Arik Johnson

When Planning a Competitive Intelligence Effort, think “R-E-C-O-N”

Five Simple Rules of Engagement
to Turn Your Workforce into a Force to be Reckoned With

By Arik Johnson

The managerial discipline we know today as competitive intelligence, or “CI”, arose in the U.S. during the 1980s from three trends confronting managers: the combination of inefficient “Rust Belt” manufacturing industries forced to confront the rise of low-cost Asian rivals; a U.S. government intelligence community faced with a rapidly disappearing Cold War era geopolitical competitor in the USSR; and the rise of strategic planning as the dominant decision support ideology for operations management and resource allocation.

In the generation of management thought since, business has transformed the basis of competition from one where resources like capital and land used proprietary processes to create and distribute competitively differentiated products and services “at scale”, where size mattered a great deal. Today the primary means of building successful, sustainable competitive advantage is based on much smaller, “disruptive” startup projects and investment bets, driven either by entrepreneurs with venture capital or spun out of established companies to compete in adjacent markets. Indeed, it has become nearly impossible to survive head-to-head competitive confrontations and win based on scale alone.

But great products are not enough anymore; competition is based on developing innovative business models while engaging a skilled, intellectual workforce to help power asymmetries in decision making. Incumbent competitors tend to discount the future value of their decisions with the short-term view of performance metrics that the capital markets require to sustain their valuations. To make matters worse, the flawed assumptions about historical core competencies, sunk costs, customer segmentation and other forces have usually become obsolete and cause decisions to be biased away from the facts rather than in support of them. Management decision-making must be based instead on a framework that interprets more objective, shared values and culture that can help an enterprise order its priorities in ways that will allow it to sustain itself and its value proposition for customers. It is not the business that becomes obsolete to current customers but management’s decisions and the competitive analysis that drives them in supporting future actions.

These twin priories of innovation based on real customer value and the need for greater intellectual engagement of the workforce are the new driving forces for managers everywhere. First, let’s look at the innovation side of the equation.

All businesses must deliver value to customers that, when compared with competitive alternatives, create differentiation and relevance that compels customers to prefer them. Over time these preferences change based on competitive offerings that incrementally - sometimes radically - alter the basis of that customer preference.

Think of your mobile phone. The one you have today is substantially improved over the one you were using even a couple of years ago. The industry was locked in mortal combat for a percent or two of market share based on steady, sustaining improvements in their products to compel customers to select them over competitive alternatives. The rules that emerged in mobile handset innovation had become very well established in the minds of the industry’s decision makers from top management no down to front-line marketers and engineers; though experts in their field, expertise that creates such rules-driven bias in one’s decision-making logic actually equates to a kind of intellectual disengagement on a cultural level. For a novice, the options are endless, but for the expert the options are few. The very rules and expertise that drove performance higher and higher in highly structured competitive environments like the mobile phone industry are precisely the circumstances a disruptive competitor is looking for to gain an edge by challenging those rules.

In January of 2007, Apple introduced the breakthrough iPhone with its radically different user experience, which challenged and changed the definition of product performance for an entirely new market of mobile phone and computing consumers. Though launched as a premium product, nearly two years later, the iPhone has become the Swiss-army knife of consumer electronics – the one device consumers desire as a way to save money, time and complexity in acquiring more specialized devices like a digital media player, camera, game console, mobile phone and laptop.

Incumbent competitors had tried in vain to do the same for years, but were unable to decouple their decisions in terms of how to do it from the motivations and strengths of their current businesses. Apple saw an opportunity to disrupt a sedate industry by developing a breakthrough product that would change, not only the value definition in the minds of the most desirable customers, but the create a new business model that would prove particular difficult to imitate. Though Apple introduced the iPhone in 2007 the company has continued to make the device better and better until…. Well, skeptics like me even go out and buy one. Most importantly Apple has created new market value for nonconsumers: the iPhone’s fastest growing market is not the affluent, tech savvy urban professional, but the mid-level consumer who wants to replace their entertainment device, laptop, digital camera and current mobile handset with a single device that does it all at a price ($199 - $299) below that of any one of its lesser components. This “mainstream” market value is all-important to business model sustainability and the innovations represented by the iPhone are necessarily unique to Apple – they are far more empirical than that. Steve Jobs saw that there was a consumer need unarticulated even by consumers and developed the product they would prefer before somebody else did…. and realized that somebody else could have. Apple’s framework for decision-making is superior to its competitors; and that means its competitive intelligence must be superior as well.

Now, CI can’t promise to transform your company into the next Apple, but we have developed a simple list of priorities that managers can use with their employees to help them intellectually engage more fully and contribute to the visibility of competitive changes in your market environment. We call it “R-E-C-O-N” and it stands for five simple yet comprehensive dimensions of competitive intelligence topic monitoring: Risk, Efficiency, Customers, Outlook and Novelty.

Here is a short explanation of each of these five RECON topics and why it is important for everyone in the firm to be a part of the virtual CI apparatus:

1. Risk: Former General Electric CEO Jack Welch once said, "You can't grow long-term if you can't eat short-term. Anybody can manage short. Anybody can manage long. Balancing those two things is what management is." In other words, making your numbers from quarter to quarter is the responsibility of management in order to sustain whatever growth or innovation strategy the company has chosen in market that are not yet paying off. Ensuring against risk to the core business is critical to making sure there is time for investments in new growth to start paying off. In fact, maintaining a positive status quo by protecting the core is the chief role for managers in every business, with one caveat: good businesses can often be the foremost enemy of great businesses. While operating staff must concentrate on sustaining the business you’re in today, leadership must help to focus on the niches of growth that could in the long run threaten to cannibalize that demand base in the long run.

2. Efficiency: Over time, the assets and processes that once differentiated a firm and made it competitive can become a drag on the operational efficiency the company must create to maximize profitability. In fact, new market innovation is focused on creating new value for customers they did not realize they needed (and could not have articulated if asked) almost always at a cost less than the current solution. Note: the cost is less, not necessarily the price. Price, in fact, is a feature that customers in many markets will often find compelling only when high enough. Therein lies the profit advantage for the firm for growth by new market innovation: the ability to offer new, unarticulated value to customers at a much lower cost that incumbent offerings with a price that is the same, more or less, than that of existing alternative products or services. The “double whammy” of new value befuddles would-be competitors even while it produces far greater profits for the firm. The value chain across which inputs are transformed into solutions for customers are the secret; the ruthless cutting away of redundancies or unnecessary costs is essential for this kind of “Blue Ocean” strategy to work. Create or build up that which is not yet good enough and diminish or destroy that which is unnecessary. The good news is, most of these elements in the incumbent value chain are vestigial and have long-since outlived their usefulness or were never very important to customers in the first place, relative to other dimensions of product performance.

3. Customers: There is a tendency for companies to become too dependent on their best customers’ input for signals about how they should innovate. This is not to say customers cannot tell you what else they see in the marketplace that might present a compelling value alternative that has drawn their attention. In fact, new forms of competition usually present themselves with very specific indicators at the current consumption market. To illustrate, the day your customers begin complaining about how complicated your product is or expensive it is to afford or difficult it is to use, you should start wondering, “why was it good enough for them only yesterday” and who has offered them an alternative? It is often only because customers have been offered a competitive comparison to evaluate your product against. Non-customers are even more interesting to study because, for whatever reason, they either find your offering irrelevant or are simply unaware of its value; the upside of this of course is that competing with nonconsumption will be the easiest competitor you will ever face.

4. Outlook: Truly breakthrough ideas come from better understanding technology development, trend development, and devising potential solutions to problems customers experience, independent of their ability to articulate those needs. But traditional market segmentation based on such temporary definitions as demographic, geographic or sociographic data are fleeting at best and illusory at worst. Indeed, many “bet-the-ranch” decisions have been based on flawed definitions of the fastest growing markets, so a valid market outlook that is flexible to change is critical to success long term. Defining the market by the “jobs” they wish to accomplish is more helpful in defining fast growing target markets; think about the old adage that customers want a quarter-inch hole, not a quarter-inch drill bit and you see what I mean by this job-outcome defining performance for customers. Since it can never be known whether or not an idea will be successful particularly with new market innovation, focus groups are often the worst possible mechanism of market testing; instead, innovators should create varieties of prototypes and only involve customers in the evaluation process of which is most suitable to their needs.. In this way, customers have something to give feedback on, rather than the open-ended and often deceiving discussion of unmet needs they might not be able to articulate. Even then, if your idea is truly new, consumers may not recognize all of its benefits immediately and require a measure of “demand creation” to do so. Even so, a concentration on the market outlook is a vital way to engage employees in the intelligence process.

5. Novelty: Differentiation is not a choice for companies that wish to survive; it is a mandatory discipline that ever organization must master. But truly “novel” solutions to customer problems are often more complex ecosystems of providers working together to produce sought-after value. Still, companies often decide that they cannot afford to develop all of their innovative ideas and put in place processes that kill off even novel ideas before they have a chance to get to market. An alternative strategy is to build a business model designed to test breakthroughs in the market more regularly and then kill off only those that do not work early on, so support and development resources can be allocated to those that do. Companies innovate for only one reason - to outperform their peers, to create something that their competitors don’t have from which they can gain economic benefits. The laws of evolution produce lots of companies introducing lots of new innovations that look like many random events. Those that meet or change consumer expectations survive and those that don’t die off. In the end, the competitive environment decides which products work and which do not.

We have entered the Era of Asymmetric Interpretation - also known as, “Intelligence 2.0” - where our open source world of 24/7 access to news makes all information transparent eventually. This is a marked contrast with the first generation of competitive intelligence where advantage was conveyed to the company able to create asymmetries of information, which of course led to the ethics criticisms that have relegated CI to obscurity as a first-tier management discipline as legal counsel everywhere fret over whether employees will steal trade secrets of one kind or another while playing 007. But ethics are no longer a problem when a shared understanding that interpretation, not information, conveys competitive advantage; if we all look at the same information but see different things, that is the definition of intelligence in the natural world. Let us hope it can become the same for business.

I hope this essay has helped convince you that, if you want to optimize your CI capabilities to help with the dual priorities of innovation and engagement, at your next staff meeting, you might ask your employees to remember “RECON”. In the process you might just help transform your workforce into a force to be reckoned with.


Arik Johnson is the Founder and Chairman of Aurora WDC, a global competitive intelligence research, analysis, consulting, training and systems firm. He is the Managing Director of Aurora's Center for Open Reconnaissance (COR), a Fellow of the Society of Competitive Intelligence Professionals (SCIP), a Trustee of the CI Foundation, and speaks to worldwide business and academic audiences on subjects related to intelligence, innovation, collaboration, governance and decision-making. Arik writes about his ideas in essays on his company’s website at www.AuroraWDC.com and can be reached at 715-720-1616 or by email to arik.johnson@aurorawdc.com. Feel free to copy and route any materials you might find useful and contact Aurora in general or Arik directly with any questions.