Lyndall Spooner.
Lyndall Spooner, Founder and CEO, 5D
Look around your organisation and ask a simple question: who is responsible for competitive intelligence? In most companies, the answer is nobody... or everybody, which amounts to the same thing.
Formal competitive intelligence functions were a genuine organisational capability in the 1990s and early 2000s. Executives were expected to know the strategic aims of their competitors and to do serious war gaming when developing their own business strategies. Companies invested in understanding what else was happening in the market, because they understood that their own performance was relative to the alternatives.
But the competitive intelligence function has been slowly dismantled. In most cases, budget pressures get the blame. So does the difficulty of demonstrating ROI on the cost of competitive intelligence. The work has been reclassified as a cost rather than an investment, and then, gradually, it has stopped happening at all. Many companies today probably do not even take competitor strategy into account when designing their own growth plans or assessing their performance. That would have been unthinkable a generation ago.
What has replaced competitive intelligence is not better. Intelligence work today is largely reactive and episodic, something that gets dusted off when a competitor makes a surprise move or a major contract is lost.
The paradox is that many organisations are measuring more intensely than ever before. We build dashboards, run real-time analytics, survey our customers and track their satisfaction relentlessly. The volume of inward-facing data has never been higher. And yet all of that measurement is, by definition, myopic. It doesn’t look outwards. It tells us almost nothing about the ground shifting around us.
Truth be told, most companies don’t know what a competitive intelligence function is any more, what it does and who it should report to.
A competitive intelligence function exists to reduce strategic risk and improve the quality of high-stakes decisions through a structured understanding of the external environment, that is, everything that is outside your business.
Metrics like the net promoter score (NPS) are a good example of the problem. NPS has its uses, but it is structurally incapable of telling you whether your customers’ satisfaction is high in absolute terms or merely high relative to an increasingly mediocre field. A score of 40 looks very different if your main competitor is sitting on 55. Without that context, you are navigating without a compass. And if your share of all available customers is 20%, NPS tells you about those 20%. It tells you nothing about why the other 80% chose someone else, what attracted them to a rival, or what your competitors are doing to win and keep them.
Performance is always relative. Revenue, retention, margin, brand preference – none of these exist in a vacuum. They are shaped by what else is available in the market, at what price, with what experience attached. A business that focuses only on its own numbers while ignoring how the competitive landscape is evolving is, in effect, optimising for a game everyone else may no longer be playing.
The customer you are working hard to retain is simultaneously being approached by competitors who may be moving faster, pricing sharper, or solving problems you haven’t noticed yet. How can you notice and counter them if you’re only looking inwards?
Long-term data tracking of the S&P 500 shows maintaining current market leadership has become far less durable. Research by Innosight, based on decades of index data, shows that the average tenure of companies in the S&P 500 has fallen from more than 30 years in the 1960s to well under 20 years today, and is projected to fall further. That means around 50% of today’s S&P 500 firms will be replaced in the next decade, increasing the importance of detecting competitive strategic shifts and erosion of competitive advantages. In many cases, the source of competitive disruption will come from competitors and strategies that aren’t obvious.
The data companies generate about their own performance is genuinely valuable. But it needs to be matched by an equal discipline aimed outward; a structured, ongoing process for understanding competitor strategy, market positioning and emerging threats, with as an eye on both the small and large players in the market.
Rebuilding that capability does not require a large team or a large budget. It requires a decision that watching the market is a core function, not a discretionary one. It also acknowledges the executives making strategic decisions need competitive context as a matter of course, not only when something goes wrong.
The companies that tend to be caught off guard by competitive disruption are rarely the ones that lack data. They are the ones that have plenty of data about themselves, and very little about anyone else, combined with an overconfidence of the strength of their current market position and strategy and a lack of creative vision for the future.
To ensure long-term success, companies need to go back to integrating competitive intelligence into strategic decision making, balancing the focus of insights between the performance of the business with an unbiased view of the evolution and momentum of the market.
Modern competitive intelligence functions use technology to capture marketing messages and offers, new product features and customer benefits to ensure the brand’s customer value proposition is keeping pace with consumer needs and motivations. They also identify weak and emerging signals that are the first indication of market disruptions so the business can plan and change accordingly, and they identify emerging players that are scaling rapidly to help design more effective compete strategies.