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The case discusses the corporate espionage controversy involving two of the world's largest consumer product companies, P&G and Unilever, in the early 21st century. It gives an overview of the concepts of competitive intelligence and corporate espionage and examines the differences between them. It then outlines the evolution of corporate espionage over the centuries and examines the reasons for its increasing use. Next, the case details the covert operation conducted by P&G to gain competitive information about Unilever's shampoo business in the US. It examines the steps taken by P&G's top management after discovering the secret operation, to settle the matter with Unilever. Finally, it talks about Unilever's response to the incident, its settlement demands, and summarizes the lessons that can be learnt from this episode.
A Shocking Revelation In August 2001, Fortune magazine reported that the leading global consumer goods giant Procter & Gamble (P&G) had been engaged in an illegal corporate espionage program against its archrival, Unilever (See Exhibits I and II for brief profiles of these companies). Agents appointed by P&G were alleged to have misrepresented themselves as market analysts and used various other methods to collect information about Unilever's hair care business. Soon after, P&G admitted that the information collection episode had indeed taken place, but without the knowledge of the top management. However, the company firmly refuted Fortune's claim that its agents misrepresented themselves as market analysts to acquire information. P&G claimed that it had not indulged in any illegal activities; it added that these activities were against its strict business policies and guidelines. P&G also stated that this was the reason it had approached Unilever of its own accord in April 2001 with details of the entire issue. The two companies started negotiations to settle the issue amicably. Reportedly, Unilever stated that if a settlement agreement was not signed by the end of August 2001, it would initiate legal proceedings against P&G. The news of P&G's voluntary admission of indulging in corporate espionage against Unilever took industry observers by surprise. Many analysts felt that P&G had done the right thing. William Steele, Analyst, Banc of America Securities felt that it was not surprising that such an incident had occurred in the intensely competitive hair care business in the US and stated that despite being legally questionable, P&G's disclosure was noteworthy. He said, "I think being straightforward is always the prudent thing to do. I would have expected no less from the senior management of Procter."4 Analysts also felt that by voluntarily admitting its mistake, the company was trying to control the damage to its public image. P&G hoped that the honest admission would reduce the impact of Unilever's response to the incident (as compared to Unilever discovering P&G's misdeeds by itself).
. the debate over 'CI vs. It just does not always work out that way. the P&G and Unilever issue was arguably one of the most high-profile incidents of corporate espionage ever reported."7 Analysts felt that companies needed to be aware of their competitor strategies and efforts to effectively counter their strategies and sustain themselves in the market. the Byzantine emperor hired two monks to visit China. Leonard Fuld (Fuld). The monks smuggled these eggs and seeds out of China in hollow bamboo walking sticks. organization. . "P&G made a mistake. Over the centuries. "It was like confessing to murder and hoping to get manslaughter instead of homicide. industrial espionage practices continued to play a major part in the development of many countries. Bill Waite. "The fundamental is that there are huge amounts at stake when you make business decisions these days. Commenting on this. who was close to the story. While P&G and Unilever were busy negotiating their settlement terms."6 Referred to as the darker side of competitive intelligence (CI). some analysts argued that P&G had made a mistake by voluntarily disclosing its transgression to Unilever. Fuld & Co. A typical CI activity involved collection. Such companies believed that "if you are not watching your competition. and utilization of business-related data of competitors to make informed decisions (See Exhibit III for the steps in a CI cycle). in a few years the Byzantine empire replaced China as the largest silk producer in the world. corporate espionage' heated up like never before. the more likely it is that you will reach a positive business transaction rather than a negative one. said. a leading CI consultancy in Europe. France sent its spies to steal the latter's industrial secrets. Subsequently. we do not exactly know. Managing Director and Senior Counsel. He wanted them to gain an understanding of silk production in China and to smuggle silkworm eggs and mulberry seeds out of that country to break its worldwide monopoly on silk production.However. In the 18th century. However. President. (a competitive intelligence consulting firm in Cambridge) said. Risk Advisory Group. What the magnitude of the infraction might be. instances of corporate espionage have been often reported in the global corporate world. alarmed by the industrial and military supremacy of Great Britain. Explaining the rationale behind CI practices." Another source. expressed similar feelings.. The more you know.. not only about your own strengths but about your competitors'. analysis. Competitive Intelligence vs. you are busy creating it" Evolution of Corporate Espionage The history of corporate/industrial espionage probably dates back to the sixth century when Justinian. Corporate Espionage Fuld described CI as a technique of applying industry/research expertise to analyze the information available on competition from public sources and draw conclusions based on this data.
. The operation was managed from a 'safe house' called 'Ranch' in Cincinnati.. This independent contractor in turn hired many subcontractors to perform this secret operation." Interestingly. these agents resorted to dumpster diving and also misrepresented themselves to Unilever employees as market analysts and journalists.. Head & Shoulders. The operation focused on gaining access to classified information about Unilever's best selling hair care brands such as Salon Selectives. profits. and Pert. They pointed out that. They also fought fiercely for market dominance in other parts of the world. with both being market leaders (in household and personal care products) in different Asian countries. collected extensive information on Unilever's hair care business in the US. Over the decades. In the early 21st century. these companies had equal dominance.. Unilever should have at least taken routine precautionary measures such as using shredders to destroy its documents. . while P&G dominated the US household and personal care market. ThermaSilk.P&G and Unilever Unilever. the rivalry between these two companies kept on intensifying as both of them expanded to the major markets in the world. CI executives at P&G hired an independent contractor to spy on the company's competitors (especially Unilever) in the hair care business. P&G's approach towards CI was heavily criticized. In Asia. which entered the US in late 19th century.. pricing and promotional strategies and entering new markets. P&G's hometown. P&G and Unilever competed in every aspect of their operations such as new product development and launches. Given this. Since late 2000. Wash & Go. "If the company had applied true CI. and Helene Curtis. It competed directly with market leader P&G in many segments of the household and personal care products markets. These brands competed directly with P&G's popular hair care brands such as Pantene. Fuld said. To gain access to such classified information. Since P&G's rogue operators obtained most of the critical documents related to Unilever's strategies from dumpster diving. analysts criticized the latter for not taking even the basic steps to protect its information from rivals. if the investigators know what and where to look for. analysts even blamed Unilever for being negligent about protecting its confidential information. by failing to safeguard its information. Unilever had put its market share. Finesse. Lessons to be learnt CI experts state that 90% of the information on any company is available in the public domain. the agents of these sub-contractors. which P&G later called rogue operators (espionage agents). it would have never found its way into the press in the first place. Unilever dominated the European household and personal care market.. was one of the largest foreign multinationals in the country. Vidal Sassoon. In late 2000. They said that being a leading company in a highly competitive environment. and the entire business at risk.