Fuld & Company's Competitive Intelligence Blog

 
Dear Colleagues:
 
Fuld & Company has always been about delivering the best in competitive intelligence services to its clients.  Last week’s news about our acquisition and subsequent ability to now serve you with a larger Asia/Pacific presence and 24/7 research capability is something we believe will help you, our clients, very directly.  As the press release reads:
 
“As part of the acquisition, Fuld will be joining forces with Global Business Research Support (GBRS), a provider of competitive intelligence research services for consulting firms, research agencies and companies worldwide since 2002.  From its operations center in the Philippines, dedicated GBRS knowledge teams produce strategic and competitive intelligence reports on key markets, industries and players around the world.
“The addition of Manila-based GBRS will broaden Fuld & Company’s expertise, its service capacity, as well as allow for a true round-the-clock competitive intelligence services to better serve our multinational clients around the world,” said Leonard Fuld, founder of Fuld & Company.
“Fuld & Company’s operations and management teams in Boston and London will remain in place, continuing to deliver customized research and analysis, strategic gaming, and competitive intelligence process consulting services, with additional support and global reach through GBRS. 
 
Just think of the ways we can serve you in the coming years:
-          High quality analysis on a global level
-          Multiple language capability
-          Competitive analysis that takes into account many cultural perspectives
-          24/7 access to the Asia/Pacific region
-          Conduct war games and strategy games on a global scale for our multinational clients
 
This is just the beginning of the list.  We look forward to working with you in the years ahead.  I welcome your calls and comments.
 
Leonard Fuld

It’s nearly July 4 and US companies have a lot to consider about their interdependence with China.

Recent remarks attributed to GE’s CEO, Jeffrey Immelt, had him railing against China’s policy of taking technology from the West and making it its own, and “colonizing” Western companies in the process.  Whether or not Mr. Immelt actually used those words or meant them, the facts are on the ground.  China is growing at a very rapid rate and is at the same time moving far beyond its own borders, often overtaking Western corporate stalwarts in markets they once owned.

Our recent public war game, The Battle for China’s Smart Grid, confirmed the outcome that Mr. Immelt perhaps fears most. One key prediction: Western companies will need China (or a Chinese company) as a partner if they are to succeed in building out massive infrastructure projects such as the proposed smart grid in China. 

Does China have to play a bit fairer? No doubt.  It has appeared to have done some long-term corporate-relations damage with its policies despite the undeniable fact that it offers a large market opportunity for a Western firm, such as GE.  As the war game demonstrated, working with China could also help US and European companies mitigate political and financial risk abroad if let’s say a GE and a Chinese company partner in building out smart grids elsewhere in the world.  Just take a look at this clip from the war game regarding the team’s portrayal of Cisco’s China grid strategy that speaks volumes about the dynamics between Western companies and China and the choices they are about to make over the next few years.

Partnering can mean everything from a handshake and a contract to joint ownership.  What became clear in our strategy event is that joint ownership may likely be where some of these very large business opportunities are heading.  Can you imagine a portion of GE being sold to a Chinese entity?  What if a GE and ChinaCo jointly own such an entity?  These are the options that I am sure Jeffrey Immelt and his fellow energy industry CEOs have considered. 

I wish you a happy Independence Day this July 4.  Will companies be wishing each other a happy Interdepence Day in just four or five years from now?

On April 28, Fuld & Company ran its annual public war game in Cambridge.  This year’s topic was The Battle for China’s Smart Grid.  On May 2, I flew to China and reviewed the game’s findings with multinational businesses and academics in Beijing and elsewhere who are interested in the smart grid initiative. The sense from those that studied the game’s outcome was that it rings true.  Among the predictions: A Chinese company will become a part owner of one of the multinational players – not just a partner – in building out China’s grid.  The following is an excerpt from the press release we issued following the war game. What do you think? – Leonard Fuld

* * *

When it comes to building China’s smart grid, Western companies need to deal with multiple elephants in the room.

With 30-plus executives from energy and technology giants GE, IBM, Siemens, Hewlett-Packard and others looking on, four leading business schools yesterday participated in a war game to stress test the global strategies of these firms in competing for China’s $100 billion Smart Grid — only to encounter obstacles that had nothing to do with their companies’ technological prowess and everything to do with how they work with and within China. 
Through rapid-fire arguments, interrogation by an expert panel of judges, as well as questions from the corporate observers, “The Battle for China’s Smart Grid” War Game revealed many obstacles that many observers admitted that their companies must acknowledge and overcome if they are to win a piece of the $10 billion-per-year funding China has offered.   These predictions included:

• To fully take advantage of the emerging opportunities regarding the “smart grid” in China, Western companies, such as GE Energy, Siemens and Cisco, may have to sell a stake in their business.   Alliances and so-called loose partnerships are becoming less and less viable as tenable business positions in China.   The Chinese government is likely to want a piece of the intellectual property action for Chinese firms, and giving them a stake in publicly held Western companies would provide that stake.   At the same time, Western companies generally are uneasy about selling a piece of their business (or will have some difficulty pitching the sale to their domestic stockholders).  This poses some important strategic dilemmas and may necessitate a fundamental re-thinking of how foreign firms approach the Chinese market.
• Western companies need China to take on the world:  Western companies such as Siemens and GE have long believed that they can dictate the terms of expansion by their Chinese partners outside of China.  But a Chinese partner will likely become a necessary ingredient in any Western company’s global expansion plans by absorbing some of the financial and political risk among the diverse array of emerging opportunities across the globe.   The market in China is only the beginning for the Chinese government-run State Grid-approved corporations.  
• Standards setting and the capability to manage the buildout process represented by companies such as IBM may trump China-legacy firms such as GE and Siemens, selling technology and hardware into the Smart Grid.  As the IBM team (represented by the winning business school team, Kellogg) demonstrated, while IBM may have fewer years clocked in China than do GE or Siemens, it is offering an entirely different and high value sales proposition.  China wants and needs what IBM has to sell: skills in systems integration.  Aside from representing a true standards setter, IBM or companies like it can serve as the Smart Grid’s maestro, coordinating and vetting the other players in the Grid’s construction.  Cisco will need to participate in the standards setting process in order to preserve a place for itself against strong competition from Huawei, Cisco’s chief China rival.

The other elephants in this Smart Grid room identified by the judges and the teams playing out their roles included China’s concern about its own security in preventing others hacking the country’s system, as it hires Western firms who have the technological prowess to build out the Smart Grid.  Another elephant that Western companies have underestimated is capacity.  The grid needs to add enormous   transmission capacity at the breakneck pace China will demand.  China’s acceptance or nonparticipation in carbon pricing will also speed or slow down the expansion of the power grid.
“With a potential annual value of approximately US$20 billion over the next five years, the onset of the Smart Grid initiative in the PRC represents one of the largest, most strategically important global business opportunities for the coming decades,” commented Denis Simon, professor of International Affairs at the School of International Affairs, Penn State University and senior China advisor to Fuld & Company.  “Not only will the Smart Grid project define a potentially new, transformational economic trajectory for China in the energy field, but it also may serve as a catalyst for changing the rules of the road in terms of the way firms compete and cooperate across the global commercial landscape.”
All four teams worked hard to identify how the firms they represented in the War Game could add enough value to the Smart Grid initiative in China to earn profits for their companies.  They recognized the need to enter into strong partnerships with Chinese and potentially other Western firms in order to bring a successful package of products and/or services to the table. 
The Annual Strategy War Game National Championship, “The Battle for China’s Smart Grid,” was organized by Fuld & Company (http://www.fuld.com/).  IBM, Siemens, GE Energy and Cisco were represented by business students from Northwestern’s Kellogg Graduate School of Management, MIT Sloan School of Management, University of Pennsylvania’s Wharton School, and Yale School of Management.  Most of the students have worked in energy, technology and/or in China.  Last year, the War Game was on “The Battle for Healthcare Information”.  By the way, each of our public war games have made successful marketplace predictions each year.

This coming month we are running a public war game on The Battle for China’s Smart Grid.  We have very quickly seen that this is more than a strategic fight of Western companies for a share of a China mega-infrastructure project.  It will likely demonstrate how Western companies can succeed in a very fluid China market – where the opportunity is great the the stakes are high.

Just this past week the New York Times (Academic Paper in China Sets Off Alarms in U.S., March 20) reported on an academic paper written by two researchers from China on the vulnerability of America’s power grid to computer attack.  This article resulted in misinterpreted accusations regarding China’s intentions to “take down” the US grid. When interviewed the researchers pointed out that this paper was theoretical and lacked the necessary depth to accomplish what their accusers claim.  Besides, they wanted to make it very clear that they used the US case because they were able find enough data in America and not enough on China’s grid to allow them to analyze their own system. 
The more substantial question is how extensively will US and European energy and technology companies invest in plant, infrastructure, and product development in China – seemingly a necessity if they are to build out China’s smart grid?  Recent concerns expressed by US firms about new PRC government policies that place heavy emphasis on only procuring products and equipment that contains “indigenous Chinese innovation” raise questions about how much of the market actually will be available to foreign companies.

If one just reads the ongoing press about Google’s exit and arguments with the Chinese government, then it is clear that concerns about the PRC business environment are growing.    At the same time, with far less noise other companies, such as Applied Materials, a prominent Silicon Valley technology firm is moving some of its technology R&D over to Xian, China (Austin-American Statesman, March 22, 2010). What exactly is the center of gravity regarding foreign business thinking about China?
Finally in response to US trade pressure on China, the China’s commerce minister, Chen Deming, warned against the U.S. beginning a trade war with China (Washington Post, March 22).  
So, as you can see the Battle for China’s Smart Grid is far more than just about the technology itself. It is about nations trying to gain competitive advantage.  It’s about where the R&D will be taking place. It’s about trust and about how to establish a growing business in a new market with lots of promise.

 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?