Pairing Up

Though Their Missions And activities may seem almost identical on the surface, competitive- intelligence and market-research teams serve distinct purposes. Market-research teams typically focus on supporting a specific franchise or therapeutic area by identifying market gaps for their products to fill. Competitive-intelligence teams, on the other hand, use similar data—along with countless other resources—to predict market changes, preempt competitor activities, and develop strategic contingency plans.

"Obviously, the focus on competitors is a unique purview of competitive intelligence," says one director of competitive intelligence. "Competitive intelligence has the greatest potential to see where competitors are going."

Still, there are large areas of overlap—so much so that some experts argue that market research is just a subset of competitive intelligence. A new study by business-intelligence firm Cutting Edge Information quotes one pharmaceutical executive as saying, "Any time you collect market research on a competitor's product, that's competitive intelligence."

The CI-Market Research overlap

That sort of insight has led to the latest trend in the world of competitive intelligence. Recognizing that competitive intelligence and market research overlap, companies across multiple industries are combining the two functions. The jury is still out on how effective this strategy will be in the long run, and on what the best way is to structure the two functions to work well together. But in the meantime, market-research groups have been turning their attention more and more toward collecting and analyzing competitive intelligence to support specific product goals. The pharmaceutical industry in particular has been integrating competitive-intelligence and market-research efforts to engender greater strategic impact from their market-research functions.

Market Research and CI Evolve

Fifty years ago, market-research groups enjoyed vast resources—large budgets and staffs to support almost any research need—as the industry began to adapt to more consumer-driven markets. Slowly, though, companies pulled back their market-research dollars and eventually shrank internal market-research groups to one or two team members.

The pharma industry witnessed some of the most drastic cuts in market-research resources. In the mid-1980s, pharmaceutical market-research teams were almost non-existent, even in the most-respected firms. Outsourcing became a quiet solution to data collection and cost savings. Most pharma companies outsourced all their market-research work during the 1980s.

The 1990s, however, saw a shift back to building internal market-research teams, which has lasted to the present. Those teams were built to support the blockbuster generation: Find a market gap, use the data to develop a first-to-market product, and brace yourself for the sales upswing. As scores of blockbuster products approach patent expiration and companies begin looking to lifecycle management teams to expand their franchises, market-research resources are settling to a more comfortable size.

Today's internal market-research teams consist of only eight to 10 employees, nowhere near the comparatively huge teams of decades past. And 86 percent of pharmaceutical companies still outsource much of their market research.

At around the same time that market research experienced its strategic boom, competitive intelligence grew as a core competency in a number of key industries—from aerospace and consumer goods to pharmaceuticals and healthcare. Companies gave their competitive-intelligence groups the same kind of treatment they'd given market-research teams, turning them into separately funded strategic-support functions. Dedicated competitive-intelligence functions sprang up, backed by tens of millions of dollars in budgets for a modest five-to-10-person staff.

Within pharmaceuticals, almost every major company enhanced its competitive-intelligence function between 1998 and 2001 by allocating more resources. And competitive-intelligence departments received praise for making major strategic impact. Pfizer, for example, relied heavily on its competitive-intelligence team's data on Warner-Lambert's potential suitors. Based on that information, Pfizer managed to swoop in and take the Warner-Lambert deal away from a major competitor, giving Pfizer exclusive rights to the blockbuster cholesterol treatment Lipitor (atorvastatin).

In time, however, many companies found that the activities of the two functions routinely overlapped. Market-research and competitive-intelligence teams gathered data on market forces and competitors' products, analyzing market trends and highlighting potential opportunities to fill market gaps with new drugs. Rather than continue to duplicate efforts, companies began folding competitive-intelligence groups into their formal market-research departments.

Annual competitive-intelligence budget figures have since settled to between $500,000 and $1 million. Annual competitive-intelligence spending represents approximately six percent of the average annual budget for market-research teams. Cutting Edge Information's study found that 87 percent of market-research teams are involved in collecting and analyzing competitive intelligence. Indeed, some companies have dissolved their competitive-intelligence departments, despite great success.

Structure for Success

Many companies have made concerted efforts to form both strategic competitive-intelligence and strategic market-research teams. Some attempts have been met with success, while others have not. But for competitive intelligence to have an impact on corporate and individual product strategies, companies must structurally align their departments to maximize efficiency and avoid duplicated efforts—and they must emphasize communication between the two groups.

Take, for example, the case of one major pharmaceutical company at which formal competitive-intelligence gathering is a relatively new undertaking. In this company, all the market researchers have had to take on some competitive-intelligence responsibilities. The market-research group includes a competitive-intelligence manager who integrates all the market research collected on competitor products. He also contributes to brand strategy by introducing competitive analysis.

The competitive-intelligence manager formerly reported to the marketing organization, but now resides within market research. The structural change makes it possible for the entire organization to tap into its competitive-intelligence capabilities, thereby promoting a competitive-intelligence culture. Also, the company can incorporate it across the full product lifecycle.

Tight integration of market research and competitive intelligence makes sense for that company, but it isn't the right solution for every company, and there are some advantages to separating market research and competitive intelligence. In making the decision, companies should consider a few key factors:

Communication Communication between market research, competitive intelligence, and other organizational functions is key to optimizing the impact each has throughout the organization. One of the prevailing reasons companies give for combining the two functions is to ease communication. Market researchers often fail to realize that whenever they collect competitor information, they are in fact collecting competitive intelligence. The same is true in reverse—competitive-intelligence teams often collect information that can be very useful to market-research project teams.

Efficiency According to Cutting Edge Information's study, competitive-intelligence functions benefit when aligned with market research because they remain efficient and produce valuable analysis. Combining competitive intelligence with market research strengthens strategic planning as companies invest more in their data-gathering and analysis competencies.

Independence The growing concern among competitive-intelligence professionals within the pharmaceutical industry is that combining competitive-intelligence and market-research functions hampers the competitive-intelligence team's ability to present unbiased data. Competitive-intelligence groups need to analyze data and provide unbiased and sometimes unpopular options and recommendations. It is easier to go against party lines outside of marketing and market research. Being outside the marketing function allows analysts and their findings to be unpopular.

"You have to be a critic," says one market-research analyst at Sanofi-Aventis. "Not many people are willing to do that. It leaves them vulnerable and it's humbling. That's where the gold is. Without that, all the methodologies in the world won't yield the necessary results."

Culture Building recognition around competitive intelligence's strategic potential begins with developing a culture for competitive intelligence. Everybody involved in tracking market activities should understand competitive intelligence's importance and contribution. The competitive-intelligence group also requires a strong organizational voice to promote its successes and to continue affecting the company. Certain structures are more apt to generate a competitive-intelligence culture. Companies employing a centralized competitive-intelligence organization succeed at affecting overall corporate strategy.

Impact Although competitive-intelligence teams are structured to support the marketing function and individual brands, in most companies, those that report independently to multiple functions often have the greatest impact. Take, for example, a competitive- intelligence team that reports up through the pharmaceutical company's business-intelligence function.

The business-development function receives the greatest benefits from strong competitive-intelligence activity. Competitive intelligence informs critical decisions and allows companies to stay keenly aware of competitor transactions that will alter the market landscape. Communicating business-development successes is the first step toward building strong support for competitive intelligence.

Furthermore, consistent competitive monitoring often yields strategies to thwart competitors' activities. For example, in 1994, American Home Products (AHP—now Wyeth) acquired American Cyanamid. AHP was motivated by discussions between American Cyanamid and Bristol-Myers Squibb (BMS) that hinted at an exchange of assets. When competitive-intelligence teams helped AHP's leaders project what the competitive landscape would look like after such an exchange, AHP altered its strategy and made a hostile bid for American Cyanamid—and beat BMS to the deal.

"By painting a competitive landscape for a product, we stumble on attractive licensing targets," says one competitive-intelligence professional. "At that point, we say, 'If we can't beat 'em, eat 'em.'"

This sort of collaboration between the business-development and competitive-intelligence teams is a model for how competitive intelligence should be strategically incorporated. Some pharmaceutical companies' competitive-intelligence groups consist of nothing more than a database housing competitors' press releases and articles. While knowledge management plays a vital role in organizing competitive information, it provides no road map to influence strategy. When other functions, such as sales and marketing or R&D, rely on competitive intelligence to shape strategy, the impact is widespread—affecting anything from brand planning and the portfolio-management process through clinical-trials design to annual planning for the whole company.

Building Competitive Intelligence

Patience is key with competitive-intelligence teams. Despite efforts at aligning structures, competitive intelligence's impact may not be felt for some time. Even companies that formerly separated competitive-intelligence teams from market research found that resources became scarce as competitive intelligence took longer and longer to prove its strategic value. Competitive-intelligence teams are routinely folded back into market research as resources dry up and companies begin relegating competitive-intelligence teams to building databases.

Disbanding competitive-intelligence teams is not an uncommon practice within the pharma industry. Cutting Edge Information's study noted that dedicated competitive-intelligence departments have an average life span of just three years. Of the 18 profiled pharma companies, 11 had established their competitive-intelligence teams within the last five years.

Nonetheless, market-research groups can still aid competitive-intelligence efforts by collecting additional data. Companies find extraordinary value in understanding competitors' product pipelines, or knowing how they are reorganizing. A simple review of a competitor's organizational chart can yield valuable insights on whether it plans to increase sales and marketing resources.

Market research can also be helpful in collecting information about competitors' changing product strategies. Information about competitors can often have a greater effect on internal product strategy than can typical market-research efforts. Market research's end-user techniques help companies to understand how customers react to changing product messages.

Market researchers need to communicate with competitive-intelligence teams and other parts of the organization if both groups are to be effective throughout the company. If market research and competitive intelligence cooperate, sales and marketing can also collect valuable business intelligence.

The first step in building a competitive-intelligence function is to gather as much internal knowledge as possible. Internal knowledge comes in the form of articles and databases housed on disparate systems, or even internal experts who understand certain aspects of the market and can serve as resources. Despite how much information is available inside company doors, pharma executives often don't know where to turn for answers.

Competitive-intelligence teams, especially those early in their existence, should serve as the liaison for internal information. Once the infrastructure is in place to house internal data and identify internal resources, competitive-intelligence teams are responsible for communicating to key stakeholders what the company already knows.

Often, communicating internal knowledge grows difficult with subsequent mergers and partnerships, a constant reality in the pharma industry. Merging two sets of knowledge-management systems complicates the integration process.

Skillful competitive-intelligence teams recognize that they must help train other information gatherers, especially market researchers, to communicate their findings. Employees who do not share critical information with key stakeholders create bottlenecks and extra work for competitive-intelligence teams. A corporate culture focused on competitive intelligence maintains a constant flow of information.

Elio Evangelista is a senior analyst for Cutting Edge Information. He can be reached at elio_evangelista@cuttingedgeinfo.com