Fuld & Company's Competitive Intelligence Blog

Just before we all stepped away from our desks at the end of 2007, I challenged you to answer five questions. These questions related to five intelligence events I felt had the greatest impact on my thinking in 2007.  Here are the answers. Let’s see if you agree:
Question 1:
How has Google upset the phone business – without even having entered that business? Which phone carrier has already reacted? What early warning signal was this carrier watching before making its announcement?

Answer:  Google’s threat to buy its way into the mobile phone business was one of the loudest competitive signals I have heard in the last decade.  If you are not in the cell phone business, you may have allowed this announcement to slip under your radar. Let me explain.

Google’s disruptive moves may also allow handset companies, such as Motorola and Nokia, to innovate, selling products to anyone who wants them. Likewise, Intel will see opportunity in a potential Wi-Max explosion, possibly selling an entirely new family of specialized microchips and establishing a new mobile phone standard. Microsoft will see a similar opportunity to extend its influence far beyond software and operating systems for the desktop or laptop

Here is why the world of mobile phones and wireless technology that so dominates our modern lives is about to dramatically change along with the old rules and entrenched corporate giants that govern this world.  In the United States in January 2008, the Federal Communications Commission will conduct an auction for a piece of the radio spectrum (700 MHz) that will become vacant when the broadcast industry completely switches over to high-definition TV. This end of the spectrum has the ability to carry signals much farther and at lower cost than the cell networks now in place. According to experts, unleashing the 700 MHz band will make Wi-Max nearly universally available – not limited like its weaker cousin, Wi-fi, by a 150-foot perimeter around a transmitter. More significant, Wi-Max may replace traditional cell networks altogether. Wi-Max antennas are much cheaper than cell towers and have a smaller footprint (meaning that city zoning boards can approve their installation since they will essentially be out of sight).  The FCC auction will give rise to a competitive stampede. Italy and Norway will have a similar auction at the end of 2007, with the UK, Austria, and Sweden set to follow at the beginning of 2008.

Historically, the FCC has allowed certain carriers to control portions of the radio spectrum (Verizon, AT&T, and other traditional phone companies). These companies control the hardware and technology permitted on their systems, and no one else can gain access.  Shortly after the FCC announced its intentions to auction this additional piece of the spectrum and allow consumers more choices, a new set of companies entered lobbying for new rules. Dell, Phillips, Microsoft, and Google, among others, formed the White Space Coalition, a group petitioning the FCC to open these new channels to unlicensed users and devices.

Traditional phone carriers–such as Verizon (or its partner, Vodaphone, in Europe), AT&T, Orange, and Sprint–are justifiably nervous about Google’s threatened entry into the mobile telephone market. Google’s now-famous business approach is to make all services free or nearly free, funding everything through targeted online advertising. If the carriers lose the initial argument to block Google’s make-the-airwaves-free petition with the FCC, it would mean that their subscription model may no longer work. Why should customers pay for access, when they can suffer a few ads and pay nothing for the actual phone service?
Question 2:
Which famous investor concluded a very large and a very public acquisition inside of two weeks? Which company did he buy and what types of intelligence helped him identify the acquisition? How did his action prove that competitive intelligence is a combination of experience and information – where investor experience diminishes the need for heavy doses of information, in turn speeding the decision to buy? 

Answer: Surprise (not really!), the answer is Warren Buffett. His proposed acquisition of Marmon Holdings for $4.5 billion hit the year-end with a wallop. From all newspaper accounts, he spent a couple of weeks considering the deal then pounced.  He apparently had known the Pritzker family for decades, and likes their way of managing and growing companies. He also liked the very fundamental industry that Marmon Holdings represents, box cars and shipping equipment. 

The question I posed focused less on the decision and more on how Buffett came to that decision. In a broad sense, Buffett knows his KITs (Key Intelligence Topics): A company with strong and stead (1) cash flow and (2) companies that operate with high barriers to new competitor entry. 

You may laugh and consider that these are two very simple criteria. Yes, they are but Buffett will drill much further into each category, likely generating scores of questions each focused and reflecting on one or the other KIT.  His knowledge of manufacturing industries (Marmon, an industrial conglomerate itself, is known for its capital intensive products in transportation and construction equipment)  also allows him to make certain assumptions or to gather insights based solely on observation or asking pointed questions.

Buffett eschews the formality and bureaucratic smell of PowerPoints. It is speed and details that concern him. Buffett has taught me once again that vise-like focus on the important questions, combined with experience to speed decisions, separates the dawdlers from the winners.
Question 3:
Which agri-business company believed in the opportunity for genetically modified seed nearly ten years ago – despite all the negative press?  Why did it persist? What intelligence did it find promising enough to further invest many hundreds of millions of dollars? What is the key intelligence lesson in this case?

Answer: Monsanto is that company.  Its management stuck it out through all the bad, mostly Western press, to become a dominant player in genetically modified seeds.

A December 6, 2007 BusinessWeek article described Monsanto’s remarkable accomplishments: “While a vocal band of opponents is still protesting biotech crops, a growing multitude of farmers around the world is planting them. The reason is no mystery: Monsanto seeds contain genes that kill bugs and tolerate weed-killing pesticides. So they are much easier and cheaper to grow than traditional seeds. More than half the crops grown in the U.S., including nearly all the soybeans and 70% of the corn, are genetically modified. Just five years ago, China, India, and Brazil planted virtually no genetically engineered crops. Now Brazil can barely build roads fast enough to get all of its biotech soybeans from the fertile interior Mato Grosso state out to ports. Farmers in China and India, meanwhile, planted more than 17 million acres of biotech crops last year. These three countries are now three of the six largest GMO-planting nations in the world, as measured by area planted.”

Back in 1999, a hoard of news articles appeared about one of Monsanto’s earlier GMO products, notoriously nicknamed the Terminator seed.  Even, the St. Louis Post-Dispatch, Monsanto’s home town newspaper declared in an editorial, “Monsanto Should Renounce the ‘Terminator.”  

Then, again, a number of news sources in the non-Western press thought much better of Monsanto’s genetically modified products. The Economic Times of India declared “Farmers gain from genetically improved crops.”  Japan Chemical Week analytically decided that Monsanto had an interesting and possibly very useful product: “Monsanto Japan Developing Herbicide-tolerant Rice Varieties.”  Both these articles appeared within a month of that editorial in the St. Louis paper.

Monsanto adopted the long view here. It is unclear exactly if Monsanto’s management truly appreciated the political firestorm that would erupt over GMO products back in the late 90s.  Nevertheless, it trained its sites toward the strategic horizon, marketing its products where they were needed, biding their time and likely working with lobbyists and regulators to both demonstrate the economic viability and even necessity for its biotech offering.

The world eventually came around – mostly, anyway.  “Intelligence is not always tactical” is an important lesson to remember in this day and age of blogging, quick-Google hits, and the urgency of companies to meet quarterly stock analyst expectations.

Question 4:
Which two 2007 business scandals underscored the need for ethical guidelines in information collection – both involve sports organizations, one in the US and the other in Europe?

Answer: The short answer: In the U.S., the Patriots football team steals the opponent’s (The Jets) defensive signals during an early season game. The coach is fined and the team penalized.  In Europe, McLaren is accused of stealing Ferrari’s technical specs for its race cars, thereby giving McLaren unfair competitive advantage. McLaren was forced to pay a £50 million fine, as well as having to forgo a critical race this past season.

The longer answer is that sports is a business, plain and simple. Competitive knowledge and its importance to achieving a win are truly out there, exposed to public view.  I win; you lose. Sports is far more of a zero-sum game than most businesses. In business you can collect information then develop intelligence that wins you some market share but you don’t typically expect that intelligence to truly vanquish a rival. In sports, a piece of intelligence can help you accomplish a complete victory.

Perhaps that is why we typically hold sports up to a high standard, a noble standard.  Therefore, when a team or its management fails to meet that lofty standard we are shocked – even if for a moment.  Companies may be able to claim a more complicated set of reasons; all is not as black and white as a game of football. That’s not clear. I believe that sports and business have a lot in common: Loss of reputation, loss of money.  Just as the Patriots and McLaren.
Question 5:
Which Internet social phenomenon explosively grew in 2007, first beginning a few years ago as a popular Net-based community activity now finding ‘business legs”?  Why is it likely to become a powerful corporate intelligence concept in the years ahead? 

Answer: Social networking…I think I actually gave this one away by the way I phrased the above question.  Friendster preceded Facebook and Linked-In by some years but for some reason social networking sites exploded in size and prominence in 2007, growing to 50 million members (up from just 20 a year earlier).   Two major events sparked the growth and acceptance of social networking, both of which legitimized the concept and in effect made them true communications platforms – across and between companies, as well as communities.  First Google’s purchase of YouTube expanded its search and advertising model into the sharing-video realm. It’s not clear that Google has truly figured out how to monetize this platform but it has fed its growth.  In another quieter announcement, Facebook opened its programming platform to developers in May 2007.  According to an Information Week article appearing in October 2007, Facebook’s gambit has paid off: At that time over 100,000 developers already signed on with Facebook.  Facebook’s not-to-modest goal is to rival or supplant Microsoft as the platform of choice for everyone. This is indeed an ambitious plan but one that has born some fruit.

My experience in 2007 is that business managers who never before knew what social networking on the Net was joined either Facebook or Linked-In, or both.  My LinkedIn network grows from some scores to millions of contacts – only three steps removed from me. This is a powerful tool we can all leverage for information collection or simply to make the world far smaller each and every day.  These sites foreshorten our ability to reach someone who can answer our questions even though we may never before have met.  Wow! What an amazing tool, what a powerful intelligence opportunity.

I don’t know when or where social networking became a legitimate intelligence tool but somewhere, sometime in 2007 it happened.