The Role of Ethics in Gathering Corporate Intelligence

William Cohen Helena Czepiec

ABSTRACT. This paper analyzes business people's attitudes towards the tactics used for gathering competitive corporate intelligence both within their own and their competitors' corporations. Business people in large corporations are highly motivated to gather such intelligence. Their attitudes towards the ethicality of specific practices, however, are influenced by the corporate culture, their perceived effec- tiveness of the techniques, and their perception of the competitors' tactics. Interestingly enough, the most popular technique for securing information is socializing with competitors in nonbusiness settings. Business people gen- erally view their competitors negatively, believing that they go to much further lengths than does their own corporation in gathering competitive intelligence.

Background

The lifeline of effective strategic planning is the infusion of high quality competitive information. To insure such quality, experts recommend that companies develop alternative intelligence sources, scan multiple aspects of the environment, and sensitize employees to the necessity of intelligence gathering (Montgomery and Weinberg, 1979).

How do companies actually collect competitive intelligence? There is more speculation than docu- mentation about the vast amounts that are being

William Cohen is Professor and Chairman of the Marketing Department at California State University, Los Angeles. He has won the Outstanding Professor Award 1982-83 and Freedom Foundation of Valley Forge Medal for Excellence in Economic Education 1985. He is the author of some 15 books in marketing and business of which the most recent is Developing a Winning Marketing Plan.

Helena Czepiec is Associate Professor at California State University, Hayward. She is the author of several articles which appeared in various journals on marketing and advertising.

spent on tactics ranging from electronic eavesdrop- ping to encouraging loose talking executives (Lebolt, 1982; Time, 1982). The few systematic studies available have been conducted by the American Marketing Association and have been limited to traditional marketing research activities (Twedt, 1987).

There is also a surprising lack of information on the attitudes of the company personnel who have been identified as the key sources for gathering intelligence (Montgomery and Weinberg, 1979). Again research has been confined to measuring marketing researchers' and marketing research exec- utives' attitudes towards specific marketing research activities, especially as they impact on their clients (Bezilla and Haynes, 1976) or on the rights of the consumers or experimental subjects being studied (Tybout and Zaltman, 1974; and Day, 1975).

Purpose o f s tudy

Unlike previous studies, this one focuses on gather- ing competitive corporate intelligence. It attempts to measure the extent to which business people in large corporations believe that their own as well as other companies use competitive intelligence gathering techniques. It also analyzes whether the respondents view these techniques as being ethical and to what extent their views are shaped by the corporate culture.

Previous studies have found mixed results when assessing the ethical bdiefs of business practitioners. Some studies have found that managers and their employees tend to agree about the ethicality of certain marketing research activities but not of others (Carroll, 1975; Crawford, 1970). Ferrell and Weaver, on the other hand, found that employees

Journal of Business Ethics 7 (1988) 199--203. © 1988 by D. Reidel Publishing Company.

200 William Cohen and Helena Czepiec

considered themselves as being more ethical than their top management in specific business practices.

Nature of hypotheses

To determine whether there is a relationship be- tween employee ethics and company practices, three hypotheses are tested:

(1) There is no difference between the practices the company uses for collecting competitive intel- ligence and the practices the employees would condone.

(2) There is no difference between the ways in which businessmen believe their own companies collect competitive information and ways other companies do so.

(3) There is no difference between the practices the business people say they would perform and what they believe that other companies do.

Methodology

The data are based on questionnaires administered to 451 participants in seminars on gathering com- petitive intelligence. The seminars were conducted by Washington Researchers, a major firm conduct- ing intelligence studies and seminars on this topic. The respondents represent a total of 127 firms, 18 consumer goods companies, 19 services, and 90 industrial product companies of which 22 manu- facture chemicals and plastics and 21 electronics. Thirty percent of the firms had sales between $5 million and one-half billion dollars; 14 percent between one-half billion and one billion dollars; 38 percent between one and five billion dollars; and 18 percent over five billion dollars. Due to the sensitive nature of the research, no individual respondent can be identified.

Each participant was asked to evaluate their likelihood of using seven alternative practices if they were assigned to find out everything possible about the finances, products, and marketing strategies of their company's closest competitor. The seven alter- native scenarios include:

(1) Researcher poses as graduate student working on thesis. Researcher tells source that dorm phones

are very busy, so researcher will call back rather than having phone calls returned. In this way, researcher's real identity is protected.

(2) Researcher calls the Vice-President while s/he is at lunch, hoping to find the secretary who may have some information but is likely to be less suspicious about researcher's motives.

(3) Researcher calls competitor's suppliers and distributors, pretending to do a study of the entire industry. Researcher poses as a representative of a private research firm and works at home during the project so that the company's identity is protected.

(4) The competitor's representative is coming to a local college to recruit employees. Researcher poses as a student job-seeker in order to learn recruiting practices and some other general information about the competitor.

(5) The researcher is asked to verify rumors that the competitor is planning to open a new plant in a small southern town. The researcher poses as an agent from a manufacturer looking for a site similar to the one that the competitor supposedly would need. Researcher uses this cover to become friendly with local representatives of the Chamber of Com- merce, newspapers, realtors, etc.

(6) Researcher corners a competitor's employee at a national conference, such as the American Marketing Association, and offers to buy drinks at the hotel bar. Several drinks later, the researcher asks the hard questions.

(7) Researcher finds an individual who works for the competitor to serve as informant to researcher's company.

In order to assess the business people's attitudes and awareness of these techniques, they were asked the following three questions concerning each alter- native:

(1) Would your company encourage or condone the use of the technique? This was a measure of the practitioners' awareness of the extent to which their companies engaged in gathering competitive intel- ligence.

(2) Aside from your company's policies, would you personally feel comfortable using the technique? This measured their appraisal of the ethicality of the particular techniques.

(3) Do you believe that other companies in your industry would use the technique in trying to find

Gathering Corporate Intelligence 201

information about your company? This measured their beliefs about how widespread the techniques were in the industry.

TABLE I Evaluation of personal vs. employer's vs. competitors' ethics

of competitive intelligence gathering

Findings

Respondents believe that their own companies con- done and pracnce certain intelligence gathering techniques more frequently than others. Over half believe that their own companies are likely to obtain information by wining and dining the competition and by calling secretaries when they feel the boss might be gone (Table I).

Perhaps the companies feel more comfortable using these two methods more than the others since the competitor provides the information more or less freely. The acceptance of using liquor for plying information may also be an indication of how ingrained socializing is in the corporate culture.

Respondents believe that their own companies are least likely to use informants or to pose as student job-seekers (Table I). These tactics may be used infrequently for different reasons. The former may be perceived as being blatantly illegal, while the latter as being ineffective and therefore a waste of time.

There is significant agreement between the competitive intelligence gathering techniques the respondents condone and the techniques their com- panies are likely to practice. Like their employers, the respondents feel that wining and dining and calling the secretary are the most acceptable prac- tices. Using an informant, posing as a student job-seeker, and visiting a proposed competitive manufacturing site are the least acceptable (Table I). Indeed there is a nearly perfect correspondence between the rank orders of the techniques thought to be used by the company and the techniques condoned by the employee (Table I).

Respondents also believe that competitors are most likely to use socializing and least likely to use posing as a student job seeker to obtain competitive information. However, the respondents believe that the competition is always more likely to engage in any one of these activities than is their own company. For example, 70.5 percent believe that the competition uses the least popular of the scenarios,

1. Pose as graduate student

2. Telephone while

V.P. at lunch

A B C A/B A/C B/C

39.3% 45.9% 85.6% * * *

62.6 65.3 86.0 * *

3. Pose as private 41.8 46.8 88.3

research firm

4. Pose asjobseeking 32.6 38.4 70.5

college student

5. Visit proposed 36.3 36.1 79.6 manufacturing

site

6. Buy drinks 63.2 59.6 91.1

7. Use informants 34.9 37.5 80.0

A. Method my company uses. B. Method I condone.

C. Method competitors condone. * Indicates a significant difference at the 0.05 level based on

a two tailed t-test in the percentages of respondents

indicating agreement.

posing as a student job-seeker, compared to 32.6 percent who believe their own company does so. About 91.1 percent believe the competition acquires information through socializing, the most popular technique, while only 63 percent agree that their own company does so (Table I).

It is also important to recognize that a significant number of respondents condone or practice every single intelligence gathering technique listed. Some 36.1 percent condone the least popular technique while 65.3 percent condone the most popular one. Between 32.6 percent and 63.2 percent of the re- spondents believe that their employers use every method while between 70.5 percent and 91.7 percent believe that their competitors practice every method.

The corporate culture has a strong effect on employees' attitudes towards gathering corporate intelligence. Hypothesis 1 is accepted. For all but two of the alternatives (1) posing as a graduate student and (2) posing as private research firm to conduct a survey of competitors, there is no significant differ- ence using two-tailed t-tests in the percent of practitioners who would use the technique and the

202 William Cohen and Helena Czepiec

percent who report that their employers would use it (Table I).

Practitioners seem to bring in line their views of what is acceptable with what they perceive to be the company's standards. What is difficult to determine, however, is whether the employees are imposing their standards on the corporation or vice versa.

Indeed, the practitioners may be somewhat more tolerant of these practices than they perceive their companies to be. For example, with "the exception of socializing and visiting a competitive manufacturing site, a slightly higher percentage of the employees say they would use the technique than report that their companies would use it (Table I).

Practitioners believe that other companies are much more likely to engage in all the competitive intelligence gathering techniques described than are their employers. Hypothesis 2 is rejected. The dif- ference in the percent of agreement is significant at the 0.05 level using two-tailed t-test for all seven scenarios. Moreover, over 70 percent believe that even the least popular technique, posing as a job- seeking college student, would be used by the competition. This is more than double the percent who believe their own company would use the technique (Table I).

Practitioners also believe that other companies are much less ethical than they personally are. Hypoth- esis 3 is therefore rejected. In all cases, a significantly higher percentage of practitioners believe that the competition uses the specific techniques than admit to having used the techniques themselves.

Based on the comparison of practitioners' percep- tion of the competition practices versus their own practices, it appears that organizational influences may have an impact on intelligence gathering activities. Practioners' negative assessment of the competition may lead them to be more tolerant of such activities in their own environment.

Conclusions

This study sheds more light on the extent and ethics of gathering corporate intelligence. Practitioners are sensitive indeed to the importance of collecting com- petitive intelligence. They will engage in activities deemed necessary unless the activity is perceived as being either blatantly ineffective or blatantly illegal.

Generally practitioners will utilize most tech- niques which they believe their companies condone. However, in some instances the practitioners are even more eager to engage in specific activities than they believe the companies they work for to be.

In this the age of high tech eavesdropping, it is surprising that the most acceptable technique for gathering corporate intelligence is still using liquor at social functions. Perhaps this technique is favored because competitors enter such a situation freely. Perhaps it is a sign of the acceptance of drinking and socializing in the corporate culture. However, the popularity of this technique does revitalize two old cliches: "Candy is dandy, but liquor is quicker;" and "Loose lips, sink corporate ships." Therefore, it seems more necessary than ever to continually remind employees about breaches of confidentiality, espe- cially when they find themselves in a seemingly innocent situation.

Regardless of how far the practitioners or their employers will go, the perception is always that the competition will go further. Over 70 percent of the respondents believe that competitors engage in every one of the techniques mentioned.

Perhaps the practitioners are simply overstating how far they believe the competition goes to gather intelligence. Otherwise, one wonders how a self- respecting practitioner could ever go to work for the competition. If not, the analogies of marketing to warfare may provide a better explanation for their perceptions (Kotler and Singh, 1981). While working for one corporation, the competition is viewed as the enemy, who is capable of all manner of espionage. This perception is fostered externally by the large amount of publicity given to the millions of dollars allegedly being spent on corporate surveillance. Internally management often creates an atmosphere of secrecy and security, while reminding its em- ployees of the underhanded tactics used by the competition.

Regardless of the roots of the perception, viewing the competition as unethical can legitimize the practitioners' own intelligence gathering techniques and can escalate the level of dirty tricks. This may be why a significant percentage of the respondents already condone or practice every technique de- scribed.

Companies appear successful in motivating prac- titioners to gather information. They should, how-

Gathering Corporate Intelligence 203

ever, realize that if their success depends largely on building perceptions of the competition as unethical, then ethics themselves may be the loser in the intelligence gathering game.

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Department of Marketing, California State University,

Hayward, CA 94583, U.S.A.