Spy Games

Why companies engage in an arms race of "competitive intelligence."
Spy Games
IN NORMAL CIRCLES, it’s considered bad form for people to spy on their neighbors. But among competing companies, it’s often standard practice. They conduct a form of corporate spying called “competitive intelligence” (CI), even though there is little evidence that it serves any benefit, according to a study by Patrick Reinmoeller of Cranfield School of Management and Shaz Ansari of Cambridge Judge Business School, both of the United Kingdom. Reinmoeller and Ansari define CI as “legal practices of gathering market information that have sometimes been associated with legal infringements and espionage.”

The pair examined thousands of articles and interviewed CI practitioners, including consultants, regarding the activities of U.S. Fortune 500 and S&P 1,200 companies between 1985 and 2012. They found that, despite the risk of stigmatization, CI persists for three reasons. First, companies “construct usefulness” around the practice, meaning that they use it because their leaders think it creates a climate of “fear, uncertainty, and doubt” among their competitors. Second, companies are able to pursue CI “under the radar” of external scrutiny. Finally, companies develop multiple CI strategies to promote a “diversity of interpretations” of their actions.

Many companies simply fear making themselves vulnerable if they abandon the practice, which leads to a kind of “arms race” in many industries, the researchers explain. “Breaking with standard industry practice creates perceived risks arising from unilateral abandonment,” they write in the study. “Companies may persist with a practice, not just because of perceived benefits, but because of an overestimation of the extent to which others hold this assumption.”

“The Persistence of a Stigmatised Practice: A Study of Competitive Intelligence” has been accepted for publication by the British Journal of Management.