Intelligent

New Strategies
for New Battles
Managers everywhere are under siege. Yesterday’s paradigms – economic,
political, social, technological, and more – are no longer valid. And what is
worse, it seems virtually impossible to fully grasp or make sense of the evolving
patterns of forces they are likely to face tomorrow.
By Douglas Bernhardt

88 wbs journal • july-september 2008

B
UT PERHAPS the most frightening
phenomenon of all, even for the
most seasoned of executives, is
that the very business models
which seemed so robust, and
appeared to work so well, in an industrial age
have today crumbled into irrelevance. Indeed,
as businesses from Africa to America to Asia
ratchet up their efforts to gain yet another point
or two of market share and profitability, one is
reminded of what the crew and passengers of
the Titanic would have achieved by re-arranging
the deck chairs on that ill-fated vessel some 96
years ago.
Today, it often seems that we are floundering
in a period where the dynamics of asymmetric
warfare apply as much to the world of business
as they do to the ‘global war on terror’.
The consequence is that many, if not most,
executives seem all too ready to wring their
hands in frustration as they retreat into the
familiar comfort of their cubicles and office
suites in search of ostrich-like respite from the
new realities – or as some would say predictable
surprises – of the early 21st century:
• $100 and more for a barrel of crude oil
and the tsunami-like effect this has had on
commerce everywhere;
• About $1 000 for one troy ounce of gold;
• A cascading US dollar worth about 65 Euro
cents;
wbs journal • july-september 2008
• A world-wide banking crisis precipitated by
the collapse of ‘subprime’ lending schemes;
• Chinese and Indian pharmaceutical [Apple] appears to understand
companies swamping the world with generic
substitutes for expensive ‘blockbuster’ drugs its competition and its
and; customers in equal measure, a
• The ubiquitous internet spawning not just
new enterprises and services, but entirely powerful recipe for continuing
new business models. success.
Indeed, as managers prepare to engage
growing armies of new enemies, they are
seldom certain of just who it is they’re fighting.
Is it any wonder then that business leaders,
including those whose MBAs prepared them
so well to manage in the 20th century, find
themselves overwhelmed? And as they catch
their breaths to take stock of the uncertainties
around them, at which altar do they pray
for salvation? In many cases, if current
management literature is any guideline, it is at
the altar of ‘management innovation’.
“Please help us,” they intone to the high
priests – or gurus – of leading business schools
and consultancies. “Help us ‘innovate’ our
way out of sub-standard performance, below-
average returns, and the dis-equilibrium
caused by environmental forces outside of our
control (and which we failed to anticipate or see
in time). Help us, we beseech thee, to meet our
legitimate aspirations for success.” And why
not? After all, as the consultancy McKinsey &
89

Many firms, now resting
in corporate graveyards
everywhere, were not equipped
to give serious consideration
to how and where innovation
might help them achieve
competitive advantage or
how their rivals intended to
compete in the future.
* We prefer the term ‘strategic innovation’.
90
Company observes: “Innovation has become a
core driver of [corporate] growth, performance,
and valuation.”1
But what do we mean by ‘management
innovation’?* Gary Hamel, visiting professor
of Strategic and International Management
at London Business School puts it this way:
“Management innovation is anything that
substantially alters the way in which the work
of management is carried out, or significantly
modifies customary organisational forms,
and, by so doing, advances organisational
goals.”2 Moreover, adds Hamel, “Management
innovation tends to yield a competitive
advantage when one or more of three conditions
are met: the innovation is based on a novel
management principle that challenges some
long-standing orthodoxy; the innovation is
systemic, encompassing a range of processes
and methods; and/or the innovation is part of
an ongoing programme of rapid-fire invention
where progress compounds over time.”3
Innovation should not, of course, be mistaken
for invention. “Invention is the creation of
something new. Innovation is the creation of
something new that makes money; it finds a
pathway to the consumer.”4
In our experience, however, the real issue
is not whether management innovation
significantly increases a firm’s odds of winning
its competitive battles; it clearly does. Rather,
we suggest, the key issue is one which we elect
to frame in terms of the question: what role for
intelligence in management innovation?
By intelligence (or competitive intelligence)
we refer to the co-coordinated, systematic
collection, analysis, and timely dissemination
of ‘all source’ information about external
forces that have, or are likely to have, a
material impact on the strategic ambitions,
interests, objectives, and plans of the firm. The
dimensions of intelligence can be thought of
in terms of activity (process), knowledge (the
end product, or deliverables), and organisation
(function and structure). Intelligence products
(the analytically derived assessments and
estimates that give objective, in-context
meaning to raw data and information) in
particular exist to ‘support senior decision
makers in their capacity as strategists,5 the
very leaders whose main job it is to understand
and cope with competition.6
Thus, if the essence of truly innovative
strategy springs from thinking and actions
which differ radically from what we’ve done, and
how we’ve done it before, or what our rivals are
likely to expect us to do in the future, a firm’s
executive team is far more likely to defeat its
opposition if it possesses real-time knowledge
and foreknowledge of its rivals’ capabilities,
intentions, and plans. Ask yourself, is this what
your company and other companies with which
you are familiar doing? Or do they continue
to wage tomorrow’s competitive wars using
strategies and tactics developed and refined for
last year’s battles. Do they, in effect, focus on
trying to improve business performance through
operational effectiveness rather than by means
of strategic reinvention and positioning based
on future-oriented intelligence?
Consider the example of the South African
textile industry. This is what the country’s
Textile Federation had to say in their report on
the trading environment for 2007:
The South African textile industry is currently
facing extremely difficult trading conditions.
Employment in the industry has declined from
70 500 in 2003 to just below 50 500 in 2006. In
addition a number of textile mills have recently
closed and have been forced to retrench staff.
Imports are at an all time high. Imports of
yarns have increased from 77 000 tons in 2001
to 99 000 tons in 2006, an increase of 29% while
imports of fabrics have remained relatively
constant with 94 900 tons in 2001 and 95 300
tons in 2006. Much larger increases were
recorded by imports of made up textiles which
have increased from 4 900 tons in 2001 to 28
700 tons in 2006 an increase of nearly 500%
and imports of clothing which increased from
139 million items in 2001 to 567 million items in
2006 an increase of over 300%.
Historically textile and clothing imports into
South Africa originated from a wide range of
countries chief amongst which were Taiwan,
South Korea and Europe. However since 2001
imports have increasingly been sourced in
the main from China. In the case of clothing
imports, 89% currently originates from China,
3% from India and the remaining 8% from
the rest of the world while 60% of all made
up textiles (blankets, bed sheets, towels and
curtains) originate from China.7
This state of affairs begs two questions: First,
why didn’t the industry see the Chinese coming?
Neither the capabilities nor the intentions of
China should have come as a surprise. Did
the South African textile industry assume that
1.4 billion people were sleeping all day? And
second, why, instead of innovating its way out
of competitive submission, has the industry
reacted by pleading with the government on
bended knees for protection in the form of
more and tighter quotas and other measures?
wbs journal • july-september 2008

Developing timely, innovative strategies for
commercial success are, ultimately, the only
chance the textile – as well as other industries
– have at regaining their diminished standings.
A prime example is Zara, the flagship fashion
brand of Spain’s 9bn Inditex Group, which
boasts a growing network of some 1 150
stores in 68 countries. Zara does not attempt
to compete on the basis of low-cost against the
Chinese, India or other Asian states. (More than
70% of its production takes place in Europe).
Zara’s success is attributable, in large, to a
business concept based on the premise ‘that
national borders are no impediment to sharing
a single fashion culture’. What Zara has done
is translate this notion into a highly innovative
business model where “information from [the
company’s] stores is constantly transmitted
to a design team made up of over 200
wbs journal • july-september 2008
INTELLIGENT NEW STRATEGIES FOR NEW BATTLES
professionals, informing them of…customers’
[present and future] needs and concerns”. Zara
has not asked the Spanish government or the
European Union to protect it from the Chinese;
it succeeds by out-innovating and out-smarting
competition from the Far East.
The South African textile industry’s
experience is not, of course, unique. It is not
only once-thriving companies in South Africa
that have fallen prey to management’s failure
to systematically monitor, understand and
assess future threats. The executive leadership
of global giants such as General Motors, Kodak,
and Swissair have also suffered from the
blindspots associated with de facto arrogance
and thus, an unwillingness to routinely
integrate intelligence into their strategic
thinking and planning processes. Their
cognitive biases, rather than insistence upon
Wits Business School
hard truths, overshadowed their thinking and
behaviour. As a result the management teams
of these and many other firms now resting in
corporate graveyards everywhere were not
equipped to give serious consideration to how
and where innovation might help them achieve
competitive advantage, or how their rivals
intended to compete for the future. Consider
some of the specifics: including ‘special items’,
the once mighty GM Corporation reported
a loss of $38.7bn for 2007. For many years
Kodak’s overpaid executives continued to
regard Fuji and other makers of camera film
as their main competition even while the digital
revolution was taking place outside their factory
gates. And the once premium European air
carrier Swissair, despite 70 years in business,
apparently refused to believe the forecasts for
the competitive storms approaching their rich
91
 Wits Business School
INTELLIGENT NEW STRATEGIES FOR NEW BATTLES
mountain enclave as their company entered a
spiral dive into Switzerland’s most infamous
bankruptcy in 2001. Unfortunately for these and
many other leading firms, the innovation taking
place in their industries is clearly not being
launched from their boardrooms or marketing
departments. But how could it?
How in the absence of steady streams of
intelligence can managers even begin to act as
innovators? Innovation, or creativity generally,
seldom takes place in a vacuum. Even artists
feed on inspiration from somewhere, whether
tangible or virtual – sometimes a photograph,
sometimes a landscape, but always with a
unique interpretation of an event or scene,
real or imagined. Raw, especially open-source
(public domain) data and information alone
are not enough. Information does not in and
of itself leap onto a silver platter and hand
itself to the user proclaiming: “This is what
it all means for you”. Information priorities
need to be established, then collected from
all – including human – sources and, finally,
evaluated and interpreted before it begins to
resemble an intelligence product. Again, is this
what the firms you know are doing as part of
their routines?
In the corporate arena, Apple Computer,
ranked number one in Fortune magazine’s 2007
list of the World’s Most Admired Companies,
offers an excellent example of what it means
to create and implement winning strategies
based on a deep understanding of the world
around it. Since the return of Steve Jobs as
the company’s CEO in 1997, it has consistently
‘innovated its way out of the doldrums’8 by
means of strategic innovation. If Apple’s results
serve as any indication – 94% total return to
shareholders over the past five years – the
company appears to understand its competition
and its customers in equal measure, a powerful
Management must embrace
and nurture a culture of
intelligence in the firms
they lead and ensure that
it is integrated into the
organisational architecture
as a discreet discipline and
function.
92
recipe for continuing success. Although we are
1 Barsh, J., Capozzi, M.M., and Davidson, J.
not aware of the extent to which Apple relies
(2008) ‘Leadership and innovation’, The
upon a formal competitive intelligence function
McKinsey Quarterly, 1, pp. 37-47.
for strategic foresight and insight; what is
2 Hamel, G. (2007) The Future of
apparent are the company’s rare competencies
Management. Boston: Harvard Business
in looking outwards and in placing winning bets
School Press
on opportunities (think iPod and iPhone) its
3 Ibid.
rivals haven’t yet dreamed of.
4 Fisher, A. (2008) ‘The Worlds’s Most
So what remedies to strategic failure do we
Admired Companies’, Fortune (Europe
propose? Or expressed differently, what must
Edition), 157(5), pp. 37-44.
companies do to join the ranks of the world’s
5 Bernhardt, D. (2003) Competitive
most admired companies? While there are no
Intelligence: Acquiring and
ready-made templates, and a full discussion on
using corporate intelligence and
strategic innovation is outside the scope of this
counterintelligence. London: FT Prentice
paper, there are two important steps which we
Hall.
regard as prerequisites for success.
6 Porter, ME. (2008) ‘The Five Competitive
First, management must embrace and
Forces That Shape Strategy’. Harvard
nurture a culture of intelligence in the firms
Business Review, 86(1) pp. 79-93.
they lead, and ensure that it is integrated
7 http://www.texfed.co.za/main.htm (2008)
into the organisational architecture as a
(Accessed 12 March 2008).
discrete discipline and function. Innovation
8 Morris, B. (2008) ‘What Makes Apple
and strategy without intelligence are little
Golden, Fortune (Europe Edition), 157(5),
more than educated guessing games played
pp. 40-44.
at shareholders’ expense. Knowing the current
state of play in one’s industry and markets
is not enough. Managers need to be able to
assess and forecast the likely future impact of
competitors and other key players, as well as
a host of other environmental forces on their
businesses. Similar to its role in government,
a core purpose of the intelligence function is
to advance and protect organisational interests
and security. In part it accomplishes this by
warning about existing and potential threats
and explaining what these threats mean for
high-level policy formulation and actions.
Second, management innovation must be
regarded as much as an art as a science. Let
us return to the example of artists: although
they are generally measured in terms of the
unique interpretative qualities of their work
– the way they perceive reality or fantasy –
underlying their craft is a wide-ranging array of
professional skills and techniques. Creating the
next iPhone is a worthy corporate goal but only if
conceived of within a context of timely, objective
facts and analysis about the marketplace and
overall competitive environment. Zara and
Douglas Bernhardt is a guest lecturer at
Apple do not rely upon simple good luck, or
even rapid responses to environmental change,
WBS where he teaches an MBA elective on
Competitive Intelligence. He also teaches
they anticipate opportunities and threats, they
at the Rotterdam School of Management
set the standards of management, product, and
service against which other firms are forced to
and other leading business schools. His
professional time is divided between
benchmark themselves and they continuously
consulting on competitive intelligence and
modify their business models to conform to
analytically-derived estimates of unfolding
lecturing. He can be reached at stratcon1@
hotmail.com
futures. And they do so intelligently.
wbs journal • july-september 2008