Many companies confuse competitive intelligence with competitor intelligence. The latter is a sub category of the former, which includes competitors only (while the boarder, competitive category, includes all High Impact Players in one’s market). This confusion limits the usefulness of CI professionals, and the benefits firms can derive from their CI functions. However, this is only half as bad as the fact that most companies who do engage in competitor intelligence actually confuse competitor intelligence with competitor watching.

Competitor watching is like bird watching: an interesting hobby with no clear long term bottom line effects. Those engaged in competitor watching observe the facts and then report. Companies focusing on this type of intelligence measure the effectiveness of their CI activities based on speed of reporting to the right people, typically sales or occasionally marketing managers. The benefits are accordingly reactive. In industries where companies converge competitively by imitating each other, responding fast can have some real (though transitory) benefits.

For companies who believe in creating sustainable competitive advantage, competitor reporting is typically of lower urgency. For those companies where competitive positioning plays an important role in delivering consistent superior returns to stakeholders, proactive strategic moves are more important than always reacting to competitors’ moves after the fact. Preemptive maneuvers aimed at strengthening a competitive position require competitor intelligence not competitor watching.

Competitor intelligence focuses on predicting competitors’ moves and countermoves. Predictions require understanding competitors’ moves in context. The context should be a theory of understanding competitor behavior.

Can you predict 100% of competitors’ moves? No. The reason is not only that to get to that level you need inside information which is illegal. The reason is much more prosaic: think of your own company. Can you predict your own executives’ decisions with 100% accuracy?

But the question is actually irrelevant. You don’t need 100% accuracy to improve your plan’s odds of success. All you need is a realistic and pragmatic assessment of their most likely responses.

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Competitors’ moves do not happen in a vacuum. They happen within the context of your industry, or market. You’d be surprised how well market analysis allows you to frame competitors’ actions, and how important this is for your own plan. Competitors attempt to win over customers just like you do, and they are aiming at capturing market trends early enough. Understanding where they stand in relation to market changes yields insight on their management concerns and future drives.

Predictive theory of competitor’s behavior

Over the years, management gurus and academics proposed various frameworks to predicting competitor’s strategies, from McKinsey 7s, to BCG growth-share matrix, to GE’s variation on those, but none has come even close to the predictive power of Michael Porter’s pioneering Four Corner Model.

The full exposition of Porter’s model can be found in his seminal book, Competitive Strategy (Free Press, 1980). In recent years, a growing body of research on human cognitive processes adds strong support to Porter’s modeling. This combination of psychology, neuroscience and strategic modeling gives you powerful tools in the quest to predict competitors’ moves and responses.

The beauty of Porter’s work is that it is actually a behavioral-economic perspective on company’s behavior. Behavioral economic theories are relatively new. Early on, Porter understood that competitor’s observed behavior in the market such as its current strategy and its capabilities are necessary but not sufficient to predict its future behavior. A significant part of future strategy is a continuation of current strategy, as most companies run on inertia. Using current strategy and capabilities to predict future strategy and capabilities is the common practice in almost every firm. It’s the most intuitive type of prediction. However it fails to consider real world executive decision making which is anything but fully rational. The reason was that in reacting to market changes or competitors’ moves, companies often act out of motives and assumptions which reflect history, personality and characteristics different than full information, "preference optimizing" equilibrium solution (this is economists’ lingo). Despite being an economist by training, Porter realized deliberate, rational decision making was often the tip of an iceberg. He strongly advocated a mix of behavioral theories in predicting economic behavior. Porter called for understanding what motivates the competition by examining drivers of corporate behavior and the mind set of company’s decision makers (a.k.a "management assumptions"). In his analysis, he included goals, internal culture and value system, executives’ background, organizational dynamics, historical roots and commitments, board members’ profiles, identity of the consulting firms habitually influencing executive thinking, attitude toward risks, as well as management beliefs about the industry and its own position in it. In the broadest sense, Porter was advocating a closer look at what neuroscientists term automatic or unobserved processes, underlying observed behavior.