Last year, the dark underbelly of business was revealed when
software giant Oracle admitted hiring detectives to rifle through
rubbish for information on rival Microsoft. Oracle's spooks, headed by a
former Watergate investigator, offered pounds 800 to cleaners emptying
bins at a trade association that supported Microsoft during its
anti-monopoly trial.
The case, which became known as Garbagegate, gave a rare glimpse of the
cloak-and-dagger world of corporate espionage.
While Oracle-Microsoft is an unusually high-profile and extreme example,
companies of all sizes routinely keep tabs on each other - a practice
some would say is spying, but others call competitive intelligence.
Strictly speaking, industrial espionage and competitive intelligence are
not the same thing. Spying is the grubby business of bin-sifting and
office-bugging - often illegal and always unethical; competitive
intelligence is gathering information on rivals through legitimate
means, such as published data and interviews.
CI, as the latter is known, even has its own representative body, the
Society of Competitive Intelligence Professionals (SCIP), and is taught
as a key business skill. Henley Management College, for one, includes CI
on its MBA course.
The SCIP, which was founded in the US in the 80s, is seeing 40% annual
growth in its membership. It currently has 7000 individuals on its
books, 220 of whom are from the UK. Well-known member businesses include
global giants Unilever, Motorola, BT, BP Amoco, Visa, GlaxoSmithKline
and British Aerospace.
Motivating factors
Robin Kirkby, director of European consulting for CI specialist Fuld &
Company, and also the London and Thames Valley co-ordinator for SCIP,
says there are three principal factors driving investment in CI.
"The internet, globalisation and higher expectations from customers are
all putting companies under more pressure to differentiate themselves
from the competition," he says.
"It's frustrating that CI gets associated with spying; it's actually a
highly ethical activity, focused on understanding competitive dynamics
and planning future change."
Fuld is one of 12 consultancies across the world that specialise in
competitive intelligence. These agencies are masters in gathering
details on companies - or on key executives - which could prove crucial
to a competitor's strategy.
Information could range from a tip-off on an imminent product launch to
the background of a new chief executive, which could suggest a shift in
focus. In the UK, CI consultancies earn about pounds 7m a year.
Chris West, managing director of another CI specialist, Competitive
Intelligence Services, says the spying tag does his profession a
disservice.
"People assume CI is all about hacking into computers and rummaging
around in bins, but it's actually much more insidious," he says.
"We look at everything a company says and publishes about itself and
talk to everyone - clients, suppliers, distributors, staff - who knows
about the company. We'll subject their advertising to linguistic
analysis to uncover hidden messages. We can even learn a lot by getting
hold of the chief executive's signature and sending it to a graphologist
for a personality profile."
Another favoured route for CI professionals is human-source
intelligence. This grand description boils down to ringing staff in
companies and asking them to tell you things.
SCIP's ethical code means CI consultants can't lie about who they are,
but they can be as vague as possible, and usually claim to be conducting
market research on behalf of a confidential client. A surprising amount
of information can be gained this way, as loose-tongued employees are
often happy to chat.
West believes the best way to get results from a cold call is to use
female researchers, preferably with French accents. "It's a fact of life
that people are often more tempted to talk to a young woman with an
attractive voice than they would to an old bugger like me. If that's
what it takes to reduce people's resistance, then fine," he says.
The basis of CI theory is that most information a competitor could need
is already in the public domain, or, at least, can be obtained without
breaking any laws.
Staying within the law
It is generally accepted that 80% of a company's information is public,
while only a few details are officially secret. As Arthur Weiss,
managing partner of UK CI consultancy Aware, says: "You don't need to
know Coke's secret formula to compete with it."
Attempting to gain trade secrets such as the Coke formula is against the
SCIP code of ethics and, in many cases, is illegal.
This was illustrated in 1996 in a case concerning Volkswagen and General
Motors. Jose Ignacio Lopez, a senior executive at GM subsidiary Opel,
defected to VW in 1993. He was alleged to have taken crucial documents
detailing GM's new product development plans with him and, after an
18-month investigation, was indicted for espionage.
The case highlighted how hard it is for a company to keep anything
secret, especially when it comes to product innovation. But you don't
have to resort to illegal tactics to discover what's in a competitor's
NPD pipeline.
Keeping track of a rival's patents is one of the most reliable methods
of anticipating forthcoming product launches. Any meaningful innovation
or new manufacturing process should be protected with a patent and, as
soon as this is done, the information is essentially in the public
domain. It may only provide a clue as to the company's intentions, but a
clue is invariably enough.
Patent tracking is particularly prevalent in the pharmaceutical,
electronics and consumer products sectors, and explains why a major
innovation by one company is often replicated almost simultaneously by
its competitors.
Procter & Gamble and Unilever are well-versed in such cat and mouse
games.
Mutual understanding
One example is Unilever's ill-fated launch of Persil Power, the
detergent that had the unfortunate side-effect of rotting clothes.
"P&G knew well before Persil Power was launched that Unilever was
working on a new soap with manganese compounds," says Weiss. "It had
looked at doing the same itself, but abandoned the research because it
knew the formula cleaned certain materials very well, but rotted others.
At one point, P&G even approached Unilever directly to warn it of the
danger."
An ex-Unilever and P&G marketer confirms the lack of secrecy between the
rivals' R&D departments. "The way they do research is very similar, so
they frequently come to the same conclusions at the same time," he says.
"If one gets a new product to market first, the other usually has the
same thing in the pipeline and can rush it out quickly."
Despite the difficulty of keeping NPD secret, Unilever and P&G are two
of the most advanced users of CI - both as a means of gaining
information and protecting against leaks.
Becky Walpole, a former Unilever staffer who now works as a marketing
consultant with Corporate Edge, says CI training was widespread.
"We were told how to protect information, as well as how to get it from
competitors," she says. "Defensively, we were warned to always keep our
mouths shut when travelling, especially on trains with a lot of business
people, such as the Gatwick Express. We were even warned that spies from
competitors could be posing as drivers at the mini-cab company we used,
which is apparently a common technique."
Walpole adds that Unilever would occasionally perform random checks on
internal security by planting actors among its staff.
"Sometimes we would have internal marketing conferences which, because
of their size, would be easy for an outsider to slip into unnoticed. At
one conference, we were set up, when an actor was employed to infiltrate
the group. The idea was to see who spoke to him, how much they told him
and how long it took to realise that no one knew him. He ended up being
there for a long time."
Although the ethical code of CI consultants would not condone
infiltrating a competitor's premises, it is a commonly used tactic. Any
means of getting inside a rival's offices can potentially gain access to
useful information - from people's desks, the walls or overheard from
conversations around the coffee machine.
Tim O'Kennedy, former marketing director of Nike and now a partner at
marketing agency Circus, says the sportswear company was occasionally
targeted by bogus interviewees. "We became aware that some job
candidates weren't kosher. Mostly, they were trying to get clues as to
how the Nike machine worked."
Protecting intangibles
O'Kennedy says that for a company such as Nike, whose value is so tied
in to the intangibles of its brand, security is harder to achieve.
"Product designs are incredibly well protected by patents, so you don't
have to worry about that so much," he says. "It's not that we cared less
about products being copied, it's just that they are inherently more
protectable than the intellectual capital of marketing."
Spies do not always enter a rival's lair through the back door.
Sometimes they stride in, and are even welcomed by their hosts. Bob
Ayling, ex-chief executive of British Airways, accomplished such a
mission when he visited the offices of the recently launched EasyJet in
1996.
Ayling approached the company's founder, Stelios Haji-Ioannou, to ask
whether he could visit, claiming to be fascinated as to how the Greek
entrepreneur had made the budget airline formula work. Haji-Ioannou not
only agreed, but allegedly showed Ayling his business plan.
"Stelios was probably looking for some external confirmation that he was
onto something, and here was the boss of BA coming in person to
congratulate him on cracking the budget airline formula," says James
Rothnie, EasyGroup's director of corporate affairs. "It was amazingly
flattering, but we were suckered."
'Carbon copy'
Rothnie says BA reassured EasyJet after the meeting that it couldn't get
regulatory approval to launch a budget carrier. Then in the summer of
1997, it announced the launch of Go.
"It was a carbon copy of EasyJet," says Rothnie. "Same planes, same
direct ticket sales, same use of a secondary airport and same idea to
sell on-board refreshments. They succeeded in stealing our business
model - it was a highly effective spying job."
Yet Rothnie adds that EasyJet has not suffered unduly, "because BA found
it couldn't recreate our culture, and that's what makes us unique".
The bitter tripartite rivalry of Tesco, Sainsbury's and Asda has often
led to similar murky tactics. A former senior employee of Tesco says
intelligence gathering worked on many levels. "We'd do all the usual
stuff, such as sending staff shopping in competitors' stores, getting
them to check on promotions and asking questions of the customer
services manager. We'd also phone each other's helplines.
"But often the most effective source of information is pillow talk. A
lot of Tesco and Sainsbury's executives are married to each other and
you'd be amazed what they tell each other."
He adds that the likeliest sources of leaks from the organisation are
bankers. "If you want to hear what's going on at Tesco, just sit in the
first-class carriage of the train from Liverpool Street and listen to
the bankers travelling to meetings at Tesco HQ in Cheshunt."
In the event of the competition discovering details of an impending
announcement, Tesco has contingency plans to bring forward launches so
that it cannot be trumped at the last minute. According to the Tesco
insider, leaks were so frequent that these emergency measures were used
routinely.
Ultimately, there are two sides to the spying game. There's the
professional, analytical, formalised practice of competitive
intelligence and there's the grubbier world of thinly disguised, often
illegal, espionage. As companies begin to assemble specialist teams and
make CI a formal business function, its profile will rise. But when the
stakes are really high, arch-rivals will always find subterfuge and
skullduggery hard to resist.
TOP CI USERS
an organised system for collecting competitive intelligence, while 82%
of companies with revenues of over dollars 10bn (pounds 7bn) make
systemised use of it. TFG ranked the leading eight users of CI as:
1 Microsoft
2 Motorola
3 IBM
4 Procter & Gamble
5= General Electric
5= Hewlett-Packard
7= Coca-Cola
7= Intel
Source: TFG
EFFECTIVE INTELLIGENCE GATHERING
Debrief the sales force
Sales people will often let something slip to a customer in the hope of
winning a deal, or a customer might tell them something they learned
from a competitor's rep the day before.
Attend conferences and shows
Trade shows aim to facilitate the exchange of information. Hang around
in the toilets and see what you overhear.
Profile personalities
Look at the professional background and private interests of new
executive appointments. Their profile could provide clues about the
future direction of a company.
Keep track of patents
All important innovations are patented. They can tell you what a company
is working on years before it is released.
Look for hidden messages in marketing material
Ads are often used to subtly accustom consumers to new brand
strategies.
Get into your rival's head
Ask what you would do if equipped with the same tools as your
competitor.
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