 
Business is War. Make no mistake about it. It may not be as bloody, but it is still a matter of the survival of the fittest. More than 2,500 years ago in China, General Sun Tzu wrote “The Art of War,” a book that remains a classic on military tactics and strategy to this day. Even in those primitive years Sun Tzu recognized the importance of possessing accurate intelligence to win. He devoted an entire section of his book to the employment of spies “to gather foreknowledge” of the enemy’s condition and intentions. The type of information, he explained, that could not be obtained from “spirits, gods, calculations, or comparison with past events”; it could only be obtained from sources familiar with the enemy’s situation. He called these secret agents “The Divine Skein.” The treasure of a sovereign. He divided the secret agents into five categories: native, inside, doubled, expendable and living. Native agents referred to low-level penetrations of the enemy populace. Inside agents referred to higher-level penetrations of the enemy’s government or military. Doubled agents were enemy spies turned back against the enemy. Expendable agents were people hired to spread fabricated information among the enemy. Living agents were people recruited to infiltrate the enemy’s ranks and return with information. Sun Tzu cherished his secret agents. He protected them and he rewarded them lavishly. Things haven’t changed very much over the years. Today, the CIA’s clandestine service’s main raison d’etre is the recruitment and handling of foreign spies. In today’s parlance Sun Tzu’s five agent categories would be termed low-level and high-level penetration agents, double agents, covert action agents and access agents. Yes, things really haven’t changed at all. After all, espionage is the second oldest profession. Nothing is more valuable to our national defense than a well-placed penetration of an enemy government or military. Human spies can provide us with the intentions of an enemy; most technical forms of intelligence collection (satellites, overhead photography, communications intercepts, etc.) can only tell us what the enemy is doing at the moment. Another step must be added to the process to seek intentions. It’s called analysis. Human intelligence collection (called HUMINT in the trade) remains the most efficient, economical and effective way to collect information. We should not, however, overlook other collection methods available to us. Things that were not available to Sun Tzu back in the dark ages. Specifically, these methods include the use of open source information available on computer databases, the internet and elsewhere. For business intelligence the decade of the 90s brought with it the advent of the personal computer, the related World Wide Web and the exponential spread of databases containing readily available, cheap information. Even in the government today, the problem is not a lack of information, it is the lack of qualified analysts and translators to put the information into usable form. There is a glut of information out there. This has made it possible to obtain information on individuals and companies, domestically and internationally, quickly and cheaply from a desktop PC. Only a few short years ago the collection of the same information would require hours of lugubrious effort rummaging through 3x5 cards in a library and days pounding the pavements in search of knowledgeable people to interview about a particular subject. A process so time intensive and expensive that most companies decided against any investigation at all. They just went with their gut feelings; simply crossing their fingers and hoping for the best. There is no reason to do that today. Think about it for a moment, every major country on earth recognizes the need for intelligence and employs an intelligence service to collect it for them; every army on earth collects information on opposing forces and terrain, and they have since before the time of Sun Tzu. It follows that American businesses should do the same, particularly abroad where the terrain is less familiar, the rules of engagement are different and the competition has the home-field advantage. Add to this the relative ease and economy with which this information can be gathered, and you’ve got a no-brainer. Then why do so many companies continue to neglect this aspect of competition and try to wing it? Simply put, they are often reluctant to spend additional funds to collect information they thing they can probably get by without. Sun Tzu would turn over in his grave. The value of thorough, objective intelligence has been recognized since time immemorial; those who knew this fact were successful; those who didn’t were losers. Back in 500 BC, Sun Tzu knew about the importance of collecting intelligence to know his enemy. The same thing applies in today’s corporate world where the importance of knowing the operating environment and the competition cannot be overstated. It’s truly the key to success. General Sun Tzu Sun Tzu was not just a bespectacled Chinese academician who spent all his time reading books and pontificating to the King’s Court about tactics on how to win battles. He was a hands-on combatant who rose to the rank of General by ruthlessly applying the principles of warfare and espionage he had devised over the years and set down in his book, The Art of War.
To give you an idea of the kind of man Sun Tzu was:
about 2,500 years ago Ho-lu, the King of Wu, asked Sun Tzu –
rhetorically – if he could train women in the same manner he trained
men. Sun Tzu replied that
he could. To test the
general, the King assigned 180 beautiful young women from the palace
to Sun Tzu’s army with instructions to teach them troop movement
techniques. Sun Tzu divided the women into two companies and placed the King’s two favorite concubines in command of each company. He began to train them in the basics of close-order drill. He said, “When I give you the order ‘Front,’ face in the direction of your heart. When I give you the order ‘Left,’ face toward the left hand, and when I say ‘Right,’ face in the direction of your right hand. When I say ‘Rear,’ face in the direction of your backs.” Sun Tzu went over all this a few times to make sure everything was clear, and asked them if they understood. They replied that they did. He then called the two companies to attention and gave the command: “Face Right,” and the women all burst into laughter. He settled the women down and said: “Okay, if my instructions were not clear, then it is my fault. Commanders must make sure their instructions are clear.” So Sun Tzu repeated the orders three more times, explained them five more times, and asked if they now understood the commands. They replied that they did. Then he gave the command: “Face Left,” and the women burst into laughter once again. Sun Tzu settled them down again and said: “If instructions are not clear and commands not explicit, it is the commander’s fault.
But when they have been made clear and are not carried out, the
fault lies with the officers in charge of the companies.”
He then ordered the two company commanders (the king’s
favorite concubines) beheaded in front of their troops. Sun Tzu didn’t stand for any nonsense. There were, of course, repercussions to Sun Tzu’s actions; the King was pissed! Sun Tzu explained to Ho-lu that as Commander his orders were final, and admonished the King for trying to interfere with the tactical decisions of his Commander. He then asked the King to watch him drill the two companies. Sun Tzu selected two more women to lead the companies and began to drill the troops. He commanded them to face left, right, forward, and back, etc., and the women responded in strict accordance with the prescribed drill and not a giggle was heard from their ranks. He then told the King: “The troops are now in good order. They may be employed as the King desires, and they will even go through fire and water without a challenge to an order.” The King soon got over his pique and Sun Tzu went on to win battle after battle for the Kingdom of Wu. He defeated the strong state of Ch’u to the west and subjugated the states of Ying, Ch’i and Chin to the north. The Kingdom of Wu ruled supreme in that part of China for the next 100 years due to Sun Tzu’s military achievements. And today Sun Tzu’s lessons are still being studied by military and business leaders alike. Defeating the Enemy Business is war. Make no mistake about it. It may not be as bloody, but it is still a matter of the survival of the fittest. The tactical lessons espoused by Sun Tzu so long ago are as applicable today as they were then; witnessed by the fact that the US Marine Corps still requires every one of its officer candidates to read The Art of War. In order to survive in today’s cutthroat business environment, we must be properly armed. And one of the most important arrows in the businessman’s quiver is accurate knowledge of his competitors and business environment. In other words, detailed knowledge of the enemy and the terrain of the battlefield. Just think about it for a moment: Every major country on earth recognizes the importance of intelligence and employs an intelligence agency to collect it for them. Over 2,500 years ago Sun Tzu wrote: “If you know the enemy and know yourself, you need not fear the result of a hundred battles. If you know yourself but not the enemy, for every victory gained you will also suffer a defeat. If you know neither the enemy nor yourself, you will succumb in every battle.” Frederick The Great also expressed his opinion on the importance of intelligence when he said: “It is pardonable to be defeated, but never surprised.” In today’s highly competitive business world it is becoming more and more important to know your competition—know your enemy—and, particularly in the international arena, know your battlefield. There are minefields out there, and it is imperative to be able to identify and avoid them. As Sun Tzu pointed out, you can still lose, even when armed with superior forces, if the terrain is against you. Possessing accurate intelligence is like having a flashlight in the dark. It won’t remove any of the obstacles in your path, but it will illuminate them so you won’t stumble over them. Being Prepared Realizing the importance of good, solid intelligence is the first step toward being prepared. The second step is employing experts to collect that intelligence. Some companies (W.R. Grace, AT&T for example) have special competitive intelligence units within their organization structure. Others hire professional consultants from outside of the organization to handle their intelligence collection requirements or augment their efforts. Either way, the craft of intelligence gathering and analysis is sufficiently arcane that it should be left to the experts. CIA case officers, for example, spend about a year at “The Farm,” its covert training facility, attending formal intelligence training courses before being released to employ their skills abroad. Part of what they learn is how to collect information discreetly through the use of clandestine tradecraft methods, how to evaluate the sources of that information, and how to report that information accurately, objectively and dispassionately. The FBI and some police departments also run intelligence collection courses for their officers. The main difference between the CIA training and the FBI/police training is that the latter places more emphasis on techniques that utilize the power of the badge, while the CIA employs a more covert approach, relying more heavily on the use of cover and deniability to assure a greater degree of discretion in its collection efforts. Companies employing in-house resources often have difficulty in obtaining objective information because of problems with training, resources and vested interests. Company personnel are usually not trained in intelligence collection techniques, the companies usually do not have the requisite resources (computer databases, personal contacts, etc.) to collect the information it needs, and, finally, employees with a stake in the company’s output will almost certainly lack the objectivity to report information accurately, without bias. The tendency is to paint pictures that support company policy or please superiors. This is precisely why professional intelligence consultants from outside the organization should be called in to handle the most sensitive intelligence gathering missions. Categories of Business Intelligence Generally, business intelligence can be broken down into three main categories: Risk Analysis, Targeted Collection and Counterintelligence. Risk Analysis is general background information that a company needs to know to operate securely and effectively in an unfamiliar environment (usually international) where economic, political, criminal, insurgent, labor or other forces could adversely affect a company’s operations. This is usually multi-source, analytical-type information. It is designed to prepare a company for all eventualities, and to allow it to operate with “no surprises.” Targeted Collection is specific information the company can use to increase its productivity or market share. Market analysis, due diligence, background investigations on potential partners, employees and others, and competitor intelligence all fall into this category. Counterintelligence is information collected to protect a company’s assets. For example, when proprietary information on a company’s process, patent, copyright, product, etc. is leaked, pirated, copied or outright stolen by a competitor, there is a compelling need to plug the leak and prosecute the offending parties. The purpose of counterintelligence is to collect information that will identify the spies within the company and the organization behind them and to provide enough evidence on the culprits to obtain convictions or press suits in a court of law. This may sound unbelievable, but the White House estimates the US economy loses $100 billion (that’s billion with a “b”) a year due to industrial espionage and the theft of proprietary information. Risk Analysis in Ethiopia Let me give you an illustration of all of this. When I retired from the Agency in the fall of 1990 I had barely unpacked my bags in Palm Beach when the phone rang. The call was from the Agency’s Career Transition Center, a place through which all retiring CIA officers pass on their way out of the Agency womb and into private life; the Center helps these officers find new lives after the Agency. The officer at the other end of the line explained that she had received a call from Maxus Energy, a Fortune 500 gas and oil exploration company headquartered in Dallas, Texas. She explained that Maxus wanted to be put in contact with someone knowledgeable about Ethiopia. That’s all they would tell her. Since I had served there as CIA chief a few years earlier, she asked if it would be okay for her to give Maxus Energy my name and phone number. I said sure. Shortly thereafter I was contacted by Maxus’ Director of Corporate Security, David Burton. David told me that Maxus Energy’s petroleum engineers and geologists had found strong indications that significant reserves of gas and oil existed in the Ogaden region of Ethiopia, and they wanted to go there and look for themselves. The only problem was that no one in the company knew the first thing about Ethiopia; they were pretty sure there was oil there, but they didn’t have a clue about the Ethiopian operating environment or the security situation in the Ogaden (a very rough place at the time). This is where Risk Analysis enters the picture; something that points out the general obstacles to operating securely in the country. The risk analysis I wrote for the company included multi-source information derived from interviews with Ethiopian sources, computer databases, news archives and wire-services, State Department databases and officials, economic publications and first-hand analysis. It covered the political situation (Was the current regime stable? If not, would a replacement regime honor previous commitments?), economic situation (How stable was the Ethiopian Birr? Could the local currency be moved out of the country freely? Should contracts be written in Birr or US dollars?), insurgency (What dangers did it have for exploration teams in the Ogaden? What type of security would be required to lessen the threat?), street crime (How should residences and equipment be protected?), and a general realities brief on the Ethiopian culture and people. In short, the assessment provided Maxus’ executives with a flashlight. It allowed them to move into a dark, unfamiliar area with few surprises. They knew what to expect, and they could now weigh the anticipated risks against the possible gains if they struck oil. They had the information they required to make informed decisions about the venture. Target on Somaliland I worked with Maxus Energy for the next two years providing them with a steady stream of information and guidance on how to work safely and securely in Ethiopia and particularly the very dangerous Ogaden region. Then, one day about half-way through this period I received a frantic call from David. He said Maxus’ board of directors wanted to know if Maxus Energy could obtain drilling concessions in Northern Somalia, just over the Ogaden border from where they were currently exploring. He was quick to add he was not interested in “the Mogadishu” Somalia; he wanted information on “Northern Somalia,” a breakaway state with its capitol at Hargeysa that called itself “The Somaliland Republic.” I was well aware of the problems that existed in Northern Somalia from my days in Ethiopia. The area known in colonial days as British Somaliland was in a state of total anarchy. It was waging an all-out was with the Mogadishu government which opposed its secession, and tribal leaders were fighting an internecine war among themselves as they vied for positions of leadership and control. The government (what there was of one) couldn’t collect sufficient taxes and therefore had little money to pay its army, let alone its public servants. And to make matters worse, the border region where Maxus wanted to explore was populated by bandits and littered with land mines left behind from years of border skirmishes. My risk assessment pointed out all of these facts, but despite the grim picture the assessment painted, Maxus decided to take the investigation a step further. The company wanted “targeted collection.” It specifically wanted to know whether any drilling concessions were available along the Ethiopian/Ogaden border (they had heard that all concessions had been leased), and if so, could they obtain one and how much would it cost them. This was information not readily available. Public records were scattered, incomplete and in many cases inaccurate. Access to them would require “baksheesh” (bribes) to induce unpaid public servants to search for the records, and the help of a high-level source within the government, preferably within the Ministry of Mining and Water, to obtain the information. I sent the requirement to one of my Ethiopian sources and asked him if he knew anyone who could handle the request. He replied that a friend of his, and ethnic Somali from the port city of Berbera had direct access to none other than the current Minister of Mining and Water, Mohammed Ali Ateye. He said Ali Ateye was a relative and that they both belonged to the Issaq tribe. This news was manna from heaven. He could answer all of our questions and he also had it in his power to make whatever arrangements he wanted. A meeting with Ali Ateye was subsequently arranged in neighboring Dijbouti and the two “access agents” took off from Addis Ababa on their mission. They spent two days drinking, carousing, chewing khat (a mild native narcotic); and talking… When they returned to Addis Ababa they reported the results of their meetings with the minister. In short, as Maxus had suspected, most of the concessions had been leased to major oil companies including Texaco, Conoco, Phillips, Chevron, Amoco, and Agip. These leases were nailed down and could not be broken. However, according to the minister, there was one lease held by a firm called Alliance Exploration, Inc. our of Alliance, Nebraska that held a prime concession in the Burao region direct across the border from one of Maxus’ Ethiopian exploration sites. He revealed that his agreement with Alliance Exploration could be broken if necessary because Alliance had failed to fulfill certain terms and conditions of the agreement. He added that he would agree to terminate the agreement in favor of Maxus Energy if Maxus was interested in picking it up. He indicated that Maxus would only have to pay “the going rate” for the concession, but the sources reported that a “commission” would have to be paid to Ali Ateye as well. Armed with this information the Maxus board reconvened to discuss the pros and cons of investing in The Somaliland Republic. They again considered the risks outlined in the risk assessment, and the cost (including an illegal bribe to a government official) and decided against the venture. I have no idea whether Maxus Energy now regrets that decision, but I do know it was based on the best information available to them at the time. Looking at the situation with the benefit of 20/20 hindsight, the deterioration of both Somali governments in the months and years that followed (Remember the fiasco of our own military intervention there?) would seem to indicate that Maxus is still counting its blessings that it didn’t charge headlong into that morass. Counterfeit Ray Bans The third category of business intelligence, counterintelligence, is the flip side of the intelligence coin. It is a huge subject and concerns every company with intellectual property that can be stolen. As I mentioned earlier, it is a $100 billion dollar-a-year industry. Counterfeiting and product rip-offs, for example, are a growing, nasty industry. Microsoft alone loses hundreds of millions of dollars each year through the illegal manufacture and sale of rip-off copies of its software. For many years Taiwan has been a major source of illegal copies of books, video and audiocassettes, software and everything else imaginable all the way to Polo shirts and Levis Jeans. How can this all be stopped? Not easily. But I will give you an example of an operation that sought to shut down the illegal sale of counterfeit Bausch & Lomb products in Ecuador. In mid-1994, Bausch & Lomb became aware that cheap knock-offs of its Ray-Ban Wayfarer, Aviator and other models of sunglasses were appearing in market kiosks near the Hotel Intercontinental in Quito. We were asked to determine if, indeed, counterfeits were being sold; and if so, to determine the source of the supply, the distribution network and, finally, to urge the police to confiscate the rip-offs and arrest the criminals behind the activity. We first had one of our local sources visit the kiosks and shops in the area with instructions to photograph counterfeit glasses on display, and to purchase examples from each place to be used as evidence. The source identified and photographed several locations, including such prominent shops as Taty, Scarlett and Sacos where he found the rip-offs being sold at an average price of $15 per pair. Then, through elicitation from vendors, he learned that the frames and cases were being shipped into Ecuador via sea from Panama and overland from Columbia, and that the lenses were ground and fitted at a location in Guayaquil on the coast. Further investigation and surveillance revealed that there was a warehouse in the market area called Ipiales Martek. The warehouse was owned by one Lenin Martinez, who belonged to a co-operative called Libertad, Paz y Justicia (Liberty, Peace and Justice), which was known to be involved in black market activities. The source subsequently confirmed that Mr. Martinez was the largest distributor of counterfeit Ray Bans in Quito. Armed with this knowledge and in close co-ordination with our client, we contacted the US Embassy and urged them to make a démarche to the Ecuadorian government under the US Trademark Counterfeiting Act of 1984. We wanted the Embassy to pressure the Ecuadorians to raid the kiosks and shops, arrest the individuals involved, confiscate the counterfeit sunglasses and destroy them. The US Embassy’s actions were (predictably) not very strong, however, and resulted in the confiscation and destruction of only a few cases of sunglasses, and no arrests. The fact that billions of dollars are lost each year to counterfeiters of this ilk, an amount that includes lost product sales, jobs and policing costs, is somehow lost on a government with larger problems (narcotics, etc.) on its mind. The burden for counterintelligence activities of this sort must therefore rest with the companies that are being hurt. Generating Intelligence Requirements Within the US government, intelligence collection requirements are generated by the White House, Pentagon, State, Justice and other departments. In the business world they are generated by company CEO’s and other senior managers. These individuals usually know exactly what information they ought to have to insure the trouble-free efficient running of their businesses. They may also know where to look for unique business information that would give them the competitive edge they desire; they just do not know how to go about collecting it. Intelligence collection is a systematic process that requires excellent analytical skills and employs proven methods that assure, to the extent possible, the accuracy of the information obtained. The process begins with the requirement. What is the question? Exactly what does the CEO want to know? This is an important step in the process. It forces the CEO to analyze the problem and refine it from “I want to know everything there is to know about my competitor” to “What is my competitor’s strategy to obtain the XYZ contract in Jakarta?” or “What plans does my competitor have to enter the widget market in Latin America?” Once the requirement is defined, the next step is to do a target analysis. In other words, to examine the competitor organization with an eye towards identifying where within the organization would the information be normally held (marketing department, research and development staff, legal department, etc.). Once this is established, the scope is narrowed further down to the individuals within the target department. They are then investigated and assessed to determine who would be the most knowledgeable and accessible source. Finally, when the target individual is selected, an operation is designed to extract the information from him or her. This usually requires the use of covert collection techniques including elicitation, debriefing, the use of a suitable cover for the inquiries, and other overt methods including database searches, interviews of other knowledgeable sources, and the like. Thus, the intelligence process, whether in government or industry, involves four major steps:
This is the most efficient and efficacious approach to intelligence gathering and analysis. It is the technique used by the CIA and other government intelligence agencies, and it is the proper way for industry to collect business intelligence. The Government’s RoleBut all of this begs the question: If the collection of business intelligence is sufficiently arcane as to be left to the experts, and if the government (CIA, etc.) is expert in the field, why then won’t the government collect it for the industry? After all, some countries have been aggressively involved in intelligence gathering activities targeted against other countries’ industry for many years. Some of these activities have even crossed the line into illegal, state sponsored, industrial espionage. (The main difference between industrial espionage and competitive intelligence gathering is that the former uses illegal collection methods like electronic monitoring, trespass, theft, etc., while the latter does not.) In fact, there has been considerable debate, for instance, within the US government, and the CIA in particular, on this very issue. It began in earnest back in 1990-91 when the Soviet Union collapsed and it was thought that the CIA could be retooled away from Soviet collection activities to helping the failing US economy with needed business intelligence. Debate continues to this day. Unfortunately, however, there is very little chance that the US government (particularly the CIA and NSA) will ever get involved in the routine collection of business intelligence for US industry. The problem is that the very nature of clandestinely acquired information makes it classified—not for dissemination to the general public—because sensitive sources and collection methods must be protected. So if the decision were made to collect business information and disseminate it to companies outside of the intelligence community, to whom would the information be entrusted? Certainly not to all of the companies. But then which ones? And to whom within each company? Only the CEO’s? Could we trust them not to disseminate the information down to the rank and file? Probably not. There is also a strong argument against the idea of diverting scarce government intelligence gathering resources away from the national defense to the private sector, and the ethical conundrum of asking CIA case officers to spy for IBM rather than the White House. This is not to say that the CIA and other law enforcement agencies will not fight to prevent illegal industrial espionage in this country, or that it will fail to alert a major company if they learn, inter alia, that some very unfair business practices (payment of bribes, etc.) were hurting US companies’ chances to compete fairly in a particular country. It only means that the government will not develop and fund a program to collect business intelligence for any companies. Thus, if a company wants to collect information that will help it level the playing field and perhaps give it a competitive edge over a foreign company, it must use its own resources. The Urge to Wing It Managers who choose not to do their homework before they embark on a course of action are doomed to failure. Successful people always do their homework. Years ago, when I was teaching the craft of intelligence to new CIA officers down on “The Farm” I discussed the concept of thorough preparation as the single most important key to success in the intelligence business. I explained that although all good operations officers certainly have the ability to “wing it” when necessary, the best officers never go into a situation with that intention. They try to prepare for every possible eventuality in advance, and then only have to improvise when a real unexpected curve is thrown at them. That is good advice for any business. To quote Sun Tzu once again, he said: “To remain in ignorance of the enemy’s condition simply because one grudges the outlay of a hundred ounces of silver…is the height of inhumanity.” Perhaps it would be more accurate if the word stupidity were substituted for inhumanity.
The military advice that Sun Tzu espoused so long ago applies
equally to today’s business. Know
your own and your competitor’s capabilities, and know your
battlefield. Armed with
this knowledge, you cannot lose—the worse thing that can happen is
that you decide not to engage. |
© 1995 - 2009 CTC International Group, Inc.
