Recently, Mike Harmon, director of a business management firm in Marin County, California, was hired by an affiliate to analyze the risk of a proposed acquisition of an import company. Mr. Harmon immediately sought the help of Sacramento-based investigator Olivia Robinson, founder and owner of Background Intelligence Inc., to check out the import company. Two days later, Ms. Robinson gave Mr. Harmon a written report with some startling news. The target company had been involved in the largest fraud case involving imports in U.S. history.
"The investigation kept us from making a huge mistake," Mr. Harmon says. "We immediately backed out of the deal. It would have been a disaster. It saved our reputation. You can't put a price tag on something like that." In the past, when business meetings got underway, the agenda usually started with a smidgen of chitchat about family, friends, and other personal topics. "It was the company's way of trying to get to know you," says Armando Castro, partner in the law firm of Morgan, Lewis & Bockius in Palo Alto, California. Today, there is a new high-tech wrinkle in that old custom. Companies, including most of the Fortune 1000, are hiring outside services, oft en headed by former FBI and law enforcement investigators, to do deep background checks. They compile information on everything from competitors and future acquisitions to customers and even their own board members -- any data that may help them grab a greater market share and improve business.
Venturing far beyond the realm of market research, formal competitive intelligence has become a valuable tool as the business arena grows fiercer across the globe, while at the same time in the United States, corporate governance comes under harsher scrutiny. Competitive intelligence firms typically employ not only former law enforcement officials, but also prosecutors and investigative journalists, as well as an alphabet soup of MBAs and PhDs, to dig up all types of information companies aren't eager to advertise. Although it is not the norm, Ms. Robinson says her investigations, which she has conducted for companies worldwide, have turned up cases of fraud, smuggling and even murder.
"You never know," says Ms. Robinson, who is licensed as a private investigator. "About 85 percent of executives we've had to look into have had some kind of issue. It usually results in a renegotiation of the deal." Most of the time the results of the investigations aren't quite that dramatic, but they are oft en vitally important to the companies they serve. Competitive intelligence reports are typically used to help company executives map out future scenarios. For example, if you are about to release a major new product, a competitive intelligence report can tell you how your competitors and your customers will react to it. They can also predict your competitors' probable future strategies; reveal whether your customers are satisfied with your services or products; what they may want from you in the future; and how much they are willing to pay for it. You can also find out how well and how loyal your distributors are selling your line. These investigations can even provide deep background on your own board members and top management. Competitive intelligence is especially critical for companies looking to invest, merge, or acquire another company. Such investigations have become a staple for large pension funds looking to invest large sums in solid companies.
Competitive intelligence is still not widely used by Hispanic-owned companies in the United States because many of them are not yet large enough to warrant a full-scale effort, which can be expensive. Ms. Robinson, for example, charges $2,500 per day, about average for the investigative firms. Some, however, charge twice that and occasionally an investigation can run into six figures.
Yet, mid-sized firms are beginning to discover its value. Of the ten Hispanic-owned companies contacted by Hispanic Business, some said they did not use it, and others decline to talk about it. It is likely, according to one source, that it is being used to such advantage that the companies want to remain mum about it.
It is also likely that these high-powered investigations will ultimately become standard fare throughout the world's economic centers. It just makes good business sense to use it, says Carlos Orta, president and CEO of the Washington D.C.- based Hispanic Association on Corporate Responsibility (HACR). Organizations like HACR can use competitive intelligence to monitor whether or not corporate or public board members are complying with the law and whether they are doing their jobs properly. Mr. Orta also recognizes that it is also a powerful tool for companies battling in the marketplace. "It's competition," he says. "Anyone who gets the better product cheaper and faster is going to win."
In an age where the old cliché of "time is money" has more accurately morphed into "information is money," the information these companies can mine is a lucrative analytical tool.
"We recognize the unknowns for the client," says Arik Johnson, founder and CEO of AuroraWDC, a competitive intelligence firm based in Chippewa Falls, Wisconsin. "We not only gather the data, we help them make predictions they can base future strategies around."
One of those frequent unknowns: the competition's cost of production to determine how deep their discounts can go. Mr. Johnson's team can "reverse-engineer" a product through its supply chain to find out the comfort zone of a company's profit margin.
Competitive intelligence consultants stress that when ferreting out information about rivals, they don't employ nefarious means -- such as the Hewlett Packard case in which executives posed as reporters. Instead, they might use a simulation strategy that's growing in popularity: a "war game," also known as a "scenario analysis."
Fuld & Company, located in Cambridge, Massachusetts and London, takes a group of executives, divides them into a home team and three competitors, and gives them an assignment -- for example, a pharmaceutical company that is launching a new drug whose advent competitors have been aware of for some time.
"What's the best way to roll it out given that the rivals know all about it?" asks Leonard Fuld, president of Fuld & Company and author of The Secret Language of Competitive Intelligence. "We run a war game for them. We stress-test strategies, poke holes in strategies. If it's well run, we can anticipate the market one to two years in advance. Th is whole concept of a war game is taking companies by storm."
Attorney Castro says his firm always recommends that clients do their homework about the other party, whether it's a venture capitalist about to invest in a firm, a company wanting to buy another, or a company about to go public.
"Ten years ago it was unusual to do this, but now it's really very common," he says. The industry saw a huge boost in 2002, when Congress adopted the Sarbanes-Oxley Act after the Enron scandal and other corporate malfeasance surfaced. The law created new accountability standards for U.S. public company boards, management, and public accounting firms.
The use of competitive intelligence by potential investors and by those who seek to oversee public boards to ensure not only compliance with the law, but overall efficiency, has skyrocketed since the act was passed.
In recent years, the use of competitive intelligence has spread beyond the United States. The Society of Competitive Intelligence Professionals, which has 3,100 members, has chapters worldwide. Latin American companies, much like Japanese firms, have yet to embrace the industry primarily because their cultures prefer the old-fashioned way of doing business -- with people they know or family, and they may not feel the need for competitive intelligence, according to John Price, managing director of Miami-based Kroll InfoAmericas. "Business there is based on your word and your reputation," Mr. Castro adds. "That's all you have." But, that may well change in the future as the global markets continue to expand and the need for this deep intelligence-gathering grows with it.
Hispanic #1 Breaking News for Entrepreneurs, Professionals and Small Business Owners - HispanicBusiness.com
SEPTEMBER 2, 2014
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