A Competitive Intelligence Application of Location Intelligence: Retaining Highly Valued Customers

By Donald E. Baul

The purpose of this article is to demonstrate the successful application of location intelligence (LI) to a competitive intelligence (CI) business issue in a way that highlights the effective use of geographic information to develop a successful, competitive response to an emerging threat in the telecommunications industry. This discussion will also clarify some widely held misconceptions regarding competitive intelligence and will help to bridge the "knowledge gap" that tends to obstruct effective use of CI and LI in today's hyper-competitive business environment.

Competitive Intelligence According to SCIP
While there are many interpretations of the term "competitive intelligence," it is useful to view it as defined by the Society of Competitive Intelligence Professionals (SCIP). SCIP defines CI as follows:
Competitive Intelligence: A systematic and ethical program for gathering, analyzing, and managing external information that can affect your company's plans, decisions, and operations.

Put another way, CI is the process of enhancing marketplace competitiveness through a greater -- yet unequivocally ethical -- understanding of a firm's competitors and the competitive environment.

Specifically, it is the legal collection and analysis of information regarding the capabilities, vulnerabilities, and intentions of business competitors, conducted by using information databases and other "open sources" and through ethical inquiry. SCIP's members conduct CI for large and small companies, providing management with early warning of changes in the competitive landscape.

CI enables senior managers in companies of all sizes to make informed decisions about everything from marketing, R&D, and investing tactics to long-term business strategies. Effective CI is a continuous process involving the legal and ethical collection of information, analysis that doesn't avoid unwelcome conclusions, and controlled dissemination of actionable intelligence to decision makers.
There are a several aspects of SCIP's definition that warrant expansion. The first is that the focus of inquiry for CI practitioners is primarily information regarding the firm's external business operating environment. This focus distinguishes CI from most internal business functions in that the CI professional is expected to be able to understand, monitor and alert decision makers regarding the current state of the business environment, as well as significant changes to that environment that could affect the firm's strategies, goals and operations.

The second point is that while information collection is an essential component of competitive intelligence, the true "value added" for CI is the resulting insights developed from the analysis of the information, which will produce actionable recommendations based upon an understanding of the firm's strengths, weaknesses and strategic objectives.

Third, CI is not an end in itself, but an enabler for informed decisions about opportunities and threats that are constantly evolving in the market environment.

Finally, CI is not a one-shot solution for a particular business issue, but a continuous process of understanding, education and application of insights that contribute to the ongoing success of the enterprise.

Intelligence vs. Information and Data
The term "competitive intelligence" as it is used in many business contexts has long evoked visions of trench coats, floppy hats and sunglasses. This is primarily due to the association with government agencies that are involved in gathering information for national security purposes. A number of former government intelligence professionals were instrumental in developing models for the application of information analysis to the private sector, which resulted in the formation of SCIP. However, the result of this association has been a popular perception of an emphasis on "intelligence" as information collection, as opposed to the analysis, insights and recommendations that characterize competitive intelligence.

From the perspective of CI professionals, information and data do not equal intelligence. Information and data are essential building blocks for the development of competitive intelligence. From a CI perspective, the provision of intelligence itself is incomplete without the implications of the intelligence for the business and recommendations that delineate appropriate business responses. These recommendations form the basis for what is popularly referred to as "actionable" intelligence. Recommendations imply an in-depth understanding of a firm's competitors and business environment as well as a solid grasp of the company's ability to act in terms of its strengths and weaknesses, strategies and business objectives.

CI Fundamentals- The 5 Forces Model by Michael Porter
While CI practitioners utilize a variety of analytical tools and models, one particular model has gained acceptance as a fundamental basis for understanding the overall competitive industry environment in which a company operates. The “5 Forces model” was popularized in the early 1980s in Michael Porter's book, Competitive Strategy- Techniques for Analyzing Industries and Competitors. The figure below displays the basic structure of Porter's framework.

Source: Competitive Strategy- Techniques for Analyzing Industries and Competitors by Michael E. Porter, Macmillan Publishing Co., Inc. (Click for larger image)

An important benefit of utilizing this model is that it places "rivalry among competitors" at the center of the forces that shape the market for all competitors. This approach requires a broad understanding of the industry environment that goes well beyond the simple gathering of information. The following case example focuses on the "Threat of New Entrants" aspect of industry competition. It illustrates how geographic information combined with competitive intelligence contributed to a successful campaign to retain valued customers in the face of an imminent competitive threat.

Case Example: Competitive Metropolitan Fiber Deployment

The Telecommunications Act of 1996 ushered in a new era of competition for an industry that had been primarily driven by regulation. In addition, communications technology during the early 1990s was evolving from copper based networks to optical fiber networks in metropolitan areas. As barriers to competition fell, new providers were entering markets that had previously been unavailable to them due to regulation. Competition in the telecommunications industry was evolving rapidly and major providers had created competitive intelligence organizations in anticipation of more open markets.

As CI analysts for a major provider, one of our many responsibilities was to provide early warning of impending competition. We had received information from our field sales organizations that our competitor's construction vehicles were digging trenches in one of our major metropolitan areas for the installation of optical fiber cables.

Business Issue.
The routes of our competitor’s fiber cable construction passed directly in front of buildings in the downtown area that housed many of our highest revenue customers. We knew that it would only be a matter of time before our competitor would be offering its services to our customers and we had a window of opportunity to develop a strategy for retention of these customers. The problem was that we did not know the full extent of the threat, in terms of how much of our existing customers’ revenue streams would be at risk. We were fully aware that preventing customer losses would be far preferable to attempting to win them back once they had signed up with a competitor.

Geography and Customer Revenue.
Our CI organization happened to be physically located close to the market research organization which had recently acquired a GIS that provided location data on our customers. Working with the market research group, we determined that it might be possible to understand our revenue at risk if we could develop a map of high revenue customers who were in close geographic proximity to our competitor's planned fiber cable routes.

While this approach appeared, at first glance, to be relatively simple, in fact it revealed a complex business intelligence issue that had to be addressed before we could develop meaningful revenue data. The reality was that our internal customer information databases were not easily mapped by revenue to locations because revenue was associated with the customers’ billing addresses, which did not necessarily have a direct relationship with many of the customers’ business locations that were at risk for a competitor's fiber access.

The Business Solution.
Developing revenue data by location became a major business intelligence project due to the complexity of the databases involved. But because of the certainty that some revenue would be lost, the project was undertaken at considerable time and expense for the information technology and accounting organizations.

Ultimately, we were able combine the geographic customer location data with revenue information to identify the total amount of revenue that would be accessible to our competitors. This allowed us to develop scenarios based on the services that would be at risk. We were also able to identify the most likely customer targets that would have the greatest negative revenue impact if they signed on with our competitors.

Action Plan.
Knowing that competition was imminent was valuable information. We were able to demonstrate to senior management the exact amount of revenue that would be at risk, which was an eye opener for them and a call to action. In this case, the implications of competitive entry were abundantly clear. The combined competitive intelligence and market research organizations recommended the development of a customer retention initiative to address the threat of lost revenue. The marketing department was able to develop a comprehensive strategy for retaining our highest revenue customers, which they were able to implement before the competitor’s fiber was even put into the ground. While some customers were eventually lost to our competitor, the ability to preemptively take action in the face of a significant competitive threat highlighted the value of using geographic location data combined with competitive analysis to create revenue saving value for the business.

The ability to map customer geographic location information to customer revenue data enabled us to plan and implement a timely response to the entry of new competitors into our markets which would not have been possible without this capability. However, in the long run, we did not fully develop this capability into an overall strategic initiative tool. There are still many untapped opportunities to discover new ways to apply location intelligence to competitive business issues.

CI & LI in the Future

Location intelligence is at an early stage of development, similar to that of CI only a few years ago. A key to future utilization of LI by CI professionals will be the heightened awareness of the potential this application has to complement and enhance the effectiveness of competitive intelligence. In today's increasingly mobile society, location intelligence has the potential to evolve into an essential element of an increased understanding of the critical role that geography will play in business and competitive analysis.

A key to unleashing this potential will be finding leverage points in industries that are geographically intensive and creating new analytical applications and solutions that will harness and direct this potential. Another challenge will be to actively engage the CI community in location intelligence through collaborative initiatives that can demonstrate the combined benefits of this application for enhancing decision making. The ultimate result will be better decisions that incorporate a full spectrum of competitive and geographic intelligence applications into strategic and tactical business planning and decision processes.

Published Saturday, April 8th, 2006

Written by Donald E. Baul

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