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

Here we are in the U.S. with election day upon us. I for one am sick and tired of all the attack ads skewering one candidate or another.  These campaigns have upset me without informing me one iota.   Similar failures – all be the less deliberate – occur inside companies all the time.  Why? Because you didn’t get the message across in a way the executive wanted to read it.
A few weeks ago I spoke to a group of competitive analysts in Brazil about how culture can change the way you deliver intelligence.   To be blunt North Americans typically want intelligence served up differently than Japanese, and differently than Germans.  This is not a criticism, just an observation.  In the thousands of research assignments we have undertaken over the last 30-plus years, we have seen the pattern.  To ignore the pattern is to do all the good work only to have the client say “We don’t get it,” or worse, “Please, do not contact me again.”
Rather than deliver you my recommendations, I prefer to open the conversation by posing three different cases to you.   What you would do in each case:

• We ran a war game with an American firm which has a China subsidiary.  The American executives asked to have the game run in China regarding a new product line being launched in China.   They wanted to make sure their very successful Chinese subsidiary make no mistakes.  We had a difficult time getting everyone to agree on the game’s objectives, let alone uncover competitors’ strategic weaknesses.  By the end of the two days, we did achieve some success but I would have wanted more, more engagement, more “we are one team,” etc.  What was the problem, the challenge and what would you have recommended to the client  – if you could roll back the clock?
• A Japanese company wanted to learn from the best-of-the best in innovation from American firms. This case took place over 15 years ago, by the way.  We chose Intel at the time because in all measures it managed to grow while at the same continually innovating – shedding old products while introducing new, successful ones.   The client understood our selection but rejected our analysis.  Intel by all measures was America’s great innovator.  In the end the client asked us to research another firm, one whose innovative prowess did not match Intel’s.  What about Intel do you think the Japanese client rejected?  A hint: It had something to do with organization structure. 
• Finally, we delivered a monitoring program for a pharmaceutical firm with two internal clients who saw the world very differently.  The marketing executive was satisfied with knowing the rival’s strategic direction, while the R&D chief wanted specifics on clinical trial enrollment and other quantifiable success measures.   At the same time, we had to make this client – both clients – happy with a single and tightly bounded budget.  What would you recommend we do here? Culture was at the heart of this challenge.

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?

Today’s Wall Street Journal article headline said it all: Foreigners Vie to Upgrade China Grid.  Written from China’s viewpoint, it sees Western firms eyeing an infrastructure gold rush.  The reality is that the state-sponsored smart grid initiative is one of the largest infrastructure projects ever conceived with China spending up to $100 billion dollars over the next 10 years.

The article also underscores the conclusions from our war game and cited one of its primary assessments: “To ease Chinese concerns,” the article states, “Western companies that want to win big jobs may have to sell a stake in themselves to a Chinese state-owned company, according to a study by Fuld & Company, a Boston-based consultancy.”

In a recent trip to China I informally polled business executives and others who work in the energy industry there about the game’s conclusions.  While I raised a few eyebrows concerning the game’s predictions, no one told me “Impossible!” or said we were way out of touch with reality.  No, in fact those I spoke with stated that the game was an important platform upon which to stress test this market.

What will happen next with the smart grid in China?  What lessons will both Chinese and Western companies learn from this great energy petri dish China has set in place? What can the West learn from this experiment on how it can grow a market in China?  More important, what can both China and Western companies take away from the experiment they can then apply to the rest of the world in the decade to come?

Stay tuned in this space for more updates as we watch the war game’s predictions unfold.

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.

 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!

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.
 

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.