Creating More Value to CI Function1

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Creating More Value to the CompetitiveIntelligence Function

By Avner Barnea1

The discipline of Competitive Intelligence is favorable in monitoring external business threats

and identifying new opportunities. It is evident that a successful understating of signals,

ignoring noises and being able to deliver insights to the senior management has a great value

and sometimes can save the firm from severe setbacks and even from a complete failure.

One of the greatest restraints in the long way to make CI relevant and a recognizable

discipline is the difficulties to prove its added value and to point out how it is incorporated

with other business disciplines.

There are different ways to measure the value of CI and to evaluate its contribution, but I

have doubts regarding the validity of these tests. Intelligence, is in the "business" of quality

research and strengthen the understanding and not in the "business" of quantity of results

(also known as statistical inference) which is certainly more measureable but less precise in

this mater.

It is almost impossible to isolate the unique contribution of the CI from other elements that

are participating in the process of the decision making2. Recently, one of my clients was

looking at the added value of its CI unit and has sent a detailed questionnaire to different

executives and also interviewed some of them and then analyzed the replies to gain insight. I

do not recognize this analysis as having a lot of value. Unfortunately, there are not yet proofs

of a concept that performs better.

Drawing lessons from critical failures of many companies in a wide spectrum of sectors

reveals that it is possible to prevent many of these hazards by better understanding of signals

1 Was published in Competitive Intelligence Magazine, Vol. 13, No.1 January-March

2010.

2See also in Cohen, D., (2006), "What's Your Return on Your Knowledge". Harvard Business School,

Reprint Number F0612G.

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that appear in various forms. One of the firms' capabilities that can be of assistance is the CI.

The contribution of CI is based on focusing on external threats (and opportunities) rather than

multi tasking practices qualified by other business functions. If this assumption may be

proving right, CI would find itself in a different position, better supporting other business

disciplines.

When growth stalls

A new article byMatthew S. Olson,Derek van Bever, and Seth Verry3 that won the 2008

McKinsey Award for the best articles published in the Harvard Business Review magazine,

analyses the reasons that successful companies lost momentum, while the management did

not recognize that the stall came. The writers claim that a "few on the senior team see the stall

coming and the core performance metrics often fail to register trouble on the horizon". Olson,

van Bever, and Verry have completed a comprehensive analysis of the growth experiences of

some 500 leading corporations in the past half century, focusing particularly on stall

pointsthe term for the start of reversals in company growth, as opposed to quarterly

stumbles or temporary corrections. The companies in the study included more than 400 that

have appeared on the Fortune 100 since that index was created, some 50 years ago, along with

about 90 non-U.S. companies of a similar size. The study revealed various patterns in the

incidence, costs, and root causes of growth stalls.

The article offers advice on how to avoid these hazards, drawing from practices currently in

use at large, high-growth companies to foresee possible stalls and head them off. It explored

why management is so often blindsided by these events.

Professor Daniel Kahneman, Nobel laureate, notable for his work onbehavioral finance and

hedonic psychology, have said recently in an interview to an Israeli business magazine that

"people tend to attach to a certain anchor, usually caught by false "reality" and do not try to

act rationally, to gather information and to integrate it in the decision making process".4

"Stall points" is not referred to situations of gradual loss of market share and profit margins as

happened to IBM. During the 1980's IBM was the most admired company in the Fortune 500

survey but during the 1990's, there were rapid changes in the industry and technology which

were ignored by IBM. In 1994 the company had losses of $USB15 and its market

3 Olson, M. van Bever, D. Verry, S. (2008), "When Growth Stalls", Harvard Business

Review, March.

4The Marker, (Israel), 2nd. April 2009. See also in Kahneman, D., (2005),Rationality,

Fairness, Happiness. Ketter Publishing, Israel. Chapter 6.2
http://hbr.harvardbusiness.org/search/Matthew+S.+Olson/0http://hbr.harvardbusiness.org/search/Derek+van+Bever/0http://hbr.harvardbusiness.org/search/Seth+Verry/0http://hbr.harvardbusiness.org/web/2009/mckinsey/hbr-mckinsey-awardshttp://hbr.harvardbusiness.org/web/2009/mckinsey/hbr-mckinsey-awardshttp://hbr.harvardbusiness.org/search/Matthew+S.+Olson/0http://hbr.harvardbusiness.org/search/Derek+van+Bever/0http://hbr.harvardbusiness.org/search/Seth+Verry/0http://en.wikipedia.org/wiki/Nobel_laureatehttp://en.wikipedia.org/wiki/Behavioral_financehttp://en.wikipedia.org/wiki/Happiness_economicshttp://hbr.harvardbusiness.org/search/Matthew+S.+Olson/0http://hbr.harvardbusiness.org/search/Derek+van+Bever/0http://hbr.harvardbusiness.org/search/Seth+Verry/0http://hbr.harvardbusiness.org/web/2009/mckinsey/hbr-mckinsey-awardshttp://hbr.harvardbusiness.org/web/2009/mckinsey/hbr-mckinsey-awardshttp://hbr.harvardbusiness.org/search/Matthew+S.+Olson/0http://hbr.harvardbusiness.org/search/Derek+van+Bever/0http://hbr.harvardbusiness.org/search/Seth+Verry/0http://en.wikipedia.org/wiki/Nobel_laureatehttp://en.wikipedia.org/wiki/Behavioral_financehttp://en.wikipedia.org/wiki/Happiness_economics


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capitalization had gone from $USB105 to $USB32. However, it survived after major changes

on its business strategy.

At this moment, a large number of global companies may be perilously close to their own

stall points. Knowing how to avoid growth stalls begins with understanding their causes and

recognizes alerting signals.

The case of Levi Strauss

Senior management at Levi Strauss & Company could be forgiven for not seeing it coming.

The year was 1996. The company had just achieved a personal best, with sales cresting $7

billion for the first time in its history. This performance extended a run of growth in which

overall revenue had more than doubled within a decade. Since taking the company private in

1985, management had relaunched the flagship 501 brand, introduced the Dockers line of

khaki pants, and increased international sales from 23% to 38% of revenue and more than

50% of profits. Growth in 1995 was the strongest it had been in recent years. From that high-

result of 1996, company sales went into free fall. Year-end revenue results for 2000 were $4.6

billiona 35% decline from four years prior. Market value declined even more precipitously:

Analysts estimate that it went from $14 billion to $8 billion in those four years. The

companys share of its core U.S. jeans market dropped by half over the 1990s, falling from

31% in 1990 to 14% by decades end. Today, with a new management team in place, Levi

Strauss has undergone a companywide transformation. It may be regaining its position, but it

has yet to return to growth.

Stalls are recognizable

87% of the companies in this research group have suffered one or more stall points. On

average, companies lose 74% of their market capitalization, as measured against the S&P 500

index, in the decade surrounding a growth stall. More often than not, the CEO and senior

team are replaced in its aftermath. And unless management is able to diagnose the causes of a

stall and get the company back on track quicklyturning it around in a matter of several

yearsthe odds are against its ever returning to healthy top-line growth.

That paper turned attention to why companies stall. Out of the 500 companies, those have

selected for in-depth case research 50 that were representative of the whole in terms of

industry mix and age. The researchers assembled comprehensive folders on all of them,

drawing on the public record of financial reports and published materials, on case studies, andon personal interviews. This enabled them to identify the top three factors contributing to

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each companys growth stall. After all these analyses they were able to identify the root

causes of stalls and the major categories they fell into.

A careful analysis of 50 representative companies that experienced growth stalls revealed nearly

as many root causes for them: external, strategic, and organizational factors are responsible for the

failures. They were identified as the factors contributing to each companys stall while 87% of

them have been identifies as in the management control.

Most organizations actually accelerate into a stall, experiencing unprecedented progress along

key measures just before growth rates tumble. When the momentum is lost, its as if the

pillars have been knocked out from under their corporate strategy. It is intriguing to see that

few on the senior team see the stall coming and do not recognize the trouble on the horizon.

Deeper analysis sheds light on the most common causes of growth stalls, which turn out to be

preventable for the most part. In fact most stalls occur for reasons that are both knowable and

addressable at the time. It is evident that the root causes of stalls are not so varied or complex

that it is impossible to see patterns.

The research demonstrates that the vast majority of stall factors result from a choice about

strategy or organizational design. They are, in other words, controllable by the management.

These intriguing findings are raising questions as to the abilities to avoid stall points and thus

keeping the companies on track and prevent painful revenue stalls.

Stalls and the role of the senior management

It is evident that in most of the cases the senior management was not aware to the coming stall.

There is a question whose responsibility is to look at the external factors and identify signals5 that

may indicate that the business environment is changing, to recognize in time to what direction and

to alert the management. It is obvious that the change is a process that could take a long time.

Most of the time there is no specific sign for a change. There are many conflicting alerts and

various pieces of information that need a careful, comprehensive and ongoing analysis. Who will

be tasked to do it?

The senior management is usually preoccupied with running the business and making sure that the

enterprise will move on smoothly. In addition, we have learnt from the current economic

downturn that executives were inclining to get caught by a certain "anchors" that prevented them

from looking at the situation rationally. Unfortunately, these intuitive motives are powerful and

5For comprehensive discussion on signals, look at Day, G., Shoemaker, P., (2006).Peripheral Vision:

Detecting the Weak Signals That Will Make or Break Your Company. Harvard Business School Press.

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tend to be a fertile ground for further mistakes while assume wrongly that what happened in the

past will probably happen repeatedly. Forever!

Possible solutions to avoid stalls

My hypothesis is that recognizing the threats is a process that can last for a long time alongside

with signals that can be detected and analyzed and thus creating a quality early warning. It

depends very much on the existence of a functional responsibility inside the firm that has been

tasked to look at this mater continuously and is examined by its performance.

The solution that I prefer is to build up a first class capability that will monitor continuously three

environments and will identify threats as early as possible. Otherwise, there is a risk to the growth

of the company and in some cases even to its survival.

The CI unit will be granted the responsibility to address the insight obtained from the following

three environments:

Figure No. 1: Integration of the three environments

1. The macro environment- Assessment of the external factors including the economy,

political situation, social circumstances, new technologies and regulations updates in

the competitive marketplace where the company is performing. A possible result: An

alert of a significant change in this environment.

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Macro

Environment

Firm

Environment

Competitive

Environment CI unit


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2. The firm's environment Assessment of the internal information already exists in the

firm's systems regarding the firm's performance and its possible meanings. A possible

result: Foreseeing difficulties arise that need a quick response.

3. The competitive environment Assessment of the changes in the external

environment including moves taken by competitors, by strategic suppliers and

strategic customers and also the potential threats by new entrants and its immediate

and future impact on the firm. A possible result: Detecting early move by a new

competitor that can impact on the firm's plans.

The systematic process of gathering information from these three environments must be

followed by an assessment that will be presented to the executives in the process of the

decision making.

Following specific signals that may exhibit or point towards significant changes is not

enough. There is often a need to receive support from an interdisciplinary team that will take

responsibility to absorb the assessments and discuss their relevance. This team will also be

responsible to direct the intelligence efforts towards essential information and to obtain better

observation of the threats.

One of the key success factors backing the decision making process is the high standard of

insights based on the information that have been gathered.

Factors playing an influential role in the assessment phase

The assessments prepared by the CI capability have to be distinguished by the following

criteria:

1. Timely- Reports have to relate to the time line of the threat. And also they have to be

delivered to the relevant people in time. The basis is periodical reports and special

reports in time of immediate threats.

2. Actionable Reports have to be comprehensible as much as possible to enable the

decision makers to understand their meaning and implications.

3. Future focused Reports have to indicate towards implications of the threats and the

potential consequences in case the required steps will be postponed.

4. Insight- Reports have to include also projections and to evaluate the results of steps

that will be taken by the firm or the price of overlooking significant changes in the

marketplace.

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To make sure that stall points will be dictated in time, it is crucial to avoid a situation that the

top team of the firm is siloed. CI function has to expand its vision and share the signals of

relevancy. One of the guiding principles is sharing information and moving the top

management towards horizontal direction as a process of efficiency. This has to be guided top

down hoping to relate with the threats in real time.

The final report based on these criteria has to be brief and includes key insights. This will be

an agenda for further discussions as to the implications and the moves that may have to be

considered by the management.

The matrix of impact and likelihood

I have acquired wide experience by using the following model which is extremelyrecommended to CI professionals. The following matrix is remarkably useful to evaluate

complex situations, especially when it is hard to recognize the signals or to isolate noises6.

The matrix is based on two variables. Likelihood- is the probability that the signal (or set of

signals) will become a significant threat. Impact- is the potential harmful effect of the signals

gathered on the development of the firm and its performance. Each threat is positioning on the

matrix according to the combined score of likelihood and impact as was evaluated carefully

by the CI and other executives involved in this effort.

Figure No. 2: Assessment of threats

6 Ibid.

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Impact

A

B

C

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1. Threat C- The potential impact is estimated as low while the likelihood that it will

happen is considered medium. Conclusion- the overall threat is evaluated as low. No

further steps are needed at this stage as the cost of a mistake on the company is

negligible.

2. Threat B - The potential impact is evaluated as high while the likelihood that it will

happen is evaluated as low. Conclusion although the overall threat is evaluated as

low executives have to be on alert in case the evaluation was wrong and the impact of

a mistake on the business could be costly.

3. Threat A Both the impact and the likelihood are evaluated as high. Conclusion the

threat is considered high and it deserves an immediate management attention.

The precise score given to each threat is a result of cautious assessment based on the

information gathered and the assessment criteria mentioned above. It is practically evident

that threat A will receive a management priority in the strategic deployment of the firm if the

executives will accept this assessment. It is brought to the attention of the decision makers by

the CI enables them to relate to the advancing threats.

Conclusions

Stall points cannot be explained by the "Black Swan" theory refers by Nassim Taleb7as "a

large-impact, hard-to-predict, and rare event beyond the realm of normal expectations".

Unlike the philosophical "black swan problem", the "Black Swan" theory refers only to events

7Taleb, N. (2007), The Black Swan: The Impact of the Highly Improbable. New York:Random House.

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Likeliho

Low Hig
http://en.wikipedia.org/wiki/Falsifiability#Inductive_categorical_inferencehttp://en.wikipedia.org/wiki/Falsifiability#Inductive_categorical_inference


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of large consequence and their dominant role. A Black Swan is a metaphorfor something that

could not exist and predicated.

In our case, it is evident that deeper analysis sheds light on the most common causes of

growth stalls, which turn out to be preventable for the most part. We have to remember that in

fact most stalls occur for reasons that are both knowable and addressable at the time.

Actually, ignoring signals that cause stall points cannot be described better than Taleb who

have said recently8: "People are ignoring the major impact that rare events can make on their

decisions. They prefer to cross the street while their eyes are covered."

The question is raised with regards to the reasons for blind eye by executives. It may be right

to look at another theory which will help to understand this phenomenon. "The Tragedy of

the Commons" is an influential article written by Garrett Hardin and first published in

the in 19689. The article describes a dilemma in which multiple individuals acting

independently in their own self-interest can ultimately destroy a shared resource even

when it is clear that it is not in anyone's long term interest for this to happen.The

phenomenon of the "tragedy of the commons" has particular relevance in analyzing

behavior in the fields ofeconomics, evolutionary psychology, game theory, and

politics.

One could take as an example a football stadium crowded with exciting supporters. The

strategy of the individual is to stand in order to maximize his view while the collective

strategy is that all will stay in their seats to enable to watch the game. In our case, it seems

that the right step is that the CI will take the initiative and become the "individual" that will

point to the alerting signals and will not stay in calm assuming that this is the best way,

believing wrongly that the common strategy cannot miss.

About the Author

Avner Barnea is a former senior member of the Israeli Intelligence Community holds a MA

from the Hebrew University of Jerusalem and graduated from the Top Executive Program in

Marketing Management from the Tel Aviv University Graduate School of Business

Administration. He is a strategic consultant in the field of competitive intelligence and

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The Marker, (Israel), 2

nd

. April 2009.9 Hardin, G. (1968). "The Tragedy of the Commons". Science, 162(1968):1243-1248.

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http://en.wikipedia.org/wiki/Metaphorhttp://en.wikipedia.org/wiki/Garrett_Hardinhttp://en.wikipedia.org/wiki/Dilemmahttp://en.wikipedia.org/wiki/Economicshttp://en.wikipedia.org/wiki/Evolutionary_psychologyhttp://en.wikipedia.org/wiki/Game_theoryhttp://en.wikipedia.org/wiki/Politicshttp://en.wikipedia.org/wiki/Politicshttp://en.wikipedia.org/wiki/Metaphorhttp://en.wikipedia.org/wiki/Garrett_Hardinhttp://en.wikipedia.org/wiki/Dilemmahttp://en.wikipedia.org/wiki/Economicshttp://en.wikipedia.org/wiki/Evolutionary_psychologyhttp://en.wikipedia.org/wiki/Game_theoryhttp://en.wikipedia.org/wiki/Politicshttp://en.wikipedia.org/wiki/Politics


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business strategy in Israel and abroad. He is lecturer on competitive intelligence in the MBA

program of the Ono Academic College and a guest lecturer on competitive intelligence at the

Hebrew University of Jerusalem Business School, and in various business executives training

programs. Avner has an intensive experience in the integration of competitive intelligence

systems into Israeli corporations. Avner can be reached at: [email protected]

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mailto:[email protected]:[email protected]

Creating More Value to CI Function1

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