Fuld’s Competitive Musings

 We just released a white paper on The Art of Anticipating Disruptions (click through to the white paper section of our website).  What is remarkable is how such a wide variety of headline-catching companies have managed to learn about and successfully plan for these disruptions. 
 We based this white paper on an examination of over 100 companies. Sixteen companies made the “cut.”  That is, 16 companies seemed to have built an intelligence mechanism that allowed them to see just far enough around their strategic corner.   Among the leaders cited in the paper are Wyeth (Pfizer), Intel, Cisco, Shell and Corning.
From those interviews, we identified five key success indicators that describe how the best-in-class companies anticipate disruptions. They are:
• Credibility – Intelligence activities have the explicit support of senior management.
• Investment – Most intelligence programs have full-time staffs and dedicated budgets.
• Communication – Early warnings are effectively communicated to key stakeholders.
• Training – Business managers can factor early warnings into their strategic planning.
• Action – Senior executives are prepared to respond to disruptive events.

I invite you download “The Art of Anticipating Disruptions” white paper; then I would ask each and every one of you to let me know if you feel your company or another not mentioned in the white paper are models we should also consider – and why!

Enjoy the read!

Whew! This year is about to end and what a relief for many of us. Busy, hectic, fractured are just some of the adjectives I will consider when looking back over my shoulder at 2009.  Next year promises to evoke a different set of adjectives, such as confounded and ill-prepared. I say this because we are about to complete a number of surveys that indicate 2010 will bring with it a number of specific short-term and long-term competitive warning flags:

Warning flag #1 - China continues to confound Western companies:  We just completed a survey on competitive challenges Western companies encounter when working in China. We conducted this survey in conjunction Dr. Denis Simon, Professor of International Affairs at Penn State University and the China Institute. Fifty-four companies participated, many with over 16 years of experience in the China market.  Among their competitive concerns are:
- The business environment remains uneven and extremely vexing
- Our chief competition in China today may be other multi-nationals but tomorrow are likely to be domestic Chinese companies about which we know terribly little
- Government policy so dominates competitive conditions, we feel we just do not have a handle on which way the “wind is going to blow” with respect to new regulations or changing competitive rulings
- There is a lack of informational transparency with much market data either not available or at times not accurate
Warning flag #2 - We are inadequately prepared for the next healthcare marketplace: Under the guidance of Wayne Rosenkrans, Fuld Vice President and Chairman of the Personalized Medicine Coalition in Washington as well as a Fellow at MIT’s Center for Biomedical Innovation, we are polling senior healthcare executives in the United States about their preparedness for the 2015 healthcare market.  From their responses to date, they appear to say that their organizations have not prepared for the futures that await them.   

For the moment all attention in the United States is focused on the White House’s healthcare initiative and pending legislation. That is today but what about the market only five years away?  It is unclear whether or not large drug companies have planned that far ahead. What we see are lots of Big Pharma mergers mostly to rebuild or shore up the pipeline. This controls for short-term stock market reaction and may shield these firms in the long-term.  If preparation is the key, I am not sure that mergers alone will future proof your competitive portfolio. Take the survey and see how your peers view these futures.
Warning flag #3 – Too many companies are riding on guidelines that offer only legal lip service.  For the last two years we have been running a new survey on corporate ethical-legal guidelines for information gathering. We are about to close this survey. What I have seen until this point is that most large companies issue legal and ethical policy statements for competitive information collection. That is fine but not adequate. Many respondents who work for these companies also declare that they have not seen or know in any depth policy details or how to apply their information-gathering guidelines. Company management always has lots to do; these types of legal policies seem to fall to the bottom of the pile once issued – that is until someone steps over the ethical/legal line and calls negative attention to the corporation.  Stay tuned for a summary of this survey and implications it teaches us all.  If you are interested in trying out this anonymous survey for yourself, just click here.  You will have automatic report card sent you upon completion.

China, healthcare, and ethics, are all competitive issues that will remain with us for a very long time.  During the quiet weeks ahead, think about how your competitive landscape is changing and the challenges that you and your company will face in 2010 and beyond.

I wish you a quiet next couple of weeks and a successful year ahead.

As we approach the holidays and trade show season winds down, I thought it a good time to reflect on the immense value of attending a scientific congress or trade show for vital intelligence.  I would argue that attending such a show over three days (or about 45 hours of “on” time, is worth 1,000 hours of phone calling from your desk.  Just imagine, more than a 20 times return on your intelligence time.

Too many firms attend these congresses ad hoc, with little preparation. Add to this the fact that the competitive intelligence effort is often divorced from the scientists, marketers and others also attending from the same company. What a shame! 

Some of our consultants are on the road for weeks at a time, attending just such congresses and we often do so in concert with our clients.  We take a team approach at covering football field-sized events as economically yet as thoroughly as possible.   Just consider the competitive value of such an intense meeting, where the critical thinkers, market makers, producers, customers are present – in a sense all of Porter’s five forces are there. 

 Anyone that has responsibility for developing competitive insights knows how useful these meetings can be but too frequently cannot marshal their own colleagues to work the conference floor as a single coordinated unit, fanning out with particular goals in mind, visiting certain booths, knowing what questions are critical, and so on.

Speaking with one of our senior project managers about this topic, she presented some very convincing arguments for attending these shows.  She strongly believes that conferences provide you terrific opportunity to

 Do a reality check on what messages your rivals send out to their target market. Messaging strategy is a particularly important when pharmaceutical and biotech firms try to position their drugs in the marketplace.
 Catch the scientific subtleties by listening directly to the scientists and engineers who directly design the studies, or create the technology.
 Understand the importance of a rival’s future investment in promoting a particular drug or new product – often way in advance of any formal announcement.
 Glimpse the future by hearing market gurus, managers from trend-setting companies discuss their view of market trends and rumors of competitive activity.

Next time you know a trade show or scientific congress is about to take place prepare for it, and build a team to fan out at the show.  Just when your feet begin to ache on the third day of the event console yourself by remembering those nearly 1,000 hours of phone time you saved because you assessed your competition on the ground, in real time.
 

Last month I intentionally made over 200 people squirm in their seats.   They were participants at a pharmaceutical conference for competitive intelligence professionals.  Rather than just speak for the keynote address, I challenged my audience with a series of information-gathering situations and asked them if they thought the behavior in each case was “normal,” “aggressive,” “unethical,” or “illegal.”  At my firm, we use such cases to align the information-gathering compliance guidelines for many of our clients.  This Scruples-type game approach is a wonderful way to bullet-proof compliance guidelines.  How do you think the audience reacted?

Case A: Interviewing
A manager asks you to interview a number of experts (who recently have worked for or indirectly with a rival) to gather enough details for you to identify a specific  molecular structure for a product  that has recently entered clinical development?

Case B: The Restaurant
You are traveling for work and you go to a restaurant in your temporary host city.In the restaurant, you see two competitors from two different pharmaceutical firms having lunch together.
Your table is within earshot of theirs, and you overhear that they are in negotiations for a new partnership on a new drug.

Case C: The Doctor-Employee
You have a new employee on your team, a doctor who recently left full-time private practice to work at your company, but still sees patients one day a week at a local clinic. 
Your competitor is enrolling patients in a Phase III cardiology drug trial, and will give the entire clinical trial protocol and endpoints to any physician who enrolls eligible patients.  Your new employee enrolls some of his patients and gains access to this clinical trial information.
Case A was relatively simple for most in the audience.  Nearly everyone felt this was a normal situation and something their companies do to remain competitive. Some in the audience did suggest that all this is conditional on how you identify yourself, as well as number of other possible factors. But overall, most felt comfortable with this general description.

Case B was somewhat of a surprise for me – as well as for some audience members. Quite a number of people around the room felt extremely uncomfortable and even went as far as to say they would walk out of the restaurant.  Even after I fine-tuned the hypothetical to say you did not plan to go to restaurant hoping to overhear such conversations (which many companies do not object to) and that this was a total coincidence, still a number of people blanched.   They were not necessarily wrong in my view for taking this highly conservative stand. Perhaps their company was recently slapped with a law suite related to information theft or corporate council warned all who were about to go to the trade show or scientific conference to be extra careful. 

What did I think? I believe you can eat in any restaurant you choose. If someone is talking loudly enough for others to overhear their conversation–be it on an airplane, on the street while talking on a mobile phone, or in a hotel corridor–it is their security breach and responsibility, not yours. 

Case C, the doctor-employee case, presented more substantive challenges for this group. Many stated the doctor may have breeched confidentiality agreements, as well as misrepresented himself. 

Are there variations on each case? Certainly, and each one will likely demand a slightly different approach.  Because each situation is different, this method of stress testing through hypothetical examples works so well—you can consider ‘what-ifs’ or real ethical challenges that your sales people and other market-facing employees must confront every day.  Then, you can continually refine your information guidelines accordingly.

Final note: In our currently running ethics survey (which I recommend you take. Just click here), we have already discovered a disturbing finding for the healthcare industry in particular.  While a larger percentage of respondents from the healthcare industry acknowledge that their company has specific ethical and legal competitive intelligence guidelines (73% v. 65% for other industries overall), only 45% of healthcare respondents stated that someone has reviewed these guidelines (compared to 61% for all other industries).

The implication: Many companies have such guidelines but neglect to truly teach the meaning and implications of right and wrong information-gathering behavior.  As my exercise above demonstrated, since some organizations have different tolerance levels for certain behaviors than others, it is impossible to predict how employee A or employee B will react to a given circumstance.  One of these two employees might do the right thing (even if it is aggressive yet reasonable behavior) while the other steps over the legal limit.  Thus, a clearly articulated (and enforced) set of guidelines will ensure consistent behavior that meets a common standard of ethical conduct for your company and your industry.

If I and my audience learned anything at that keynote presentation, it was to test and educate. Test your guidelines against realistic information-gathering encounters. Educate your employees to know right from the not-so-right.

Despite congressional wrangling over healthcare, stimulus funding could have unintended but positive consequences sooner than expected

 As the healthcare lobbying machine cranks up the noise during the August congressional recess, many of the healthcare players have already figured out their strategy – and that is to merge with one another.

We recently ran a strategic war game that played out the competitive strategies among leading players in the burgeoning market for electronic medical records (EMRs). EMRs serve as the backbone for collecting and communicating information about patients and related data within hospitals to the doctors treating the patients.  One of the war game’s predictions was that, through mergers, the array of competitors now offering these services will begin to shrink rapidly in the next few years.  Someone must have fired a starting gun, because the merger dance has begun.

 Sometimes deals just happen, seemingly overnight.  Most of the time, however, rivals signal each other.  They hop onto the dance floor to strut their stuff and see who is interested, or they pick up a dance partner and take that partner out for a spin.  Both scenarios appear to be happening in the EMR world.

 During the war game (April 3), the team representing Allscripts, one of this nascent industry’s leaders, discovered that it needed a partner if it were to expand rapidly.  The Allscripts team chose to partner with a large pharmaceutical company.  The team believed that a pharmaceutical firm, with its large sales force, would offer the perfect extension to Allscripts’ relatively small sales organization.  The judges found the logic of a pharmaceutical company as a partner flawed, but applauded the idea as a way to extend Allscripts’ market penetration.

 Just one month before the war game, eClinicalWorks, an Allscripts rival, had announced a deal to sell its EMR product to medical practices through Wal-Mart’s Sam’s Club stores – at a relatively low price.  The war game team sensed Allscripts’ need to partner if it were to succeed long term.  Within a month of the game Allscripts announced a partnership with Cardinal, the country’s second largest healthcare products distribution company.  Cardinal has a broad and deep reach into America’s hospital network – a perfect partner to extend Allscripts’ presence.  Does this mean that Cardinal will buy Allscripts?  Perhaps not, but it does give Cardinal something its rival McKesson already has – an EMR product to sell.  This is just the first dance among these two partners.

 In June, a sign appeared that various corporate behemoths were beginning an EMR market share land grab.  General Electric Healthcare, producer of its Centricity EMR product, announced an aggressive zero-percent financing plan (financed by GE Capital) for hospitals considering installing computerized health records.  This is a smart, aggressive move to capture share in this young, untouched market.

Here is the industry challenge: There is no blockbuster standard technology for electronic medical records similar to other industrial technology products that could be offered by an Oracle, a Microsoft or an Apple.  Instead, there are dozens of incompatible systems installed in lots of medical centers and doctors’ offices.  The vendors may prefer this lack of interoperability, because it locks institutions into their systems, but the doctors and the greater good of the healthcare system do not benefit from many systems that cannot easily exchange information with each other.  Standards means the systems become transparent.  Hospitals and doctors (fewer than 10% use EMRs today) will share information, which means that the system becomes less expensive to use, helping to drive down the cost of treating patients.  Mergers will inevitably force standardization.

What the war game exhibited and what we see taking place today is an EMR land grab – for institutions and patients.  If GE Healthcare can effectively finance its way into hospitals and providers, it will capture medical institutions and their patients in one swift move.  Build enough of a “network effect”, and you have a strategic stickiness that will attract other institutions. A critical mass will develop that may become so overpowering that other rivals will have to merge with GE Healthcare – at least that appears to be the intent with GE’s aggressive financing scheme.

The electronic medical records market is one that hungers for consolidation and the standardization that comes with it.  Government stimulus money or further regulation will not solely do the trick.  What the $19 billion in EMR seed money is doing – intentional or not – is to stimulate corporate M&A.  With a vast majority of the hospital and physician market not yet embracing this non-standardized technology,  merging platforms through acquisition is inevitable as well as being good for our entire healthcare system. . 

 While car sales are languishing, another industry – one with potentially explosive growth – the nascent Electronic Medical Records industry has adopted the same approach as car dealers.  G.E. just announced a 0% financing scheme on June 15. IBM has a very similar plan.

 What is this market about and why the aggressive financing pitch?

In our recent public war game, The Battle for Healthcare Information, we demonstrated that dozens of behemoth companies, from IBM and Microsoft to McKesson and GE, will take no prisoners when trying to sell hospitals, managed care organizations, doctors and others on the benefits of automating the now archaic world of healthcare information.  The market potential is conservatively estimated in the tens of billions of dollars.

Here’s the problem: There is no blockbuster standard technology for electronic medical records similar to other industrial technology products that might currently be offered by an Oracle, a Microsoft or an Apple. Instead, what you find are dozens of incompatible systems installed in lots of medical centers and doctors’ offices. Worse, most doctors (some estimate more than 90%) are still using paper and resist the move to electronic medical records for a host of reasons, ranging from implementation cost to the distraction they cause in serving patients.

Yes, our game predicted lots of mergers in this business over the next couple of years, which we believe will happen. And when mergers do occur, you will see dominant platforms take shape. 

What I see taking place here is no more or less then a land grab – this time for institutions and patients. If GE can effectively give away its Centricity backbone for electronic medical records to hospitals and providers, it will capture the organizations and their patients in one move. Build enough of a “network effect” and you have a strategic stickiness that will in turn attract other institutions. Before long, you will have a critical mass that may become so overpowering that other rivals will have to merge with you – at least that appears to me to be GE’s intent with this aggressive financing scheme.

Anyone interested in a late-model Centricity? Hmmm, ready to kick those tires Mr. or Ms. Hospital?

On April 3, 2009, dozens of experts from leading healthcare institutions and technology companies assembled to watch a war game unfold on The Battle for Healthcare Information. Some of the brightest business students from Columbia, MIT, Kellogg, and Wharton represented healthcare giants, Microsoft, McKesson and Kaiser Permanente. Their purpose: To stress test technology’s future role in rewriting America’s healthcare map. Tens and perhaps hundreds of billions of dollars are on the table for the company that can figure out the strategic solution.

We held this year’s event in New York City. It is the fifth national war game championship organized and run by Fuld & Company.

Teams assumed the identity of four major healthcare icons, simulating and ‘stress testing’ their anticipated strategies to determine who will profit from the adoption of Electronic Medical Records (EMRs). The Obama administration’s injecting $19 billion to kick-start this nascent electronic medical records industry just gets the players moving. It is no guarantee you will see universal adoption of electronic records in healthcare anytime soon.”

Among the predictions during this fast-paced business school war game event are:

• Entrenched interests will continue to resist EMRs for some time to come. Healthcare system change, engendered by EMR, means some interests will win dollars while other traditional players will lose - and no one wants to lose.
Physician, hospital and patient/consumer markets—are going to be major challenges for all companies in the field, the teams acknowledged. Hospitals and doctors actually can make money through these current inefficiencies and will likely resist change. Smaller medical practices may continue to resist installing such EMR systems, not wanting to invest in long-term promises while sinking lots of money into new and complicated electronic medical records systems. Emerging pay-for-performance requirements, and reimbursement incentives, may sway the thinking.

• A shortage of technical manpower will slow down the implementation of electronic medical records, no matter how much money is thrown against the challenge.

• Allscripts (and other similar pure plays, such as Epic Systems) will seek to leverage its unusually close proximity to the medical community to bring EMRs to smaller medical practices than had been reached before. In order to penetrate the small medical practice market where most of the EMR potential user base exists, it will have to form an  alliance or merge with a larger player that has a far more extensive sales force.

• The market that is driving efficiencies, such as EMRs and other scalable solutions, will act as a catalyst to force small medical practices to band together or merge in the next few years, allowing doctors to spread the cost – and the risk – of EMR implementation.

• Kaiser-Permanente seeks to lower healthcare costs by “undocking” healthcare information within its system, vastly increasing the access and portability of patient data. As a major healthcare provider, Kaiser is well positioned to set industry best-practices and influence adoption of EMR systems, rather than provide the ‘killer app’ platform itself. Kaiser will become the nexus of important alliances between government and industry to craft standards in healthcare IT—e.g., to afford interoperability of data-related tools and technologies—that have been nonexistent.

• McKesson will be working to vastly expand its healthcare IT niche through its dominance in logistics and understanding of the health value chain, data creation and data utility—with an emphasis on physician, payor and healthcare delivery applications. The company will be looking to generate synergies among all these different points of the healthcare delivery chain through information technology. MIT’s team, simulating the McKesson strategies, won the war game competition based on four criteria: the team’s strategic insight, accuracy in presenting McKesson’s strategy, creative ways it expressed McKesson’s culture and goals, and finally, its ability to project their strategic vision into the future. Last year’s war game on “The Battle for the Wireless Internet”, won by the Kellogg MBA team, successfully predicted a number of industry alliances.

When I opened my outer screen door this morning to pick up the newspapers, it sailed right over them.  Only seven or eight years ago – even in a recessionary climate – the papers would have been too thick with advertising pages to have fit underneath.

What does this have to do with electronic medical records, the subject of next week’s public war game we are running among the nation’s leading business schools? Everything.  The ever thinning newspapers declare the inevitable march of information from the paper world to the virtual world.  That is the same direction the medical establishment much take – perhaps kicking and screaming – over the next decade. The UK’s National Health Service has already embraced electronic medical records. The U.S., with a push from the President and agreement by Congress, will move in the same direction.

Inevitable does not mean painless or thoughtless.

Aside from needing to agree on both technical and medical standards- daunting enough…just look at the companies we are representing in the war game: Google, Kaiser, McKesson, AllScripts – all concerned parties must ask themselves how will government and commercial interests handle privacy and identify theft? 

Just this morning, the Boston Globe reported that an administrator at the Massachusetts General Hospital lost 66 records on a commuter train on the way to work.  This is just paper, you say. If these were electronic records, you can always retrieve them. Yes, but…

The bigger the system the greater the potential information loss. In 2007, someone from the Veterans’ Administration lost a hard drive that contained over one million health records.  One million could easily become tens of millions of records as storage technology improves. Around that same time period, thieves stole credit card identification from over 40 million consumers who shopped over time at the TJX retail chain. 

What is my point? We cannot hide from the inevitable. Technology is driving all information – not just healthcare information – into cyberspace.  One of the greatest challenges the war game teams will encounter next week is to demonstrate that their technology does more than just work. It must also work smartly and be able to secure the information that hospitals and patients put into it.

In his February 24th address before Congress, President Obama threw down the gauntlet.  “Our recovery plan will invest in electronic health records and new technology that will reduce errors, bring down costs, ensure privacy and save lives…So let there be no doubt: health care reform cannot wait, it must not wait and it will not wait another year.”  Again on March 5th at the first Healthcare Reform Forum the President made it clear, “…decision should be made based on evidence, data, and what works.”

On April 3, 2009, we intend to run a war game that will explore how various corporate interests hope to cash in on the billions of dollars this administration will throw at the problem.

Can the President’s daunting initiative succeed in truly making the healthcare system both safer and more efficient? Hillary Clinton and Ted Kennedy tried to reform healthcare in the 90’s by taking on insurance companies and managed care organizations, only to be beaten back by Congress.  This administration is taking on an even broader agenda of moving US healthcare to a position of paying for what works through understanding what works best and for whom. In order to do so, the President proposes to unify and make useful for research as well as for care delivery all information collected from patients, insurance companies, and clinical encounters, including genomics.  What makes this initiative so bold is the push to make all this information transparent while at the same time promising to protect the privacy of all Americans.

The companies whose current strategies and market positions we are going to test include Microsoft, McKesson, AllScripts, and Kaiser Permanente.  Each of these four companies represent different camps. Each wants to capture a large part of the multi-billion dollar pie being placed on the table.

Microsoft, already at the heart of many corporations’ IT infrastructure, has partnered with Johnson & Johnson and the Mayo Clinic to launch its HealthVault product. Allscripts, a highly focused and relatively mature rival in this nascent market, has over 150,000 doctors and 700 hospitals using its technology. McKesson, while far from a household name, has become the nation’s largest healthcare company and one of the largest players in the electronic medical records market. Kaiser Permanente is the country’s largest non-profit healthcare system with 8.7 million members in eight regions; Kaiser also operates HealthConnect, the world’s largest civilian electronic health record, a milestone that places the organization well ahead of other hospital-based organizations.

No company is likely to go in with a winner-take-all approach. Witnesses to this emerging electronic medical records industry will continue to see lots cooperative and co-opetition agreements, all marching towards creating “the” standard, or the key resource. We are currently completing the briefing book the teams will use as they prep for the game. The business school students have begun to huddle.  MIT, Columbia, Wharton, and last year’s winning school, Kellogg have begun to study the nuances of each rival, speeches and pronouncements made by each of the players.
 

Tune in over the next few weeks, as I begin to discuss some of the issues these business school teams will confront, the barriers they will encounter to achieve success,  as well as the nature of  the electronic medical records initiative – the brass ring at the end of the contest.
 

I’d like to meet Harry Markopolos. Not because The Boston Globe called him a whistleblower for attempting to alert authorities of Bernard Madoff’s Ponzi scheme as far back as 2000 (He’s not a whistleblower, by the way. A whistleblower is someone who often risks his job and career by disclosing company wrongdoing while working inside that organization). Markopolos is an outsider but a very bright and insightful one.

Why would I like to meet him? Because he is very good at searching for the unvarnished truth about a corporation.  I would like to hear from him how it felt to be ignored when he knew Madoff’s investment operation was built upon lie after lie.  I have had many such conversations over the years, conversations that start out, “But I knew something was wrong, when I figured out…” 

I make my living learning about other companies and teaching others how do so, legally and ethically.  Markopolos’ job is similar.

Here’s the rub.  Knowing the answer doesn’t mean people will believe you.  Life’s not that simple.  Human nature being what it is often is suspicious at the wrong times and in blissful denial when alarm bells sound.

Prior to the Enron meltdown I heard from at least a half-dozen analysts from around the United States, questioning the energy company’s abilities.  Basically, they could not reconcile the balance sheet as reported in SEC filings.  Fortune Magazine was among those dazzled by Enron’s rapid rise. In its October 2, 2000 issue Fortune Magazine listed Enron among its most admired companies. 

 The real lesson lies not with the intelligence brilliance of Harry Markopolos but with the need for all of us to take a second look at the contrarians who are always among us.   Nearly 10 years ago I sat with the Chairman of Motorola, Chris Galvin, who told me he always wants to see the minority report.  No matter how certain, how comfortable you may be with an answer, a popular answer, an answer that comforts or confirms, you need to pay attention to other perspectives. That is what intelligence is all about.  It’s about listening to the minority and taking them seriously.

 That is why I’d like to meet Harry Markopolos.