-party marketing partners, and what
    about their sales force (selling and marketing
    arrangements will become more innovative and mutate
    easily).

Getting a lay of the land will not be enough. Telecom firms
and equipment suppliers, large and small, will have to become
adept at anticipating these changes, not just reacting to them.
The information well will become extremely deep, and telecom
firms that hope to protect and gain market share, along with
those who want to enter the fray, will need to have the capacity
to drill very, very deeply over and over again.

Developing and Internal Intelligence Function

  • Determine Intelligence needs
    A formal needs analysis help to create structure and is
    the first step in ensuring a formal CI gathering
    function. It also serves to get buy in from management if
    they are part of the needs analysis process. Not only
    does it engage them from the beginning, but it also
    allows them to get answers to specific information needs.
  • Secure Critical Information
    This can be accomplished through on-line databases,
    through the Internet, through published literature and
    other available sources relatively inexpensively. These
    sources often provide the underlying information from
    which knowledge is converted into more insightful and
    pointed questions. Once specific questions have been
    defined, if is often time to turn over the reigns to
    experienced CI professionals adept at securing hard to
    get information.
  • Analyze Intelligence
    Secured information should be earmarked for the right
    analysts, preferably a specific person or persons within
    the company who are part of the formal CI function.
    Companies often make the mistake of asking CI firms to do
    the analysis for them. They should bear in mind that most
    CI firms are experts in securing information across
    industries. They tend not to be experts in any particular
    business. It is better to leave the analysis to those who
    order the information.

CI also is able to provide a broad range of
information across departments:

Marketing

  • advertising and promotion budgets
  • product costs and margins
  • pricing strategies
  • licensing agreements
  • dealer networks
  • marketing and merchandising
    strategies
Manufacturing

  • outsourcing strategies
  • quality programs
  • production cycles, times and
    capacities
  • environmental constraints
  • vendor audits
Sales

  • channels of distribution
  • sales and service territories
  • sales revenues and volume
  • top producers and key accounts
  • target markets
Product Development

  • new product launch strategies
  • new product development cycle
    times
  • research and development budgets
  • product line extensions
  • new product applications
  • product life cycles
Financial

  • departmental budgets
  • earnings and revenues
  • capital investment strategies
  • capital expenditures
Information Systems

  • applications
  • communications networks
  • system/network integration
  • investment focus
Mergers &
Acquisitions

  • due diligence validation
  • corporate alliances/joint ventures
  • organization impact
  • market impact
Corporate Structure

  • organizational structure
  • corporate/divisional interaction
  • key management profiles
  • compensation studies and reviews

The Classic Competitive Intelligence Mistake

For many companies, the sum of their "competitive
intelligence" comes from their front-line–technical
support, customer service, production and sales. BellSouth’s Bill
Gulas, in an interview in American Demographics, commented
that "we can learn things from the sales force long before
we see it in print." People in the field often know a
competitor’s latest plans for products, expansion plans and
strategic shifts before upper management, and it is important to
listen to these sources. Depending on this information without
further investigation, however, can be dangerous for several
reasons:

  • It is often superficial and impressionistic information
    that requires "drilling into" for detail and
    validation.
  • The front line may be learning
    "disinformation," deliberately disseminated to
    throw competitors off the scent.
  • Front line people, particularly in the sales force, have
    a difficult time being objective at best, and at worst
    may have an agenda of their own that could explain away
    any number of situations. Though it might sound cynical,
    sales forces, particularly in telecom, are made up of
    highly individualistic people whose loyalties too often
    lie in their own advancement or that of the department of
    direct boss–rather than to the truth and its impact on
    the organization.
  • It tends to serve as an inadequate substitute for a bona
    fide CI effort.

Steve Racz is vice president of Competitive Intelligence
International of Lincolnwood, Ill. For more information, call
(847) 329-8080.


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