The Dark Side of Market Research – Competitor Intelligence

It is perhaps an appropriate time to talk about Competitor Intelligence.  As a result of being in possession of confidential information belonging to rival team Ferrari, the World Motor Sports Council fined the McLaren Formula One team USD 100 million and stripped them of their World Championship points.

Although this is likely to deter further such activities in Formula One for some time, a much larger Competitive Intelligence industry exists in a range of other sectors.  There is often a fine line between ‘accepted’ forms of Competitive Intelligence that are legal and falling within Codes of Ethics, and those bordering on the illicit and unethical world of industrial espionage.

The opportunity to obtain inside information and peer into their strategies of the competition is tempting.  Consequently many clients and their business intelligence / market research companies are actively engaged in the ‘art’ of Competitive Intelligence.

The driver behind the Competitive Intelligence industry stems from the principle of the ‘Game Theory’ – a concept developed by Economics theoreticians and Nobel Prize Winners John Nash, John Harsany, and Reinhard Selten.  The ‘Game Theory’ explains the relationship between competitive Gain (G) through unethical practice, against the Risk of getting Caught (RC), and the resultant Penalty (P) of getting caught.

If all companies are ethical, the market would be a level playing field.  The same is also true if all companies are unethical.  If the Risks of getting Caught (RC) in unethical business practices (e.g. theft of trade secrets) is high, and the resulting penalty (P) is high, Gains (G) are low to negative and the result is that ethical companies win over unethical ones.

However in the wider world of commercial Competitive Intelligence, the client reduces their risks of getting caught by outsourcing such activities to business intelligence and market research firms.  These firms might then engage sub-contractors to further ‘hide the trail’.  Furthermore in Asia and many other emerging markets, the penalties for getting caught spying on your competitors are often limited to bad PR and no more.

Hence engaging in Competitive Intelligence activity nearly always results in net positive Gain for the client assuming that is the value of the Intelligence exceeds the costs of doing it.

Who undertakes Competitive Intelligence?

The most common users of Competitive Intelligence are those within high technology industries, e.g. pharmaceuticals, IT / telcoms, and automotive.  Here, understanding the technical specifications and strategies of competitors and then designing products to beat them both on a technical and pricing front can be the Formula for success.

According to the Society of Competitive Intelligence Professionals (SCIP) the most common applications of Competitive Intelligence are assisting corporations in:

  1. Corporate & business strategy
  2. Sales & business development
  3. Market entry decisions
  4. Product development
  5. Research & Development
  6. Mergers & Acquisitions decisions and due diligence
  7. Regulatory and compliance matters

The most common methods employed in Competitive Intelligence are to examine the information in the public domain or ‘Secondary Sources’.  These include press, trade journals, websites, databases, and news feeds.  However the more valuable information is obtained from ‘Primary Sources’ including information obtained from sales people (e.g. through Mystery Shopping), and interviews with competitor’s employees, customers, industry experts, and suppliers.

The SCIP heavily promotes ethical Competitive Intelligence and its Ethical Codes, the key tenet of this being to:

‘Accurately disclose one’s identity and organization to all interviewees’

But here lies the problem.  To comply with the SCIP code on disclosing one’s true identity the competitor under review would soon conclude that they are being spied on and would therefore not co-operate in such interviews.  Alternatively, it is a lot easier to phone a competitor and request information, claiming that it is ‘to help with a student dissertation’ or to ask for detailed information while posing as a customer.

Hence the use of truly ethical Competitive Intelligence often does not yield very valuable information.  For many clients the whole reason to engage a third party, such as a business intelligence / market research firm, is to push the ethical boundary of Competitive Intelligence.  Putting it simply, the lower the ethics the better the Competitive Intelligence!

The Gray Area

When does Competitive Intelligence become Industrial Espionage?

There has been legislation to attempt to regulate the industry including:

  1. The Economic Espionage Act 1996 in the US.  This buy cipro online no prescription makes the theft of trade secrets a Federal Crime.  This can theoretically be extended to Asia and other parts of the world if the perpetrator is a US citizen, the victim is a US citizen, or ‘the offence was intended to have, or had, a direct substantial effect in the US’, which would apply to any US multinational operating in Asia.
  2. Bribery, e.g. where a firm engaged in Competitive Intelligence has sought to incentivize an employee to disclose information about their employer.
  3. Non-Disclosure Agreements, where employees, customers, or suppliers would be in breach if they disclosed confidential information to third parties.

Since it is very rare for organisations to ask customers to sign such agreements, and staff confidentiality obligations often end when they leave the company, both customers and ex-staff are very valuable sources of Competitive Intelligence.  High staff churn companies are often the one most transparent and most talked about in the industry!

The Risks of Competitor Intelligence

As a consequence of legislation, some companies have been penalized as a result of their Competitive Intelligence activities.

Kraft sued a rival frozen pizza producer, Schwan’s in an alleged theft of trade secrets involving its DiGiorno frozen pizza.  Kraft claimed that Schwan’s had hired an ex-Nielsen employee who had undertaken work for Kraft, and who brought competitive information from Kraft with him when he went to work for Schwan’s.

In the automotive sector, a former senior manager at General Motors who moved to Volkswagen took with him proprietary information and files from his former employer.  When this was discovered Volkswagen in the resulting litigation was fined USD 100 million.  The incumbent was dismissed, but went on to form a successful business intelligence consulting firm!

Competitive Intelligence in Asia

In Asia, there is very little legislation to regulate Competitive Intelligence, and most of the regulation is left to industry Guidelines and Codes of Ethics.

Apart from the SCIP Codes of Ethics, the Market Research Society Code of Conduct on Mystery Shopping (a very common form of Competitor Intelligence) states that ‘the time taken (through an dontevaluation of a competitor) should be kept as short as possible and should not be seen to waste the competitor’s resources in any way other than a normal customer enquiry might do’.

The Economic Espionage Act 1996 is a uniquely American law, developed on the basis of a national philosophy that emphasizes a ‘level playing field’ for all business competitors that arose in no small part due to the size and diversity of the American private sector.

In Asia, the philosophies are different as illustrated by the scant disregard for Intellectual Property (IP), e.g. the high occurrence of CD, DVD, and software privacy.  Many nations not only lack such legislation on trade secrets and IP, but actively support industrial espionage using both their national intelligence services as well as less formal mechanisms including bribery and corruption.

In such an environment, the Competitive Intelligence industry flourishes.  Beyond straight misrepresentative, some of the less ethical practices in Competitive Intelligence reported in the industry include market research and business intelligence companies posting false job advertisements.  Here, they would pretend to be hiring (and paying highly) for client-side staff within experience in a specific product area or industry sector.  During the course of the ‘job’ interview, they would seek as much information on the products and business development strategies of the interviewee’s company.

In more extreme examples, there are companies who engage Private Investigators, ex-policemen, and even those in the underworld for more illicit operations including eaves dropping and use extreme cases of misrepresentation.

In researching the Competitive Intelligence topic, the Asia Research Journal came across two quotations that pull at the opposite ends of the argument for and against the practice:

“No legacy is so rich as honesty” (William Shakespeare).

“All’s fair in love, war and business” (Marc Barry*).

*Marc is the author of Spooked: Espionage in Corporate America.  His quotation was to justify actions he used to gain competitive intelligence, stating that what he did was not illegal.

Ultimately the commercial pressures on organizations, the lack of legislation and the relatively low risks of getting caught ensure a rosy future for the Competitive Intelligence industry in Asia.  How low can you go?