From Knowledge to Intelligence

Helen Rothberg, G. Scott Erickson

• Publisher: Routledge
• Year: 2007
• Print ISBN: 9781138165823
• eBook ISBN: 9781136402067
• Topic: Business
• Subtopic: Business General
• Index: Business

In the New Economy, intelligence will be essential for firms to gain competitive advantage—not just information or knowledge. Competitive intelligence, or the strategic gathering of knowledge about competitors, climate, trends, new products, has a long and successful history of generating competitive advantage. In this book, Rothberg and Erickson demonstrate how corporations can combine their competitive intelligence gathering with their internal knowledge management gathering into one dynamic system. Using real-world cases from the corporate world, the authors show how the strategic use of this combined system generates measurable competitive advantage. Topics covered include how be develop your strategy for sharing and gathering knowledge across the value chain, sustainable product development and innovation, manufacturing improvement, CRM and marketing, and developing a corporate-wide global knowledge strategy.

Part 1: Knowledge Meets Intelligence

1

Generating Competitive Capital

Play nice, share your toys, and win the game.

During the 1990s, the telecom industry began a changeover from analog to digital transmission systems. For suppliers of hardware, the timing of the switch was a delicate decision, as manufacturers faced the traditional problem of when the developing market would be large enough to justify shifting production to the new technology. Motorola was one of the key players in this market and possessed an important advantage over competitors. The U.S. firm held key patents on which other mobile phone makers, such as Nokia, needed to pay royalties if they were to make digital phones. Within its own organization, Motorola held knowledge of Nokia’s plans concerning production of digital phones.

But, somehow, this knowledge was never applied. Whether top management wasn’t aware of this competitive knowledge or simply didn’t realize its importance, Motorola ignored direct evidence of Nokia’s increasing participation in the digital market, failing to forcefully enter the market itself until it was far behind its Finnish competitor (Finkelstein 2003). Possessing knowledge is important, but to be truly useful, knowledge must be used. Knowledge must become intelligence.

Knowledge has value, but intelligence has power. This is a key lesson as we move from the New Economy to the Next Economy. The New Economy concerned itself with managing the enterprise, the firm’s knowledge assets, and competitive knowledge. The Next Economy demands that all this be merged into a capability fostering the creation of actionable intelligence. At minimum, better managing all aspects of an organization’s knowledge base can fortify strategic decision-making. At maximum, it can generate defensible competitive advantage through intelligence, a sustainable source of above-average returns.

In discussing this new perspective on knowledge and intelligence, we need to make sure we’re all speaking the same language. This is particularly important in this context because we are bringing two distinct disciplines (knowledge management/intellectual capital and competitive intelligence) into the mix. As an initial guide, Table 1.1 lists the terms that describe the evolution of knowledge assets into strategic assets.

Intelligence turns intellectual capital into actionable knowledge for strategic decision-makers in the organization. An intelligence approach expands the definition of knowledge to include operational systems and competitive intelligence. An intelligence approach also recognizes that the strategic use of knowledge requires an understanding of the circumstances of its use—not all firms will want to manage their intellectual capital in the same manner, since they may face different competitive environments. And finally, an intelligence approach requires that top management receive and use key pieces of knowledge. Intelligence merges knowledge management systems with competitive intelligence practices, leveraging the impact of knowledge on a firm’s performance.

Competitive intelligence (CI), by its very nature, is somewhat hidden in terms of practices and impact. But the evidence at hand suggests that its use has an important bottom-line impact on firms that employ it. We’ll discuss some of the issues involved in measuring CI’s results in Chapter 2, but the U.S. Office of the National Counterintelligence Executive has estimated that the amount of trade secrets changing hands runs up to $300 billion annually. That is split between legitimate CI and outright espionage, but it still gives some sense of the magnitude of the practice. Imagine how the competitive arena in your field would change if your competitors acquired and used your deepest and most valuable trade secrets. Imagine how your performance might improve if you acquired theirs.

Table 1.1 Knowledge/Intelligence Terms

Terms	Definitions
Knowledge Management	The process of codifying, collecting, and disseminating the firm’s knowledge assets
Knowledge Assets	Intellectual capital of the firm: Human capital—knowledge resident in employees regarding their jobs Structural capital—knowledge regarding organizational systems, structures, and processes Relational capital—knowledge regarding managing firm-specific relationships with external stakeholders such as customers, collaborators, and regulators Competitive capital—competitive knowledge resulting from market-driven analysis of information internal and external to the firm
Competitive Intelligence	Field of practice—supports strategic decision-making and assists executives in identifying whether the firm is competitive (Gilad 1994) Process—purposeful and systematic gathering of internal and external information from multiple sources, its synthesis, integration, and analysis producing actionable results
Intelligence	Knowledge in action: Strategic use of knowledge assets, including widespread, purposeful gathering, analysis, and use in making strategy. Also includes protection of knowledge assets. Actionable outcomes: Tactical intelligence—CI processes are applied to one or multiple knowledge assets, which results in actions with immediate implications for the firm’s operations Strategic intelligence—CI processes are applied to one or multiple knowledge assets, which results in actions with implications for the firm’s future strategy
Shadow Team	Cross-functional composite of individuals who engage knowledge assets in competitive intelligence practices around explicit competitive issues and generate tactical and strategic intelligence in support of executive decision-makers. A small cross- functional boundary-spanning entity that learns everything about a competitive unit.

The firm ranked by The Futures Group as the leading user of competitive intelligence is Microsoft (Curtis 2001). Its prominence wouldn’t surprise anyone who follows CI as a discipline or anyone competing with the firm. Microsoft visibly employs a shadow team against Linux and firms using the operating system, has been accused of using other CI techniques against smaller competitors, and has defended against CI actions by Oracle and Palm (we’ll discuss and document each of these instances in later chapters). And again, this is not surprising when one watches the firm turn on a dime and obliterate competitive products (WordPerfect, Lotus 123, Netscape Navigator) or change its entire approach to computing by suddenly committing to the Internet in the late 1990s. Again, precise connections to CI can be hard to make and quantify, but any objective view would grant that Microsoft would find it impossible to operate in the manner it does without an aggressive competitive intelligence competency.

This chapter provides the thinking behind an efficient and effective method for bringing knowledge management (KM) and competitive intelligence system practices together. We begin by clarifying the building blocks of both KM and CI practices and their similarities. We then offer a structure and process for generating competitive capital, a step that presages a deeper understanding of how knowledge assets can be used in a more strategic manner.

Knowledge in the Firm: Managing Intellectual Capital

Recognizing and managing knowledge assets is a good thing.

Knowledge walks. Job mobility, layoffs, retirements, and unexpected events are paths for knowledge’s journey out the firm’s door. In late 2003, both the CEO and the top designer of Gucci left the firm after they were unable to come to terms over the amount of independence they would have as the company moved forward. With Gucci moving to a mass-market model, the firm’s controlling partner, Pinault Printemps Redoute, was betting that it had incorporated the knowledge of these key players within Gucci’s processes (Friedman 2003; Galloni, Carreyrou & Rohwedder 2003). But how sure could it be that it had successfully harvested and archived those knowledge assets? Unused knowledge can leave or be forgotten if it fails to reach the right people.

Knowledge sleeps. Organizations rarely know the full depth of their members’ capabilities beyond current job descriptions or previous job titles. A Los Angeles–based utility company we’ll call Western Utilities was planning to extend its business across the Mexican border. It selected a top engineer and business development executive to manage the process. They encountered great difficulty getting the project moving, since neither spoke fluent Spanish nor understood much about the Mexican way of doing business. In the same building, two floors and two levels down was a manager who was having a love affair with Mexico. Although from the United States, he was fluent in Spanish; had been studying Mexican culture, archaeology, and art for many years; and had made multiple trips to the country. Wouldn’t he have been a nice addition to the development team?

Knowledge hides. Companies with multiple divisions or related businesses rarely know each other’s client bases, products, and process knowledge or the full depth of potential products and services for cross-selling. A diversified New York City media communications company (referred to here as Integrated Marcom) decided to try and bring together various divisions that focused on the pharmaceutical industry. During a meeting break, one of the members from an advertising agency was talking about trying to capture new business with a prominent pharmaceutical firm. It turned out that the participating public relations company had been conducting business with that very firm for years. It knew the contact person, serviced a therapeutic product line, and understood business-winning trigger points. Wouldn’t it have been helpful to know this information before pitching the potential client’s creative team?

Knowledge is static. Firms can spend a small fortune on knowledge management systems. Ultimately, it only has value if people use it. Otherwise it serves as yet another reference in the company’s “library” that gathers dust as few remove its contents from the stacks. This is precisely the issue that confronted Motorola as it faced strategic decisions regarding analog/digital products and competing with Nokia.

Knowledge is a chameleon and a primary component in competitiveness. The knowledge management (KM) movement is an attempt by organizations to capture, codify, organize, and redistribute the firm’s tacit forms of intellectual capital or knowing and make them explicit. In other words, the essence of KM is to find, awaken, and harness the ingredients of sustainable advantage.

The building blocks of knowledge management systems are the various forms of knowing, or intellectual capital (IC), resident in the firm (Davenport & Prusak 1998; Edvinsson & Malone 1997). How many small technology firms are beholden to the person who has the product or process patent in his or her head? This is human capital, a personnel issue, and refers to the palate of knowledge that employees bring with them: education, job skills, employment experience, travel experience, hobbies, and so on.

Why has it been so hard for other discount retailers to imitate Wal-Mart’s model? Structural capital is a systems issue: part management science, part organizational behavior. It reflects an understanding of the networks, culture, and processes for producing and delivering goods and services.

How often does an account leave a firm when the account manager decides to change jobs? Relational or collaborative capital is firm- or employee-specific and is indicative of the ability to manage relationships among and between customers, collaborators, regulators, and others external to the organization.

The goals of knowledge management systems are to capture resident knowledge, make it part of the intellectual capital cache of the firm, leverage knowledge assets through redistribution to other employees, and facilitate the creation of new knowledge. A better understanding of what the firm, as a collective, knows, combined with distributing this knowing to the right places, can be a source of competitive advantage.

Competitive Intelligence: Finding What You Need, Using What You Know

Competitive intelligence manages competitive knowledge strategically.

Intelligence explores. When a gap exists in the knowledge store, the strategic organization will set out to fill that gap. Firms often invest valuable resources in creating products without fully investigating competitor capability and intention to respond. A Northeastern packaged food company, “Food Flavors,” was considering entering the salad dressing category. After investing in the creation of a competitive product, a “war-game” simulation was run to discover how the two dominant market leaders would respond. The game revealed that consumers were very loyal to competitor brands and that competitor margins made it impossible for them to gain penetration through a price war. Food Flavors management decided to differentiate the product and launch it under an existing brand with strong brand equity.

Intelligence discovers and protects. Knowledge management, as a discipline, has never really focused on the idea that knowledge assets are valuable not only to an organization but, potentially, to competitors as well. The essence of competitiveness in certain industries revolves around proprietary information and discovery. Competitor access to such information can interfere with first-to-market status and process innovation. A large U.S. pharmaceutical firm, “Drugs, Inc.,” investigated competitor FDA approval status for ailmentspecific drugs. During this investigation, managers learned that they were consistently beaten to market within certain categories. A competitive intelligence discovery project revealed that scientists, both in-house and those contracted to work on clinical trials, were very willing to share their know...

Table of contents

• Cover
• Halftitle
• Title Page
• Copyright
• Contents
• Foreword: Seek’em (CIKM), A Recipe for Executive Success
• Foreword: Knowledge Wealth and Competitive Intelligence
• Acknowledgments
• Introduction
• Part 1: Knowledge Meets Intelligence
• Part 2: Strategy for Shifting Knowledge to Intelligence
• Part 3: Knowledge to Intelligence Across the Enterprise
• Part 4: A Blueprint for Shifting from Knowledge to Intelligence
• Conclusion
• References
• About the Authors
• Index