Knowledge Is Power

Any Cash-rich 800 lb. Gorillas in Your Industry Gleefully Taking Advantage of the Current Economic Downturn?

Two billionaire container ship owners who ordered mega-ships before the economy tanked are not canceling their orders, according to The Wall Street Journal’s 1/26/09 article, “The Mega Containers Invade.”

Shipping rates have dropped to one-tenth of last year’s rates and some carriers are taking cargo basically free to fill up their tankers, according to the WSJ. But carrying capacity is expected to increase 12% partially due to a doubling of these enormous behemoths.

Some shipping companies retiring older vessels and cutting back on routes, but the two major industry participants view these times as an opportunity to strike at each other and smaller rivals.

“Two European billionaires are leading the move to super-size ships. Gianluigi Aponte, owner of Geneva-based Mediterranean Shipping, has order 48 ultralarge vessels, including the [just launched] Daniela. MSC is the second-largest container shipper in the world, with 450 vessels, behind Denmark’s A.P. Moeller-Maersk, with 500 ships.”

“Mr. Aponte’s rival is Jacques Saadé, the 71-year-old founder and director of Marseille-based CMA-CGM, which has ordered 37 ultralarge ships. The two tycoons, who’ve been battling each other since the 1970’s, study each other’s moves like chess players. ‘We’re not shrinking anything in our organization,’ Mr. Saadé said in a rare interview. ‘If we need to, we’ll order more big ships, for economies [of scale].’

Does your industry have any deep-pocket participants with the same attitude? US laws make US-based gorillas cautious, or at least quiet, about driving rivals out of business. But the behavior may be going on, or you may have global competitors with few legal restrictions.

Conversely, if you work at the industry gorilla, what is your organization doing to take advantage of the current downturn—if anything?

Many firms are in the midst of major layoffs, which focus attention on internal issues, but they should not lose focus on the changes in competitive landscape created by the recession.

Boston SCIP Member Among First to Question Madoff

Harry Markopolos has attended a number of SCIP Boston chapter meetings and provided an excellent presentation on the difference between espionage and competitive intelligence. Here’s one article from the Boston Business Journal—including a quote from me.

Madoff had early skeptic in Boston gumshoe Boston Business Journal - by Craig M. Douglas Tuesday, December 16, 2008

Over his brief career as an investment gumshoe, Harry Markopolos has perfected the art of unearthing information about financial scofflaws.

These days Markopolos is the subject of some serious digging — both on the part of regulators and journalists wanting to know more about the man who was among the first to raise red flags over disgraced Wall Street money manager Bernard Madoff.

In an email, Markopolos declined an interview this week, adding that the media swarm that has resulted from his initial accusations concerning Madoff’s billion-dollar alleged Ponzi scheme has been overwhelming. “I’m ethically not in a position (for an interview) at this moment,” Markopolos wrote Monday.

While Markopolos’ name has repeatedly been cited in news reports about the unearthing of Madoff’s swindle, his role as a financial-services sleuth and the lucrative incentives that drive his work have gone largely unreported.

A fixture in Boston’s financial-services community and a past president of the Boston Security Analysts Society Inc., Markopolos worked from 1991 through 2004 at Rampart Investment Management Co. He ultimately assumed the title of chief investment officer at the Boston firm, which boasted roughly $10.8 billion in assets as recently as Sept. 30.

Markopolos has since worked as an independent financial fraud investigator, tracking cases on his own and working as a hired gun for institutional investors and others seeking forensic-accounting expertise. The payoff for those services can be huge, although it’s unclear to what degree Markopolos has personally benefited from the various incentive plans offered by government regulators and other fraud victims. Nonetheless, those payoffs can reach the millions of dollars if a regulator, such as the Securities and Exchange Commission or Internal Revenue Service, successfully recovers financial penalties or back taxes linked to a fraud investigation triggered by a whistleblower.

For example, the IRS recently said it paid $13 million in rewards to “informants” in fiscal year 2007. Those payouts should increase substantially in the years ahead, since the agency recently doubled the awards available to up to 30 percent of the government’s recovery, the IRS said.

The SEC offers similar incentives linked to penalties and recoveries tied to financial fraud, namely insider trading violations.

While potentially lucrative, those payouts are often slow to materialize, said Paul D. Scott, a former lawyer with the U.S. Department of Justice’s civil fraud division. “It does take years,” said Scott, who now represents whistleblowers full-time in his San Francisco-based private practice. “But plenty of whistleblowers have retired after having the guts to step forward.”

Unlike typical whistleblowers working inside a company accused of wrongdoing, Markopolos is a corporate outsider with a penchant for tracking big game. A graduate of Loyola College of Maryland and Boston College’s master of finance program, his presentations are often fast-paced, as is his style of speaking; Markopolos can be quick to reach into his weathered briefcase to unveil detailed charts and timelines that outline allegedly improper and occasionally illegal behavior.

“I’ve always been very impressed with Harry. He always asks some very good questions and can draw on some very interesting experiences,” said Parmelee Eastman, the president of Eastside Consulting and the local chapter head of the Society of Competitive Information Professionals. She said Markopolos has spoken to the group about economic espionage and legal means in acquiring information on companies and individuals.

Markopolos appears to have put that expertise to work in 1999, when he was assigned to research a new investment product on behalf of Rampart. Among the competitors he studied was Bernard L. Madoff Investment Securities LLC.

Markopolos soon dispatched a letter to the SEC accusing Madoff of using his clients assets to, among other things, support a giant Ponzi scheme.

In a prepared statement to the BBJ, Rampart said it had no knowledge of Markopolos’ letter and first learned about it in a Dec. 12 Wall Street Journal article. Rampart said it has no affiliation with Markopolos or Madoff.

The SEC has said it launched two investigations on Madoff that never materialized into any serious charges against him or his investment affiliates. The agency has declined to comment on whether Markopolos prompted those investigations.

When Is a Competitive Advantage Not a Competitive Advantage?

Answer: When customers assume you have the same product or service attribute as competitors.

While Delta Airlines has moved with the rest of the airline industry to a la carte pricing, the firm has resisted charging for the first checked bag. However, the number of checked vs. carry-on bags for its passengers closely matched the ratios of its competitors, demonstrating that ticket buyers were not differentiating on the basis of this relatively small, although highly irritating for many people, fee.

“But Delta’s holdout proved pointless. ‘The increase in bags being carried on board Delta aircraft this year tells us that customers are not differentiating Delta as the only major airline not charging for a first checked bag,’ said Delta Chief Operating Officer Steve Gorman, in a prepared statement.” (“Delta Joins the Crowd, Adds First-Bag Fee,” Ted Reed, TheStreet.com, 11/6/08)

Could Delta have differentiated itself with this issue via a marketing campaign as Southwest has done? Possibly, but the absence of a bag fee would change very few actual passenger buying decisions so Delta chose the option that would clearly add revenue; adoption of the first bag fee. Fees for checked bags are adding up to millions of dollars of additional revenue for the airlines and primarily flows to the bottom line as no incremental costs were incurred to add the fees.

Whether or not passengers are less satisfied with checked bag service now that they are paying for it is a different question……

Do Only for-profit Firms Use CI?

Competitive intelligence is not just for firms seeking to make profits. CI techniques can be used to develop an understanding of what “competitor” non-profits or similar entities are doing. Instead of using the information to “beat” the competitor, the information is used to understand the state of the art in non-profit organizational structures, creating awareness, generating revenue, and achieving goals.

Non-profits are just that; not for profit, but they should be focused on efficiency so they can do more and effectiveness so their served population is truly helped.

We did a project earlier this year which focused on best practices at long-standing and newly formed non-profits with similar missions. The intelligence developed by the study showed that the other organizations varied significantly in all key areas. For example, some of the newer organizations were not legal entities at all, but were loosely coupled groups of volunteers. Some of the differences were vast, but overall, the study uncovered many best practices that could be adopted by the client.

Many non-profits willingly share their best practices, so intelligence gathering could be a good task for an intern or volunteer so employees can concentrate on their jobs.

Pre-Announce Your Rival’s Products?—I’ll Drink to That

Miller Brewing Company and Anheuser-Busch have long fought tenaciously over the US beer market, employing a wide variety of tactics. In 2006, Miller came up with a new idea: the firm hired a beer reporter named James Arndorfer to focus on Brew Blog, www.brewblog.com, to cover news in the beer industry, according to the Wall Street Journal front page article, “For All You Do, Bud, This Blog Is About You,” April 24, 2008.

While officially the site covers all beer competitors, Mr. Arndorfer tracks every detail he can find about chief rival Anheuser-Busch, blandly telling the WSJ, “They’re the industry leader. And they’ve been making a lot of news.”

The WSJ reported that, “In March, Mr. Arndorfer was rummaging through an online database when he noticed that Anheuser had received government approval for a Budweiser American Ale label. Breaking the news about the offering [in March 2008], he evoked recent Anheuser ads that disparaged ale-style craft beers.”

“Trade publications and Anheuser’s hometown paper quickly chased the scoop.”

The blog allows Miller to control the spin on news about its rivals while usually, but not always, reporting positively on Mr. Arndorfer’s employer Miller to maintain creditability.

“’They are trying to aggressively go around the gatekeepers’ in newsrooms and the trade press, says Stephen Quigley, an associate professor of public relations at Boston University. ‘It’s something you couldn’t do five years ago,’ before the proliferations of blogs.”

Some companies have been using competitive information in their publicity for years--I’ve done the research for many of these campaigns—but more should be since the practice allows firms to:
• Position its products and/or services more favorably against those of rivals
• Be more specific in claims for its products against those of rivals
• Plants seeds of FUD (fear, uncertainty, doubt) about competitors

So go have a Miller beer with co-workers and brainstorm about how your organization can more effectively leverage competitive intelligence in communications campaigns.

The Society of Competitive Intelligence Professionals

Since I just received my renewal notice for my membership in SCIP (Society of Competitive Professionals), it is time to mention the benefits of the organization. SCIP fosters networking, CI knowledge development (through the CI Foundation) and dissemination through the CI Magazine and SCIP online, professional skill development, and standards via ethics statements.

An annual membership costs $295 ($25 for students), which includes discounts on local meetings and the annual conference as well as publications, but you do not have to be a member to attend. Go to www.scip.org to find your nearest chapter and send Dionedra Dorsey an email requesting meeting notices. She can be reached at ddorsey@scip.org.

The scip web site also has some information on competitive intelligence which may be useful.

Enjoy!

Do Supply Chain Improvements Only Benefit For-Profits Firms?

No, according to Charles Agins, Montefiore Medical Center VP of finance and executive project director who oversees business information systems (“Reining In Health Care Costs Through Stricter Supply Management,” Marianne Kolbasuk McGee InformationWeek 9/30/07):

‘"If health care wants to tackle its problems, you've got to take on systems drastically," in terms of squeezing out costs in the purchasing of supplies ranging from drugs to sutures, to even the soda that's sold in cafeteria vending machines, said Charles Agins.’

The two (soon to be three) hospital chain implemented SAP to track purchases and save $72 million in the previous ten years through trading off longer contracts for lower prices with vendors and reducing shrinkage (employee theft). “A big chunk of the savings has come through fierce contract negotiations with vendors of everything from copy machines to pharmaceuticals to staff cell phones, resulting in much longer term contracts at discounted prices, as well as improved services.” Shrinkage dropped dramatically as employees knew that all requisitions and deliveries of supplies and equipment were recorded by the SAP system.

But the benefits did not accrue just to the financial health of the hospital. “Orders that in the past took 24 to 37 days to process, now happen overnight.”

Many manufacturing firms have found that improving their supply chains for inventory yielded substantially more in savings than rationalizing items bought for internal use. The Montefiore experience suggests that the improving the MRO (maintenance, operations, repair) supply chain could provide competitive benefits to both non-profit and for-profit organizations.

Offshoring Off the Drawing Board for One Startup

“Wages in India have risen to the point that offshoring development operations no longer makes sense for one high-tech company” according to a May 29, 2007 article by Carmen Nobel in Infoworld “Wage Inflation Sinks Offshoring to One Startup.”

“Indian software development shops have been the workhorse for countless high-tech firms and U.S. enterprises for more than a decade. But steady demand for development talent is erasing some of the cost advantages that offshore development outfits have enjoyed, according to a report by Gartner. In fact, the wage rates for Indian software engineers will reach between 40 to 50 percent of Silicon Valley wages by 2008 with the gap continuing to narrow after that.”

“Wage increases for Indian engineers averaged 15 percent from 2005 to 2006, compared with a 3 percent average increase for U.S. engineers, according to a recent Gartner report.” With additional communications and coordination costs from managing groups so far away in addition to the higher wages in India, the country is not as cost-competitive as previously. US companies are looking at offshoring to China, Vietnam, Russia, and other Eastern European countries, or returning the work to the US.

Are your competitors offshoring? If so, how it is affecting their cost structure and their effectiveness? If they are being pressured to offshore by funders, it may not be positive for them.

Lou Gerstner "Get New Top Management"

Lou Gerstner said “Get new top management” when I asked him how should CI professionals work to gain visibility of unsupportive top management at the May 14 Harvard Business School Association of Boston program, “An Informal Conversation with Lou Gerstner.” He shook his head in disbelief and added that “At the end of the day, nothing matters but customers and competitors.” Too many companies who were very successful for many years stop focusing on the external and start focusing on the internal. They lost their way and floundered.

He quoted Intel founder Andy Grove, “Only the paranoid survive.” He advised “Every day, every day, start with an externally-driven agenda for your company.”

When he started at IBM, he knew nothing about the company and the industry. He asked for the customer satisfaction data. “They love us” said the customer sat team. Why he wondered, IBM’s market share had dropped in half and the company was losing billions of dollars.

He wondered for a couple of months and then asked to see the customer sat data again. “Oh, we’ve got new data. They love us even more!” How was the data developed he queried. “We ask the salespeople which customers to survey and send the survey to them. Many customers do not like to fill out too many surveys so the best salespeople fill them out for their customers.”

Out went the customer sat team and the process. When he left IBM, the company was surveying 30,000 customers each quarter blind.

SCIP Boston Chapter Meeting

The Boston chapter of SCIP is kicking off the new season with a presentation by Leonard Fuld on October 3.

New Insights from Leonard Fuld

Competitive intelligence is not about the Internet. It’s about a German refugee turned American GI and interpreter in World War II. . It’s about a goat in the field. It’s about Google’s battle with Microsoft. In order to unlock the value of competitive intelligence and see past competitive smoke screens and disruptions, one must first learn its five realities. Only then will you be able decode its secret language and help your business strategy succeed.

Leonard Fuld, president of Fuld & Company, will share his insights on this secret language based on the findings from his most recent book, The Secret Language of Competitive Intelligence, on Tuesday, October 3 at the Microsoft facility in Waltham, MA. SCIP Boston is privileged to have this experienced and popular speaker kick off our year.

OUR SPEAKER

Leonard Fuld is a pioneer and recognized leading authority in the field of competitive intelligence. Leonard Fuld created many of the intelligence-gathering techniques currently used by corporations around the globe. Mr. Fuld was among the first four people to be named a Fellow of the Society of Competitive Intelligence Professionals (SCIP) and was awarded the Meritorious Award, the highest award offered by SCIP, in 1998.

Fuld & Company (www.fuld.com) is a full-service business intelligence firm, providing research and analysis, strategic consulting, business intelligence process consulting, and training to help clients understand their external competitive environment. With headquarters in Cambridge, MA and offices in London, UK, the company has served over half the Fortune 500 companies as well as corporations around the world.

Mr. Fuld is a widely published author. His most recent book is The Secret Language of Competitive Intelligence (Crown, 2006). For more information on this book, click on http://www.fuld.com/Products/SecretLanguageOfCI.html. His articles have appeared in major business publications including The Harvard Business Review, The Wall Street Journal, CIO Magazine, Chief Executive and many others. He has also been featured on The Today Show, Marketplace, CBS Network Newsbreak, Financial News Network Evening News and ESPN's Nation's Business Today.

GENERAL INFORMATION

The networking session will begin at 6 PM. A light meal and refreshments will be served. Mr. Fuld’s presentation will begin at 6:45 PM. There will be time for individual discussions and more networking after the presentations and the evening will wrap up by 9:00 PM.

Microsoft is hosting this event at its Waltham, MA office at 201 Jones Rd. Parking is available underneath the building or in the parking garage. NOTE: Please enter the building from the back entrance as the front entrance closes at 6 PM. Take the elevator to the sixth floor and turn left to find the session.

DIRECTIONS

From the East or West, take the Mass Pike (I-90) to exit 15 which is I-95/Rt. 128. Go North one exit to Exit 26 (Route 20). Continue below.

From the North or South, take I-95/Rt. 128 to Exit 26 (Route 20). Continue below.

For all attendees, take Exit 26 onto Rt. 20. Follow Route 20 East through first stoplight. Take next left turn on Stow Street (following signs for Route 117). Take left at Main Street (Route 117 West) stoplight, and then take second left onto Jones Road at the blinking yellow light. Waltham Weston Corporate Center is located at the end of Jones Road (201 Jones Road). For more information, visit http://www.microsoft.com/mscorp/info/usaoffices/newengland/waltham.mspx.

REGISTRATION

The fee for SCIP members is $30; non-members fee is $35. Cancellations received after close of business on Friday September 29 will not be refunded. No-shows will be billed. To register, please visit www.scip.org, then click on Event Calendar.

If you attend, please let us know how you heard about the meeting.