A Fuld & Company Special Report

1. Measuring the Value of Competitive Intelligence: The Inadequacies of Return-On-Investment Calculations A Fuld & Company Special Report FULD & COMPANY INC. http://www.fuld.com ♦ http://www.fuldltd.co.uk 126 Charles St 20 Conduit St. World Trade Center 1 Cambridge, MA 02141 London W1S 2BQ CH-1215 Geneva 15 USA United Kingdom Switzerland +1 617.492-5900 +44 (0) 207 659-6999 +41 (0) 22 929-1900

2. For Veteran CI Companies, Justifying Their CI Program With a Calculated Return-On-Investment Is Unnecessary • Eight CI departments that we benchmarked in 2001 often receive adequate CI resources without having to justify their value with an ROI measurement • This, despite a widespread perception in the CI community that calculating CI’s ROI is essential to the survival of a CI department All eight companies we benchmarked could be considered “measurement-intense” organizations Yes No Sometimes What is “return-on-investment?” Return-on-investment, or ROI, is the percentage yield on dollars invested. In other words, it is a realized outcome (gains and/or savings expressed in dollars) divided by the cost incurred to obtain the realized outcome. ROI can only be measured when inputs (expressed in dollars) and outputs (expressed In dollars) are clearly defined. Moreover, the causality between the investment and the outcome must be equally clear.

3. Even If World-Class CI Groups Had To Calculate ROI, Doing So Would Result in an Almost Completely Meaningless Figure • Many companies do not know their total CI budget; as such, ROI inputs are difficult to quantify. • Likewise, ascertaining the causality of the output – i.e. that the beneficial result can be directly or solely attributed to CI – further distorts ROI. • As a result, any CI ROI figure can be easily manipulated to “prove” the effectiveness of a fledgling CI operation, or to justify the expenditure for vendors or consultants offering stale, re-packaged products and services. CI staffing and budgets at world-class CI companies vary widely, and have little or no revenue correlation --Source: Fuld & Company “After one highly successful CI project, management gave us another $250,000. We didn’t ask for it; they were just pleased with our work.”

4. Only three companies we surveyed regularly provide recom-mendations to their CI users. The lack of recommendations makes it difficult to link CI to a specific outcome Furthermore, CI practitioners in the companies we surveyed do not systematically track or record how the intelligence they provide is used, nor do they seek user feedback A Major Obstacle to ROI, and a Serious Departure From CI Best Practices, Is the Failure to Provide and Track Recommendations Yes No Sometimes “We don’t want to tell the pilot how to fly the plane.”

5. For CI practitioners to demonstrate their effectiveness and value, they must regularly engage their internal CI users and track how their products and services are being applied Many CI departments do not have the resources, organizational standing, or credibility required to track and record outcomes These measures can be – and are more meaningful if they are – qualitative, tied to specific company actions, decisions, and outcomes To be effective, these measures must be tracked and communicated to management regularly What does management expect from CI? Objective, synthesized, clear and concise reports about competitive developments An explanation of the forces responsible for competitive conditions An analysis of the implications of competitive situations In most cases, recommended courses of action How does management know when CI is valuable? Fewer surprises Able to put competitor actions in context Less frustration trying to interpret overwhelming or contradictory information So, If ROI Has Little Meaning, How Can CI Groups Measure Their Effectiveness?

6. We advocate including in every CI process an effectiveness tracking and user feedback mechanism We believe CI organizations can measure their efficacy in three ways: CI utilization tracking Customer satisfaction Decision-specific results Introducing the Fuld Intelligence Effectiveness Index The abilityof CI practitioners to, over time, demonstrate the efficacy of their CI program leads to sustained or increased CI resources, and a broader acceptance of CI as a necessary business practice We proposeworking with an elite set of organizations to routinely help them track, analyze, and report on the contribution and benefit of their CI programs. We will aggregate the results across this set of companies and issue an annual CI effectiveness index to fuel the growth of the CI discipline Fuld & Company Helps Companies Regularly Measure The Effectiveness of Their CI Efforts And Stay True To Best Practices Planning &Direction DECISION-MAKER NEEDS Published Information The NEW CI Cycle Dissemination & Evaluation Primary Source Collection Analysis & Production OTHERUSERS

7. Appendix: Study Methodology and Participants • Fuld & Company identified CI best practices via: • Secondary research • Review of Fuld & Company projects • Questionnaire-based interviews • 12 telephone and/or in-person interviews • 8 in-depth formal interviews from sample pool For more information, contact: Karen E. Rothwell Consulting Director Fuld & Company +1 (617) 492-5900 krothwell@fuld.com