The Secret Language of Competitive Intelligence: How to See Through and Stay Ahead of Business Disruptions, Distortions, Rumors, and Smoke Screens

Book by Fuld Leonard M

Chapter 1:

The Art of Smart: How Intelligence Insight Helps Win the Game of Risk and Reward

It’s all about perspective

There’s no better way to understand competitive perspective than to visit an art museum. Pay particular attention to the works of the impressionist painters. A school of impressionist artists known as pointillists, active in the late nineteenth century, rendered entire scenes with thousands of dabs of colored dots and brushstrokes, rather than with continuous lines. Look at any of these paintings up close and all you see are dots. Stand back ten feet and you see a field of flowers or people strolling in a city park with parasols unfurled.

One of my favorite lessons in perspective comes from a painting by the impressionist painter Georges Seurat. It is called The Seine at the Grande Jatte, and it hangs in the Royal Museums of Fine Arts of Belgium in Brussels. Only inches away from the canvas you cannot possibly see the image of a sailboat slowly moving through the water, the lush greenery, and the trees, bushes, and blue sky overhead. Some inches away all you see are a variety of colorful smudges. The blue, green, and yellow colors make no sense. A green brushstroke here, a yellow one there. Up close, you cannot see the story the artist is trying to tell with his canvas. Step back a few feet and suddenly the image forms.

When you view the entire painting, you marvel at how the thousands of dots have formed a coherent and easily understandable picture. You note the sailboat tilting into the breeze, the rower, trees overhanging the riverbank. As you examine the image again, you begin to see more subtle aspects, the contours, geometric shapes, proportions, a tower hidden behind some trees in the distance. You gain perspective. Seurat returned to the Grande Jatte location dozens of times. With each visit he saw different details. Staring at the painting, you even begin to imagine what the artist was thinking as he filled the canvas.

Developing intelligence on a competitor is similar to creating a pointillist painting. Your goal is not to create the perfect picture but a picture that is representative of reality (just as Seurat achieved by creating his placid scene with a minimum of brushstrokes). Walk a few feet away from Seurat’s image and you feel as if you had actually sat by the riverbank on that warm, languid summer day.

Intelligence is using information efficiently, making decisions on a less-than-perfect picture. It’s all about seeing your competition clearly, understanding its strategy, and acting early on that knowledge.

If you are the first to see the image clearly, you have insight that is ahead of the market and of your competitors. With this insight you’ve just gained competitive advantage. Intelligence—whether or not it’s insight about current competitive conditions or foresight about new market opportunities about to occur—is a product of a perceptive mind. It is about seeing as much of the painting as possible, as soon as possible, and acting on this less than perfectly formed picture.

Intelligence is about making critical decisions while balancing imperfect, but reasonable, knowledge with a degree of risk. Lots of people have insight, but few act on that insight in a timely manner or with the gumption to place their own wallets on the table in a high-stakes business poker game. Intelligence means having some insight but also knowing that risk accompanies the resulting decision.

Intelligence is the art of applying imperfect knowledge. It is the art of the SWAG, the Scientific Wild-Ass Guess. No matter how much information you gather, uncertainty will always exist; still, you need to make decisions. The battle for digital photography is a perfect example of risk versus certainty. It is an example of how one company denied the changing reality and delayed taking action, while another acted on that same imperfect picture and gained competitive advantage. This is the game of digital risk played between Kodak and Fuji.

The Game of Risk

Kodak and Fuji each knew that the other was approaching the digital photography battleground. Both had the insight. Fuji acted early on its imperfect knowledge. Kodak, the market leader, shelved any digital innovations for many years, denying it was a threat. Kodak’s delay, supported by its own market arrogance and entrenched chemical culture, fed its denial.

When Fuji Photo Film first entered the U.S. market in the 1960s, Kodak was a well-entrenched competitor. Even into the 1980s, market analysts did not see Fuji as gaining more than 15 percent of the U.S. market (mostly at the expense of Kodak’s other competitors, such as 3M, Agfa-Gevaert, and General Aniline and Film [GAF]).1

The amateur and professional chemical-based photographic market had not changed in any substantial way for nearly one hundred years. Kodak owned that market. It kept refining first black and white, then color film products, constantly tinkering and improving film quality and ease of use. It took the lead in roll film, then 35 mm, then cartridge easy-to-load films, such as the bestselling Instamatic cameras and film. In addition, Kodak had distribution. Nearly every retailer that carried film sold Kodak. Kodak’s boxes of film with their famous gold and red logo boxes were nearly ubiquitous.

Fuji acknowledged that fact. As proof, Kodak and Fuji spent many years, during the decades of the 1970s and ’80s, fighting over distribution channels, not over the product itself. Kodak accused Fuji of having an unfair competitive advantage in the Japanese market because of Fuji’s participation in the tightly bound keiretsu, or Japanese trading circles, that Kodak claimed left it out in the cold and hurt its ability to compete fairly in Japan. In one document filed by Fuji, Fuji claimed that Kodak stated “Fuji Photo Film is a member of the Mitsui keiretsu, a vast bank-led financial group bound together by cross shareholdings and complex lending relationships.”2 Likewise, Fuji claimed that Kodak unfairly blocked Fuji’s ability to distribute through lucrative mass-merchandise outlets in the United States.

Effectively, Fuji and Kodak had reached a stalemate. From Kodak’s view of the competitive game board, it controlled most of the pieces.

A splotch of new paint

In 1979 the canvas changed for the first time in a long time. Only the Kodak folks seemed to have missed seeing the canvas—or denied its existence altogether.

Nelson Bunker Hunt and William Herbert Hunt, members of one of America’s wealthiest families at the time whose fortune began with their grandfather’s stake in the oil business, decided that they wanted to corner the silver market. In part, the brothers saw silver as a hedge against inflation, as well as a buffer against any further erosion in their oil holdings. With other investors, the Hunts formed a silver pool that by 1979 had amassed more than two hundred million ounces of silver, approximately half the world’s supply.

When the Hunts began their investment scheme in 1973, an ounce of silver was just under $2. By the time their plans became public in late 1979, the price skyrocketed to over $50 an ounce.3

The Hunt brothers’ attempt to corner the silver market and the resulting meteoric rise in the price of silver sent a shiver up the spines of all film producers, Kodak included. Kodak, Fuji, Agfa, and others curtailed photographic film production. Film prices rose.

The year 1979 was a soul-searching time for film manufacturers. How long could they sustain these high prices? What about their once fat margins? What if silver, as we know it, would be so locked up that we may not have enough to meet demand?

Fortunately for Kodak and its competition, the crisis evaporated as the market for silver collapsed, thanks in part to the steps by the Federal Reserve to raise interest rates and thus drive down inflation. Kodak’s management believed that its empire was protected and life would go on as it had for so many decades.

The competitive landscape had returned to normal—or so thought the folks at Kodak. Fuji’s president at the time thought otherwise. He kept wondering about the what-ifs: What if silver disappeared? What if someone found a less expensive medium other than a silver-based chemical to produce photographic images?

Around the same time, another drop or two of a new-colored paint fell onto the competitive canvas. This time Kodak’s and Fuji’s painting would be changed forever.

In 1984 Sony introduced its first digital camera, known as the Mavica. Kodak and Fuji management experienced both of these competitive shocks: the potential silver shortage and consumer digital photography substituting for traditional film. The data were there for everyone to see. Nothing was hidden. The image began to appear.

As soon as Minoru Ohnishi, who assumed his role as president of Fuji Photo Film in 1980, experienced these two early warning shocks, he moved very quickly. “That’s when I realized film-less technology was possible,” Ohnishi stated at the time. Ohnishi has invested as much as $2 billion in R&D in digital technology since the early 1980s.4

Kodak’s management saw the same painting emerge. In response, its management had already allocated lots of resources to understanding and perfecting filmless photography. By the late 1980s Kodak, the eighth-largest patent holder in U.S. history with nearly twenty thousand patents on file, had already amassed more than a thousand patents in digital imaging alone, probably more than any other company on earth. (In 1986, Kodak announced a 1.4 megapixel CCD chip, a breakthrough ...