Knowledge Is Power

Larry King Would Have Been Great in CI

Larry King was interviewed on CNN this morning promoting his new book, The Remarkable Journey. He said that he always wanted to be a radio announcer because he liked asking questions. He recounted that when he and other boys went to see a baseball game, the other kids wanted autographs. He wanted to ask questions about how the players got into playing baseball, how they developed their skills, etc. Asking questions was almost inborn for him as it is for many journalists.

This instinct for asking questions and a real desire to know the answers is also extremely useful in competitive intelligence and is why some journalists move into CI.

Another background for CI professionals is growing up with college professors in the family. I am one of them; my father and one grandfather were college professors. Professors enjoy analysis and value information for its own sake. I always feel personal satisfaction when I can put the pieces of the puzzle together to provide insight for a client. Actually I enjoy it in general, but CI allows me to get paid for doing it—not as much as Larry King earns, but enough.

So if you are wondering if CI is the right profession for you, or you are hiring an analyst or a contractor, think about these behaviors. Many people can learn to ask questions or analyze data to create information, but those individuals who have these characteristics will be better at CI and enjoy the job more.

What Will Replace the Local Newspaper as a Source?

One of the best sources for information has been local newspapers and their business reporters. Now with the economic downturn racheting up the financial pressure on declining newspapers, some of our best sources are cutting back coverage, going web-only, or closing. I always include local newspapers on a secondary search and look for the names of business reporters.

We once had a project with a company so secretive that the Girl Scouts participating in the opening ceremony at a plant expansion had to sign non-disclosures. The local business reporter turned out to be a wonderful source. He was eager to learn what we had gleamed from other sources so he was happy to trade all he knew about the company.

My local paper the Boston Globe has laid off a number of reporters and I notice the missing columns. The Seattle Post-Intelligencer switched to web-only on March 17, 2009, according to an Associated Press release, “Seattle Post-Intelligencer to go Web only,” 16 March 2009. The company had 181 employees, but the web-only organization will have 20 selling ads and only 20 working on content. The site will rely more on links to other sites and blogs.

The Rocky Mountain News ceased operations entirely on 27 Feb 2009 and several other newspapers are in bankruptcy.

A 2 April 2009 article on www.newsweek.com took a different view of the future of newspapers. Daniel Gross stated in “Newspapers aren’t assets to be flipped, leveraged, and stripped,” that many of the newspapers that have gone bankrupt were owned by investors who bought them with loads of debt and stripped them of cash. This is a recipe for disaster for any industry in a serious recession. The downturn is forcing many firms to slim down and industries to consolidate.

Whether or not you believe the newspaper industry will survive at all, it is clear that we will see fewer and smaller newspaper organizations. So a smaller number of sources to tap for primary research will be available.

Some CI researchers are using LinkedIn or other networking sites to find sources. What sources will you try to replace the local newspaper?

How to Not Answer that Question

Harvard Business School’s Working Knowledge recently published a working paper on how politicians successfully dodge questions with implications for all of us who face or ask questions.

The working paper, “Conversational Blindness: Answering the Wrong Question the Right Way” was written by Todd Rogers and Michael Norton and published in the Oct 20, 2008 issue of HBS Working Knowledge.

This research on politicians is highly relevant for primary researchers. The HBS study used audiotapes of politicians providing a healthcare answer to four questions; one on education, one on healthcare, a similar one on the drug problem in the US, and a dissimilar one on the war on terror.

The study found that almost half the listeners to the question on the drug problem believed that the politician had answered the question appropriately while most participants who heard the question on the war on terror recognized that the healthcare answer did not fit.

Even more interesting was the result of the second phase of the study in which the politician hemmed and hawed his way through the answer. His apparent uncertainty caused his listeners to doubt his appropriate answer and prefer a polished, confident healthcare answer to the drug problem question over the unpolished healthcare answer to the healthcare question.

The HBS researchers believe that this phenomenon occurs because listeners are limited in their capacity to absorb information coming at them, plus people correlate a confident manner with accurate answers.

“Conversational blindness occurs in part because real-world conversations occur as a continuous ebb and flow, leaving little time for people to reflect on how each statement links to each previous statement. Indeed, people’s inability to notice not just subtle changes to their environment but even obvious changes has been traced to the inherent limitations of attention (Neisser, 1979; Simons & Chabris 1999). Thus the recall that we observe in our experiments is, if anything, an overestimate of people’s ability to detect dodges, since we presented participants with a forced-choice four-option question—giving them a 25% chance at the right answer—a situation that does not arise naturally in the world. Accordingly, decreasing conversational blindness in everyday interactions may be no easy task.”

There are several implications of this study for primary research:

1. If you are a primary researcher who does not want to answer a question on the sponsor of the study, provide an answer that is very close to the direct answer to the question and that addresses common, but unexpressed, concerns. For example, many sources are not allowed to speak with reporters and must refer all calls to PR. If I answer the “Who is the sponsor?” question with “We’re just trying to get background information. This is not for publication or attribution,” I’ve answered the hidden question of “Will I get into trouble if I speak with this person?”

2. Speak with confidence when answering any questions.

3. Listen very carefully for dodges when speaking with a source. While the beauty of primary research is the ability for conversations to flow in important directions, we still need to get answers to certain questions and may have to circle around again to a question if it is dodged. Do not let the confidence tone of the source deflect your question.

To read the complete working paper, go to http://hbswk.hbs.edu/item/6050.html.

References cited in the quotation.

Neisser, U. (1999). The control of information pickup in selective lookup. In A. D. Pick (Ed.), Perception and its Development: A Tribute to Eleanor A. Gibson (pp. 201-219) Hillsdale, NJ: Erlbaum.

Simons, D.J. and Chabris, C.F. (1999). Gorillas in our midst: Sustained inattentional blindness for dynamic events. Perception, 28, 1059-1074.

Expect the Unexpected in This Downturn

US economic recessions typically start when higher interest rates force businesses and consumers to cut back on purchases. The loss of consumers’ piggy bank of rising home equity has cut their spending. While economists debate if we are actually in a recession now, the credit freeze has produced unprecedented government action and stock market swings steep as the Swiss Alps.

Think twice about predicting competitive behavior based on patterns of previous recessions. Your competitors may surprise you.

For example, information technology vendors usually reacted to a downturn by bringing work in-house and attempting to sell to a broader base of customers, cutting out the distribution channels in some accounts. According to “Efficiency Experts,” in the 9/29/08 issue of CRN, vendors are sticking with traditional distribution channels so far in 2008. The distributors’ investments in logistics and services have made them more effective in servicing solution providers.

According to the article, “Cisco Systems Inc. has been a strong distribution partner for several years, but until recently it also dealt directly with many SMB resellers. The San Jose, Calif.-based vendor discovered that distributors are closer to many of those partners in question, often speaking to them daily. It simply made better sense for Cisco to support the distribution efforts versus utilizing a third-party support call center, according to D&H’s Schwab.” (Schwab is president of distributor D&H Co. Inc.).

The Global Technology Distribution Council (GTDC) studied the efficiency of distributors vs. vendors. “At the recent GTDC Summit, Curran (CEO of GTDC) presented a report to more than 50 vendors detailing how—and where—distributors can save their partners money.”

“The GTDC identified the costs of doing business in about a dozen different criteria and only two, market development funds and price protection, were higher in vendors’ relationships with distributors than if the vendors went direct to end users or solution providers. For every other criteria, including shipping, handling, warehousing, managing warranties and returns, accounts receivable and financing, vendors’ costs were lower if they utilized distributors. Overall, the study proves that distributors save vendors money, Curran said.”

This research suggests that technology vendors need to examine their channel strategy, but also consider engaging in a best practices study. Perhaps the traditional low margins of distributors have forced them to be more innovative in their operations than the vendors. With the economy so uncertain so quickly, vendors should look everywhere for cost saving ideas.

How Far Will You Go to Interview A Source?

Some executive recruiters have gone pretty far to reach prospective candidates about opportunities, according to an article in the Wall Street Journal on Sept 9, 2008. The title, “Snack Vendor—or Undercover Job Recruiter?” told of recruiter David Perry selling snacks and sandwiches from a rented canteen truck in an industrial park because his client wanted to hire a famed technology guru. There was a problem: the client did not know the name of the expert. Perry spent four days in the heat before a hungry customer revealed the name.

Another recruiter mentioned in the article, Peter Polachi, kept leaving unanswered messages with a rising CEO candidate. He spoke with the CEO’s assistant who “blurted out that the executive kept such a tight schedule that he got up before dawn every morning just to get his shoes polished.” Mr. Polachi promptly drove 200 miles to New York City and sat down at the nearest shoeshine stand with a copy of the company’s annual report visible. The CEO noticed the report and the rest, as we say, is history.

Could we as CI researchers use the same aggressive techniques to obtain names of sources and strike up conversations? In some cases, we could. I’ve certainly asked executive assistants for referrals to knowledgeable sources and what’s the best time to call Mr. X or Ms. Y. Going to a shoeshine stand is not that different from going to the bar nearest a target’s facility and initiate conversations. Portraying oneself as a snack vendor does not pass the smell test for me, but it may for some CI folks.

The biggest issue with adopting these techniques is cost. Typically phone interviews take a fraction of the time of these aggressive techniques. It would be rare assignment that would require these antics to reach a source. Do you know of any project that would justify the costs of reaching these sources?

Companies, like People, Have Herd Instincts

Human beings prefer to live in groups. For thousands of years survival of an individual depended on the ability of his or her tribe to feed itself and defend itself against rival tribes.

Groups of people have the same instincts when threatened. Witness Microsoft’s offer to Yahoo, precipitated by Google’s increased domination of the search advertising market. With jet fuel prices soaring higher than the airplanes themselves, even the larger airlines are merging or forming alliances to cut costs in an effort to survive.

The dominant firm in any industry will run afoul of anti-trust rules if it tried to merge, even in today’s more flexible stances in Washington DC. But how much effort should the dominant entity expend to monitor and anticipate mergers and alliances among smaller, possibly struggling competitors?

Not much actually. Struggling competitors who align out of weakness usually see minimal benefits from the merger. And they focus internally on combining the operations instead of maintaining their diligence on competitors.

Compaq Computer Corporation bought Digital Equipment Corporation largely to obtain its services capabilities. Subsequently, Hewlett-Packard (HP) acquired Compaq to bulk up its PC business and to add to its services operations.

What happened? HP just inked an agreement to purchase EDS to increase its ability to compete against IBM for services opportunities. IBM has been doing extremely well. While the fit between the two appears good from a business viewpoint, the cultures of the two organizations are very different and will take a great deal of careful integration to create benefits from the combination.

So you work at the dominant organization in your industry, keep monitoring your merging competitors, but basically just keep doing what you’re doing right in the first place.

Learn the Difference between Counter CI & Corporate Espionage May 21

SCIP Boston Chapter Meeting
Counter CI & Counter Corporate Espionage (CE): Know the Difference!
May 21, 2008

This presentation will review the Economic Espionage Act of 1996 comparing and contrasting espionage which is criminal with competitive intelligence which is legal. It will also review steps that you, the information professional, can take to safeguard your company against other organization’s CI or CE efforts. Are employees putting your company at risk every time they travel overseas with laptop computers? Preparing your executives for “flying the unfriendly skies,” ensuring your hotel room doesn’t become your competitor’s best source of information and other commonsense tips for today’s CI professional will be just some of the topics discussed.

Harry Markopolos, CFA, is a corporate whistleblower specialist engaged in identifying companies engaged in contract or tax fraud against the US Government under two bounty programs - the Federal False Claims Act and IRS Whistleblower Program. He specializes in safeguarding whistleblowers’ identities, preparing case evidence, fraud investigation, building damages models, and working with legal teams to file cases under seal (in secret).

Mr. Markopolos graduated with his B.A. in Business from Loyola College of Maryland, earned his M.S. in Finance from Boston College, and is a Chartered Financial Analyst. He also graduated from the Army Command & General Staff College.

Prior to starting his own company, he served as Chief Investment Officer for a $9.5 billion equity derivatives asset management firm in Boston.

Registration will be available on www.scip.org after SCIP08
For More Information, Contact:
Boston SCIP Chapter Chair Parmelee Eastman 781/416-3686, [email protected]
SCIP Staff Contact: Dionedra Dorsey, SCIP Chapter Coordinator, [email protected]

Beyond Outsourcing to India

“Image search firm Riya is to pull its research and engineering operations out of India to consolidate in the U.S. due to rising wages in Bangalore.” (“Rising Wages Prompt Riya to Pull Out of India,” Tash Shifrin, Computerworld, July 2, 2007)

“The company, which is behind visual shopping website Like.com and specialises in image recognition software, had maintained offices in both Bangalore and the U.S. despite the difficulties of being based in locations 12 time zones apart because low wages and a strong pool of talent in India meant the company still saw a significant return on investment.”

“But in his company blog, Riya chief executive Munjal Shah, said: "Bangalore wages have just been growing like crazy. To give you an example, there is an employee of ours who took the first five years of his career to get from 1 percent to 10 percent of his equivalent U.S. counterpart.”

"He then jumped from 10 percent to 20 percent of his U.S. counterpart in the next 1 year. During his time with us (less than two years) he jumped to 55 percent of the U.S. wage. In the next few months we would have had to move him to 75 percent just to 'keep him at market.'"

Start-up Riya is consolidating its operations in the US since it seeks very experienced staff. Some firms may switch outsourcing operations to lower-cost countries such as China, Philippines, or Vietnam despite concerns that China has not strengthened its intellectual property policies and practices sufficiently.

Where are your competitors heading? Returning outsourced activities to the US suggests they include high-quality customer service and intellectual development in their strategy while switching to China or Vietnam reveals an emphasis on low costs which allows an aggressive pricing policy.

Quietly Tiptoeing in Cement Shoes

Your company should have a process for identifying, evaluating, and following emerging competitors. But what should the level of resources be for this effort since most of the emerging competitors will fade away with no damage to your market position?

Cement makers may need to increase their resources in this area to follow a quick-drying cement manufacturing operating currently in stealth mode, according to an article in the Aug 21, 2007 Wall Street Journal, “Hardened in Battle, This Company Sets Its Goals in Cement.”

“Over the past four years, a small Baltimore company lead by a 23-year Army veteran has quietly made its mark in combat zones with an unlikely weapon: fast-drying cement…But CeraTech’s repair work to date has mostly gone under the radar of industry observers—and that’s been intentional.”

CeraTech’s CEO Jon Hyman explains why, “We had issues with technology to perfect. We needed to establish intellectual property. We needed to fly under the radar and get some brand equity.”

The current dominant cement formula, called Portland cement, can take up to days to fully cure while CeraTech’s product dries in one to four hours. Like many new technologies, CeraTech’s product is more expensive and less of a track record—Portland cement has been used for at least 100 years.

CeraTech is now preparing to tackle the huge infrastructure market in the US. How much should Portland cement makers have spent on watching CeraTech and how much should they be spending now? What do you think?

Do Companies Lie?

Do people deliberately misrepresent facts about their companies to throw off competitors? Some researchers believe that mis-information is planted frequently; however, I have found that most sources will refuse to answer my questions rather than lie. Lying takes effort to create and maintain a creditable story with all the pieces hanging together.

However, recently I researched a private company that is deliberately mis-representing its revenue figures. During the late 1990’s, the management confirmed in articles in the local newspaper that revenue was around $125 million and spoke about advertising campaigns that ranged up to $20 million. But the most recent revenue figure that I could find in 2007 was $50 million. Certain information is public such as leasing new space with the help of local incentives and building permits to alter the space. So I also knew that this company had increased its manufacturing capacity by 50% two years ago by acquiring an empty plant with the help of state job creation incentives. What gives?

Turns out that an employee with an Arabic-sounding name in a key position at the firm had been arrested for terrorism by the FBI shortly after 9/11. The founder and CEO of the firm were very active in Jewish philanthropy at the time and this private firm decreased its already low profile to practically nothing after that incident.

Once I understood the firm’s situation, I threw away the $50 million figure and estimated that the real revenue for this organization to be $250 million. It’s a sad commentary on the state of the world that this firm apparently felt the need to pull the curtain on itself. However, even this organization was not able to completely cover up its activities and outsiders revealed key information about the new plant.

This example shows the difficulty of making deliberate mis-information creditable. Can it be done? Sure, it’s just difficult.