Companies experience distress.

You do not have to look far to see signs of that distress. Talk with people that have survived a series of layoffs and reorganizations. Ask them about the constant worry of losing their jobs while coping with a series of changed assignments. Question them about the difficulty of trying to do ordinary business when management has severely reduced their flexibility to spend money or take risks. Watch how people talk about the future and their hopes. When you do these things, you begin to see severe distress.

Strategy and competitive intelligence organizations are suffering.

Within companies today, the current priority for many is simple survival. There is no shame, of course, with this objective. It does force hard decisions. One decision is to focus maniacally on preserving cash. That means two things – reduce expenses to the barebones and pursue short-term sales. Consequently, other things suffer. For example, many curtail or deemphasize strategy and competitive intelligence. This produces a specific kind of distress.

Here are five signs of business strategy or competitive intelligence distress.

1. It is unfashionable to be identified with strategy. Employees understand what is valued. Often they use self-descriptions that align with what is in vogue. In stressful times, those with an obvious “strategy” moniker will decrease. Alternatively, they will say “strategy” and then quickly explain how this means their plan for the next 30 days.
2. “Strategy” is equated only to cost savings. Even in tough times there is business spending. In stressful times, there is a disproportionate concern for reducing costs. Thus, projects or initiatives that deliver such savings are “strategic.” Revenue increasing projects tend to receive less support.
3. Competitive intelligence is stopped. Distressed companies turn inward to preserve jobs by increasing efficiency. Externally focused analysis seems like a luxury especially when it means having someone dedicated to the task. Companies fall back on distributing competitive intelligence responsibilities or simply ignoring the discipline. Given the crush of additional work, most busy people simply let it drop.
4. Common arguments do not work. In normal times, a strategist views the competitive environment looking for ways to win. That means doing a better job of developing and delivering products that customers want than competitors do. Investments are justified based on perceived advantages, competitor positions and customer needs. In stressful times, this currency is devalued. Arguments that work are internal, tactical and designed to minimize risk (versus maximize return).
5. There is an unsatisfied, pent up energy for the future. Stressful times, by definition, eventually end. Even now, in the companies that I talk with, strategists are beginning to emerge from this recessionary hibernation.  There is a desire for action, competitive initiative and a reawakened curiosity about what is possible. The stress shows up because it is not immediately clear how to get moving again in their company culture traumatized by the past year’s climate.

These five observations are not prescriptive. However, they do help point toward concrete steps for a business strategist or competitive intelligence professional to switch their personal and professional focus from distress back to success. My next post will cover some thoughts about what to do.

Have you seen distress signals for strategy and competitive intelligence people lately?

One example that we often use is armed conflict between nations. Wars are the ultimate human competition because the stakes are so high for many people. The problem with using it as analogy for business competitive intelligence is that the rules are clearly different. Ethics in business and war are not the same. Nations may justify actions during war time that an anathema to peace time life.

Another example that we can use is sports. The attractiveness of the sports analogy is that a “lifetime” is played out in plain view each season. All teams start with similar resources and the same record. Pitted against each other in a series of contests, the stronger teams emerge to contend for the title. There, superior systems collide to determine which will prevail. Nice and neat. Then it happens all over again.

Of course, business contests are not all that neat. Plus they usually occur with multiple, simultaneous competitors. The beginning and endings are not so clear cut. And, it is entirely possible that there will be more than one winner.

Okay, despite the caveats, there are good and bad lessons to be learned from American professional football.

The most successful team from the last ten years has been the New England Patriots coached by Bill Belichick. They have won three championships and regularly compete at the highest levels. Belichick’s reputation is that he meticulously and effectively prepares his team for each game. Players are aware of their roles and how to attack the opposing team. Knowing and exploiting every possible weakness of his opponents is a trademark of the Patriots.

Interestingly, it seems that this drive to know everything about competitors is what led to an apparent ethical lapse. In 2007, the Patriots (in violation of league rules) taped the sidelines of an opponent for the purpose of deciphering hand signals used to communicate with players on the field. Maybe they had been doing this in other games and for a long period of time (suspicions)? Many began to question how the spying affected the previous championships. Should they be considered tainted?

This is a cautionary tale about the ethics of competitive intelligence that does apply to business.

Where did Belichick’s drive come from? Did it arise first from proper and healthy impulses?

Actually, it did. Bill Belichick’s father, Steve, wrote one of the seminal books on football scouting methods. When scouting was done in a haphazard and spotty fashion, Steve pioneered the methodical use of scouting (i.e., competitive intelligence) to gain advantages over opponents. While scouting for the Naval Academy football team, he wrote “Football Scouting Methods” which contains a wealth of philosophy and practical methods for understanding competitors.

My favorite quote from the book describes his view of scouting.

“The objective of [football] scouting has been, and still is, to get as much useful information about a future opponent as possible. A more practical objective, however, seems to be to get as much usable information as can be utilized either (1) to help formulate game plans, or (2) better prepare various individual players to either combat the strength, or take advantage of the weakness of an individual or opposing team.”

To warm the hearts of competitive intelligence professionals, his first chapter is entitled “A Case for Specialization in Scouting.” This chapter reads like manifesto for (football) competitive intelligence. With little modification it works just as well for business competitive intelligence. Here are a few quotes from that chapter.

“Regardless of whether the accent is on scouting, the use of movies, or a combination of the two methods, it is generally agreed that advance information of an opponent is important and necessary.”

“It does seem strange that some head coaches feel that any coach, regardless of experience, can scout a football game”

“The argument for specialization get a further boost from the scouts themselves, as most scouts agree that they do get more proficient as the season progresses, regardless of whether they scout the same team for several weeks or a different team each week.”

“Basically, every football team has a pattern.”

Steve Belichick’s book was published in 1962. My “ah ha” realization is that competitive intelligence principles can be learned from non-business arenas. Bill Belichick obviously absorbed many lessons from his father. He just took them one step too far.

Knowing what my friends could and could not do served me well in those halcyon days.

That leads to a present day business question. Wouldn’t you and I always want to know everything we could about our competitors? Surprisingly, the answer is “no.” Sometimes competitive intelligence is optional.

Here are 4 instances when competitive intelligence matters little or not at all (maybe).

1. When there is an overwhelming disparity in talent, size or performance.

Suppose Kobe Bryant or LeBron James found out that they had to face me in a game of basketball. Do you think that they would tremble and request films (if they existed) of all of my playground triumphs? Would they try to understand my tendencies, diagnose my weaknesses and hone their own plans? No, they would just show up and whip my butt. The differences in talent, experience and size obviate the need to do competitive intelligence.

Maybe an upstart search firm would be viewed by Google the same way. Or, if a startup was introducing a new spreadsheet product, it is possible that the Excel team at Microsoft would not be too concerned. There are times in business when such a disparity exists and endures. Then maybe competitive intelligence is not so important.

(However, across the broad panorama of business, there are few situations like these. Most competitions are not so one sided. When things are not one sided, competitive intelligence makes a big difference.)

2. When an artist is at work.

Artists compete to get commissions. But during the creation process there is little focus on what another artist has done or is doing. Instead the focus is internal and on the vision of what is being created. There is no need to track the production rate of others or their profit margins. It would be distracting to diagram the exact paint and brush combinations that worked so well for someone else. What artist would take time away from creating their vision to try to project what other artists will be creating over the next 2-5 years?

Passionate entrepreneurs go through this phase. Once some funding has been secured, there is an intense obsession with the first product. It means everything. At least for a time, what others are doing is not so important. The “masterpiece” being created is all consuming.

(However, any firm that succeeds in the long term will move past this phase. Passion about products (witness Apple) may still exist but there will be many imitators over time. All products will require enduring business models and there will be alternatives proposed. Smart people and organizations will be mobilized in proportion to the success of the “artist.” That’s when competitive intelligence becomes mandatory.)

3. When there is an emergency.

A couple of years ago we experienced a house fire. The new air conditioning unit in our attic caught fire and smoke was pouring into the second floor of our house (where the kids sleep). Who ever expects such a thing? The alarm went off at 1 AM and our only thoughts were to get the children out. Once that was done, we called for help and took a few important things out of the house. Emergencies focus your thoughts and actions quickly into what is immediately important. There is no time or desire to think about the long term. The only “strategy” we had was to make sure that everyone was safe.

The macro economic situation feels like an extended emergency to many companies today. Sales have plummeted and the need to control expenses seems paramount. Why bother with the long term when it is not clear that surviving the short term is guaranteed? Studying the competitive environment seems superfluous in 2009.

(Time marches on. Every recession so far has ended at some point. Even now, some positive signs are appearing that may indicate that the current one has bottomed out. When the turnaround becomes more pronounced, a few farsighted companies are going to be well positioned to prosper. Part of their success will be due to a continued investment in looking outwards despite the hard times. In short, they will continue their competitive intelligence efforts.)

4. When burying the dead.

The ultimate finality is death. When someone dies, friends and family gather to remember and celebrate the life of the departed. We typically don’t recount failures or what might have been. Instead we focus on who they were, what they accomplished and what they meant to others. Later, the will is read and the possessions of the deceased are distributed. We say that they are “at rest.”

Companies die too. Many are being “buried” during a normal year, never mind the kind of year that we are experiencing in 2009. When “death” occurs, the mistakes of the company may be instructive but few are usually interested. Rather, most other companies are focused on those that continue to “live.” Studying the dead is useful to those in forensic or academic disciplines. Since most competitive intelligence people are concerned with neither of these areas, being associated with the dead or dying company is not interesting.

(There is a caveat. Some “sick” companies can recover. As someone that has had a terminal diagnosis, I know that being sick is not the same as being dead. Good information, the right strategy and expert help can lead to recovery. Competitive intelligence can help convert a deadly prognosis into a new beginning.)

Yes, competitive intelligence is optional for companies. Or is it?

What are more instances when competitive intelligence is optional? What are the counterexamples?

Are black and white questions the best type of questions for business strategists?

The virtue of a black and white question is that the answer is succinct and distinct. There isn’t debate about whether we should develop a new product since the answer is “yes” or “no.” We don’t endlessly wonder about entering a new market because we can get a concrete answer quickly. New trends are less worrisome because we decide simply whether they will happen or they won’t. Nice. Tidy. Quick. And dangerously simple.

Strategy is best dealt with in grayscales

A grayscale implies that there are gradients. Gradients, in turn, imply that the future is blend of influences. Intuitively we recognize that this is true at work. Seldom do major decisions get made with a simple yes or no. There are debates, arguments, counter proposals and reflection. After much gnashing of teeth, an answer finally emerges. The effective strategist eschews the simplicity of black and white thinking and chooses to live in the gray zone. How is this done?

Banking on “it depends”

My graduate school professor once told me that the right answer to any complicated question is “it depends.” Amazingly, as I have practiced this in my work life, these two words often served to silence those that were trying to trap me into black and white thinking. My opponents retreated to attack another day when I might ignore the fact that life and strategy is complicated. (May their wait truly be long.)

Of course, the right retort would have been “it depends on what?” This is where a strategist makes money. For example, will mobile banking become a significant, consumer demanded service in the future? Snapshot answers (e.g., is it important today, will it be important in 2012) may be “yes” or “no”. More helpful are the answers which explain what has to be in place (e.g., technology, business models, competitive forces, etc.) for this type of service to be broadly available and seen as a differentiator in the market. This is less like a snapshot and more like a constantly changing movie. When all of the components of the “movie” are identified, then the strategist can make arguments, assemble evidence and track competitors with respect to those components.

Shift the question from “what” to “when”

Think for a moment about baseball. One of the hardest things to do in sports is to hit a baseball. It requires many skills including good hand-to-eye coordination, proper balance and superb eyesight. Still, the most important determinant of getting a good hit is timing. The batter has to time the arrival of the pitch (and its trajectory) with precision or else failure is almost certain. This is why pitchers (i.e., their competitors) are fundamentally trying to upset the batter’s timing. And, not surprisingly, the very best hitters fail almost seventy percent of the time.

Strategy is similar. It very often is about timing when a market will mature or when a specific product investment should be made. It’s about tracking the moves of competitors and understanding when their offerings will endanger your competitive position. It’s about using dynamic market feedback of all sorts to adjust the speed of responses and initiatives. (Sometimes we should go faster and sometimes we should go slower.) It’s about having a fine tuned sense of those critical dependencies and meshing them together (using models and other tools) in such a way that they can be viewed for discussion and debate.

Here are some reminders to get you to the strategist’s gray zone (and keep you there)

1.       Practice responding “it depends” to questions about the future

2.       Be ready to explain the dependencies

3.       Put things in place to monitor the dependencies over time as they change

4.       Create a model to show how the dependencies fit together and affect your business

5.       Regularly hypothesize possible competitive responses

My eye doctor can prescribe vision correction lenses. His methods work assuming that I actually wear the glasses that he prescribes. Though it may be counter intuitive at first, the strategist’s gray zone is actually much clearer and more valuable than the black and white world. Though it does not guarantee success, it does produce strategy that is richer and more effective than other mindsets.

Do you agree?

(See a video presentation on this topic by clicking here.)

So, we study and communicate the gaps and then we are done?

Nope. Identifying the known gaps (though not necessarily easy) is only the first step in a robust gap analysis process. Here are the 5 steps to comprehensively think through gaps, to create simple tracking methods and to ultimately get to the actions that will close the gaps.

1. Start with the “known” gaps.

“Known” gaps are the ones for which there is general agreement about their identity and significance. For instance, we may know that competitor X is about to introduce their new product which is 20% faster than any product that we have. Since there has been a press announcement, live demonstrations which seem to confirm the claims and an established track record for the competitor, we can firmly believe that the product and the claims for it are real. Furthermore, we know that our customers highly value performance. Hence, this is a gap that is well characterized and is significant to our competitive position.

To assemble a starting list of known gaps, solicit input from the management, business development, marketing and sales teams. For each gap that they identify, make sure that it is specific and well described, that the impact is estimated and each competitor which is better is noted.

There will be some of these gaps which cannot be fully described. These are the “potential” gaps.

2. Create a backlog of “potential” gaps.

“Potential” gaps do not meet the full criteria to be considered as known gaps. There may be information missing about the exact nature of the gap or its impact. Using the preceding example, if we hear that our competitor is introducing a “faster” product sometime in the future, we might conclude that this could be significant to us. However, it could make a large difference if it is 10% faster in three years or 50% faster in six months. Without more information, it is also very difficult to assess the potential significance of the gap. Still, knowing the competitor well may lead us to believe that “where there is smoke, there is fire.” The proper action is to keep track of the potential gap and to assign someone (e.g., the competitive intelligence function) to collect information about it. Then, when the uncertainty threshold is crossed and the evidence is more substantial, the potential gap can be escalated to a known gap status.

How do we look even further back in time to find things that lead to the potential gaps?

3. Make a list of triggers which may lead to gaps.

Triggers are not gaps. Instead, they are events, activities, announcements and such that may signal gaps in the future. Why are they important? They are important because companies rarely operate in a vacuum. Public companies, especially, signal much of what they plan to do through all types of disclosures. If we are attuned to these disclosures, we get hints of future strategic directions. Continuing the faster product example, it is entirely possible that the competitor had made patent filings years before the product was announced. They may have purchased the assets of another company with specific technology competencies. They may be actively making venture investments in small companies with complementary products. In an ongoing business, all of these types of triggers are predictable. A trigger list can serve to organize the monitoring of such triggers. Then, when several of them have “tripped”, it may be reasonable to investigate whether or not a competitive gap is imminent.

Triggers are often driven by broader forces in the market.

4. List the key trends which affect the market.

It starts to get a little fuzzier in this category. Nevertheless, tracking demographic, technology, product, legal and other areas is important. In technology, the broad trends of things getting smaller, faster, cheaper and more communicative is not a revelation to most people. More recently, the trends toward more social media, lowering energy consumption, increasing recycling features and more emerging market support are becoming important. The key to trend monitoring to find the ones that most affect customers (and, therefore, their buying decisions). After an important trend is identified, then it is critical to understand the rate at which the trend is being responded to in the market. The goal is to eventually identify the triggers (see step 3) which more concretely describe when and how competitors might gain some advantage.

How do we maintain all of this information? Simple. Create four spreadsheets and track the known gaps, potential gaps, triggers and trends. Last, establish action plans.

5. Assign actions for all areas.

Known Gaps

Assign each one to a person that must define and execute an action plan to close the gap. This usually must be a manager with sufficient authority and ability to work across organizations because all know gaps must be “significant.” Put another way, these are hard problems to solve but their resolution is critical to a company’s competitive position.

Potential Gaps

Assign these to the competitive intelligence function and require a periodic report to a responsible manager. The goal is to actively determine whether to demote the gap if it is insignificant or to escalate it when it can be fully characterized. The escalation process must be a part of a regular review cycle or it could become ineffective due to its irregular or inconsistent use.

Triggers

Assign these to the outward facing functions of your organization. These may be the business development or product marketing teams. Their responsibility is to look for the specific trigger information and feed it back to a coordinating competitive intelligence function. The CI team then coordinates the evaluation of the triggers and decides when a potential gap has been identified.

Trends

Assign these to the market research team and the technology team. Their mission is to help the organization understand when a trend accelerates to the point where there are specific, compelling market responses occurring. Once the responses are being seen, then triggers are identified for each competitor to understand how they intend to act.

Gap analysis can be a straightforward, organization energizing and fruitful process. The keys are to discriminate the different types of information, assign the responsibilities correctly for each and establish a process of regular review with management.

A more complete treatment of Gap Analysis can be found at http://tinyurl.com/yk8fcq6 or on my website at http://www.jthawes.com.

Meanwhile, in the rest of organization, people come and go to work each day. They often know little of what has been decided. Or, if they have received the pronouncements from on high, they selectively integrate what they consider important into their work plans.

So, how can you tell that the business strategy is working?

There are usual external measures of revenue, profit, market share and so on that are typically used to measure the effectiveness of strategy. These are critical measures, of course, but they are lagging indicators when a new strategy is introduced. Often the first measures of strategy effectiveness come from the internal organization.

What should a manager look for to understand if the strategy is working within the organization? Here are my five success indicators to monitor.

1. Managers are modeling the changes. At all levels, a new strategy implies change (otherwise it isn’t new). If management expects change to occur only because of announcements, then the strategy is unlikely to be effective. People are sensitive to strategy fads which come and go. However, they are similarly alert to real change in people.

2. Success measures are being understood. It is not enough to have a bright idea. At some point in time, the performance of the strategy must be measured and the measurement must be understood (and accepted) in the organization. People that understand the external measures begin to adapt the internal reward system accordingly.

3. Competing strategies are retired. The temptation for management and organizations is to retain the familiar. If a significant new strategy is introduced, a significant old strategy must be retired. Not only does this make sense to the larger organization (sensible behavior is important), it establishes the credibility of leaders to focus the organization.

4. Increasing focus on the future. A temperature reading of the organization will reveal that people are talking more about the future than the past. It should be no surprise that a backward focus is a drain on the organization’s energy. Befuddled leadership, ineffective strategies and risk aversion prevent an organization from solving tomorrow’s problems. A strategy starts to work when an organization is energized about what is possible to achieve.

5. It is becoming personal. The best leaders create bridges between their organization and the vision. People then make conscious decisions to move toward or away from the vision. A strategy’s effectiveness can be measured by the extent to which employees own it. Increasing ownership means increasing alignment with the vision, greater problem solving and broader participation. Simply put, people commit themselves by crossing the bridges.