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Posts Tagged ‘Competitive Intelligence’

We were duped – EMI, Terra Firma and its argument against Citigroup

November 5, 2010 1 comment

“We were duped – Terra Firma closes its argument against Citigroup” (news item available to subscribers only) is the headline in the London Times (3 November 2010) reporting on Terra Firma‘s case against Citigroup relating to its 2007 purchase of the music group, EMI (which they lost).

I’ve been watching this news story, and EMI, for a number of years – as an example of a classical competitive intelligence failure. In fact, it’s not just one – but two failures. The first is the failure of the once great company, EMI, while the second is the failure to check sources and do appropriate due diligence, by Guy Hand’s firm, Terra Firma. As a case study in business failures, I believe it is a classic.

EMI’s history dates back to the early days of recorded music and it was once at the pinacle of its industry. Artists on EMI labels included The Beatles, Pink Floyd, Queen, Kylie Minogue, Coldplay, Lily Allen, KT Tunstall, Robbie Williams, and many many more. I grew up listening to albums such as David Bowie’s “Ziggy Stardust“, the Beatles “Sgt. Pepper’s Lonely Heart’s Club Band” and the unforgettable “Dark Side of the Moon” from Pink Floyd (the latter during free periods in my last year at school – that dates me 🙂 )

However EMI never adjusted to the idea of music downloading and the Internet. Rather than accept that there was a new technology that meant that the old model was dead, it tried to use court case after court case to kill the emerging hydra. Rather than fighting peer-to-peer online sharing of music it should have seen it as inevitable and that this reflected a new way for distributing music.

Music sharing was not new. People would regularly tape records and CDs – and although this was a problem for the recording companies, it was usually small scale and so could be overlooked. Even if one person didn’t purchase a record, their friend had. I believe that many records would be purchased just so you could hear a decent recording – rather than the bootleg taped version, so this copying served a purpose by publicising the music.

The Internet changed this – especially when services such as Napster emerged. The view of companies such as EMI was that such services had to be smashed – and that the old models had to be preserved. This did not mean that there were no new approaches that could have been adapted, and that they had no choice: there were. Last.fm, Pandora, Spotify, boxee and iTunes are all examples of services that take account of the web, online music streaming and similar to make money (albeit not all have yet broken into profit). Each of these offers a new model for distributing music – via low-cost downloads (iTunes), to subscription services (with a mix of free and paid versions) such as Spotify – backed up by advertising. Had EMI investigated such options the problems that led to its failure and eventual sale may have been avoided.

This is the first competitive intelligence failure and lesson.

Competitive Intelligence doesn’t just look at competitors. It also looks at the competitive environment and attempts to anticipate business change. It assesses the business change – and looks at the implications, allowing decision makers to develop strategies that cope effectively with the change. EMI certainly recognized the change represented by the Internet, but failed to understand its significance and so failed to adapt to what should have been obvious i.e. that the Internet was a radical change rather than an evolutionary development.

Such change occurs periodically – but always has a massive impact on businesses that fail to adapt their business model. Classic examples include the

  • development of commercial flight on shipping – why spend days sailing across the Atlantic from Europe to the USA when you can fly?
  • electric light – much safer and better than gas lights or candles
  • internal combustion engines and especially the mass production of cars, as initiated by the Ford motor company. The horse and cart, and all the equipment linked to horse and cart transport lost out.

The Internet was another such development. When such events (sometimes called Black Swan events) occur, only companies that recognise the threat and adapt quickly survive. EMI has failed in this – trying to stop the new models for music distribution, rather than embrace them and look for ways to make money from them.

Then we come to Guy Hands and Terra Firma’s acquisition of EMI. This is the second competitive intelligence failure – and in my view the more serious, as Terra Firma should have known better.

Private Equity firms such as Terra Firma’s make their money by buying and selling other businesses. Before purchasing a business, they need to do due diligence so that they can assess what they are buying.

Terra Firma’s court case revolved around a claim that they were mislead by Citigroup into believing that another company, Cerberus, was also bidding for EMI. They apparently were not told that Cerberus had dropped out on 19 May 2007, and so rushed through the due diligence process to ensure that they remained the prime bidder. Terra Firma claimed that David Wormsley, a Citigroup banker, had told them that Cerberus planned to place a rival bid of 262p a share and so Terra Firma offered 265p and walked away with what they thought was their prize.

Essentially there were three mistakes made here. The first was believing a single source without attempting to verify it through standard competitive intelligence approaches i.e. was Cerberus still bidding? Terra Firma relied on the word of a single individual whom they trusted, but who had a vested interest in upping the price that would have to be paid.

The second mistake was even worse. By rushing through their due diligence they didn’t investigate sufficiently the state of EMI and whether it was actually worth what they ended up paying. In fact it should not have made a difference whether or not Cerberus was bidding – if the company was not worth the price being asked then it would have been better to let a rival bidder grab it. Failure to do the due diligence meant that this assessment was not done effectively – it seems that Hands was blinded by his desire for EMI and wasn’t interested sufficiently in the process of ensuring that he got the value from his money.

The third mistake was hubris – instead of learning a well taught lesson, Hands attempted to blame Citigroup for being mislead, ignoring the old rule of Caveat Emptor . Had Terra Firma won, it would have meant that any advisor in any business sale would be at risk of being sued by purchasers who for whatever reason, failed to do adequate due diligence, and instead trusted totally the word of their advisors on what was or was not a good buy. Fortunately the court saw otherwise, and said good bye to Terra Firma’s claim.

In a way, the date of the judgement against Guy Hands is ironic – as 5th November is known as Guy Fawkes day in the United Kingdom.  Guy Fawkes attempted to blow up Parliament in 1605.  Instead of Trick-or-Treat on Halloween, British children used to make an effigy of Guy Fawkes to be burned on Guy Fawkes night, along with fireworks. Traditionally they would then use this effigy to collect money, with the chant “Penny for the Guy“.  This 5th November that slogan will have a new meaning for Terra Firma and Guy Hands.

Sharing ideas, creativity and intelligence

November 3, 2010 4 comments

I was recently pointed to a great YouTube video from Steven Johnson on where good ideas come from:

A key point that Johnson makes is that many creative ideas often take years to develop and depend on the input of other people. It is only through the sharing of partial ideas and hunches that fully fledged creativity can happen.

This is also important for competitive intelligence. Some managers view competitive intelligence as a “cloak & dagger” type process that needs to be enshrined in secrecy. They view it as of strategic importance and accordingly not for their corporation’s rank and file.

I believe that they are wrong! Competitive Intelligence IS strategically important but all employees need to be involved in the process. What often happens is that one employee will hear some information that by itself seems meaningless. It is only when combined with information from several others that a coherent picture emerges, turning disparate data pieces into important intelligence. Management needs to encourage such information sharing throughout the organisation – and only through such cooperation will the CI information gathering process be 100% effective. The role of the CI personnel then becomes that of coordination and facilitation – putting together the jigsaw of pieces gathered throughout the organisation and building a picture that management can safely use to make strategic decisions. Failure to do this can mean that several jigsaw pieces are liable to be missed or found too late – and so decision-making will suffer and the chances of making a wrong decision increase.

There is a story told by Sheila Wright of DeMontfort University. I’ve slightly adjusted it – partly to protect the innocent (and guilty) – apologies, Sheila.

Baked Beans TinApparently a number of years ago, there was a senior managers’ meeting at a food canning factory. Six months earlier, the factory had installed new machinery for wrapping the cans in plastic. Plastic wrap allowed them to reduce pallet sizes, and so ship products at a lower cost. Unfortunately the factory was having problems.  Too often the plastic was tearing – and not doing the job of keeping the cans immobile on the pallet. This meant that cans got damaged and costs got higher than anticipated.

As is common in senior management meetings, lunch and coffee is delivered during the meeting. A junior staff member was bringing in the coffee when he overheard his bosses talking about the plastic wrap problem.

“Er hmm….. can I interrupt…. I know what the problem is and how to fix it….I thought that you already knew the answer to the problem….” he said, to the incredulous stares of his bosses. The junior staff member then explained that he played football every Sunday and was friends with an operations manager who worked for a rival company. Apparently this competitor had installed similar machinery and come across the same problem. A few Sundays before, the operations manager had come to the football game in an ebullient mood. “We’ve fixed it” he’d explained. “All it needed was to recalibrate the machinery to take into account our cans and the plastic wrap we were using. It took us months to work out, but we’ve done it“.

By not encouraging the sharing of information, the canning company had compounded their problems. Nobody knew that this staff member had friends in a rival company or that this competitor had also been having problems with their packaging – and had solved it. There was no process to communicate the information – that would have helped and saved time and money. Essentially, information flowed down but there were no processes to allow it to flow up or be networked within the organisation.

Effective competitive intelligence builds systems that encourages the flow of information throughout the company – up, down and sideways. Of course there does need to be a respect for secrecy – and some conclusions should be kept secret. Business, strategy, and product development plans and so on do need to be protected.  However this should not be at the cost of failing to encourage all staff to contribute to the overall intelligence process and provide any information they come across – whether obviously relevant, or seemingly irrelevant or unimportant. There needs to be a balance between secrecy and openness. Anything else is a flawed system – that deserves to be canned!

The car that hated vanilla ice cream!

November 1, 2010 4 comments

I was speaking to a colleague today and he commented that the terrorists who tried to send a bomb from the Yemen to a Chicago synagogue were pretty stupid. His view was that any package sent from the Yemen to a synagogue in the US would be suspect – and so the terrorists had to be stupid.

In competitive intelligence it is important not to make assumptions – and assuming that your competitor is stupid is one of the most dangerous assumptions you can make. It is possible that they are stupid. Alternatively, it is also feasible that they see things differently from you – and their viewpoint may be rational and logical from their perspective. Effective competitive intelligence should always involve you trying to see things from the perspective of your competitor rather than from your own, possibly subjective and biased standpoint.

I cannot really understand the rationale of the Yemeni terrorists sending their bomb, presumably intended to blow up en-route, with an address of a synagogue. It does seem stupid – but that is because I am not an Islamist terrorist. However trying to see things from that perspective I could envisage a conversation such as this:

Terrorist 1: So what address shall we use – something that would not be suspicious?”
Terrorist 2: How about a synagogue – the Jews control the USA / World so they must get lots of mail. Also they need to print their subversive material so won’t suspect our fake printer cartridges packed with explosives.
Terrorist 1: Good idea – which synagogue?
Terrorist 2: Obama came from Chicago. Let’s find the synagogue that he would take orders from….

Of course belief in a Jewish world conspiracy is nonsense, as is the idea that President Obama takes orders from a Jewish cabal. However that is not the opinion of large parts of the Moslem world – who sincerely believe in this, and that the 9-11 destruction of the Twin Towers was a Jewish plot, etc. If that is your world view, then sending suspect packages to a synagogue probably is completely logical and rational and the best way to ensure that they don’t raise suspicion.

The point is, that even if your enemy IS stupid, they will act based on their own warped rationale. In order to anticipate their actions you need to try and see things as they see them. This is even more important if in fact you are the one who is wrong – as in that case, switching your viewpoint should allow you to spot where your mistakes actually are.

There is a great story that illustrates this point – that what seems crazy may in fact not be. The story is apocryphal – and may be true.

Several years ago, the Pontiac Division of General Motors received a complaint:


     This is the second time that I have written to you. I don’t blame
     you for not answering my first letter as I must have sounded crazy.

     In our family, we have a tradition of having ice cream for desert after
     dinner each night. Every night, after we’ve eaten, we vote on which
     kind of ice cream to have – and I drive down to our local store to
     buy it. I recently purchased a new Pontiac and since then I’ve had a
     problem when I go to the ice cream store. Every time I buy vanilla
     ice cream and go back to my car it won’t start. If I buy any other
     type it starts first time. I realise this sounds insane but it’s true.

     Please help me understand what it is that makes my Pontiac fail
     to start when I purchase vanilla ice cream and easy to start with
     any other type.

The complaints department was naturally skeptical about this letter. However it was obviously written by somebody educated who knew how to write clearly and lucidly. Furthermore the area the writer came from was an affluent area – and a Pontiac is not a cheap car. They decided to take it seriously and an engineer was sent to investigate. The engineer arranged to meet the man just after dinner time – and the two drove to the ice cream store. That night, the vote had been for vanilla ice cream – and just as the man had said, the car wouldn’t start. Bemused, the engineer returned the following night – and the night after that. The car started first time – the votes had been for chocolate on the first night, and strawberry the second night. The fourth night, the choice was again for vanilla – and the car failed to start.

The engineer now realised that there was a problem that needed identification and fixing. He started to log what happened from the moment they arrived at the store – arrival time, time taken to make the purchase, and several other factors. Soon he had a clue – purchases of vanilla ice cream took less time than the other flavours. The reason was that the freezer containing vanilla ice cream was at the front of the store near a quick purchase till,  while other flavours were at the back and required lining up to get checked out.

Quickly the engineer realised that this was the answer to the problem – not the ice cream flavour, but the time required. When purchasing vanilla ice cream there was a vapour lock which prevented the car restarting. With the other flavours, there was sufficient time for the engine to cool down, allowing vapour to dissipate and the car to restart.

Of course the moral of the story is that even if something sounds crazy it may not be. Competitive Intelligence analysts should always bear this in mind when they look at a competitor and fail to understand why they are doing something that seems stupid.

Getting found on the web

September 20, 2010 Leave a comment

I’d planned to write this post on business culture, working as part of a team and leadership. Meanwhile I’m still tinkering with WordPress – trying to get to know it better. There’s a couple of things I liked about Google’s Blogger tool that I’ve not yet managed to work out how to do on WordPress. Actually that’s not completely true. If you download WordPress and blog on your own server it’s fairly easy. However there are also things against doing that – for example some technical details, security & spam, etc. Conversely WordPress.com won’t let me download some of the plugins I wanted. Despite this, I’m pretty happy with WordPress as a blog platform.

While searching around, I came across a great presentation from Matt Cutts of Google, given at WordPress’s 2009 San Francisco conference.


Matt Cutts is well known as not only a Google expert (naturally) but also as an expert on search engine optimisation – in other words, how to get found on the web. There is so much in this one presentation that I think it should be compulsory viewing for everybody who writes for the web. Although I try and do most of what was said – there’s still more for me to do, and he had some great examples. The focus was on blogging using WordPress but in fact much of the content was much wider – with explanations on what search engines (and specifically Google) look for when indexing the web.

As not everybody will spare 45 minutes to watch the video, I’ll summarise some of the content – and the slides can be found at Matt’s web-site.

Matt starts by asking why write a blog in the first place, but quickly moves onto optimising sites for the web and how to increase your chances of being found. He gives a simple explanation for Google’s PageRank (named after Google founder, Larry Page, rather than that it measures the web page importance / popularity based on the number of links to the page).  Around half way through the presentation, he starts emphasising the most important thing about writing for the web (whether for a general site or for a blog). The writing has to be relevant and reputable. Good and interesting writing gets read. Boring, trite, repetitive writing doesn’t. In other words, if you don’t love what you are writing about, and don’t know or have anything to say, then don’t say anything. (For more on good writing, read the Write Way – my brother’s blog – covering how to produce technical documentation that’s understandable).

Then we get to the bits on SEO (Search Engine Optimisation – i.e. writing web-sites so that they can be found). When I take training courses on finding competitive intelligence on the web I always emphasise the need to understand how sites get to the top spots. If you understand this, then it becomes easier to think of ways of finding sites that aren’t found on the first page – and often these are the pages that hold the hidden gems that the competitor analyst has to find.

One key skill is to think of alternative terms. As a portable back-up device I tend to use a memory stick. However other terms for the same device are “flash drive“, “USB drive” and a few others. Searching for only one of these risks missing out sites not using that term but one of its synonyms. Cutts gives an example of searches for ipod car for connecting an ipod to a car’s radio / entertainment system. There is an alternative less costly technology called iTrip that also allows an iPod to be connected to the car radio. For every two searches using the term iPod Car, there was one that used the key word iTrip. This means that excluding the latter term from sites selling the former will result in them missing out on a third of the potential Internet traffic. From a competitive intelligence perspective, it would also mean missing out information on a competing technology. Just because it’s not exactly the same, using a different technological approach and costing less, doesn’t mean it’s not also a competitor – so searching for one and not the other would mean missing out on what customers are actually looking to purchase.

Other SEO techniques covered include web-page naming, establishing a reputation, monitoring visitors via analysis of log files / google analytics and how not to spam (and scam).