Sunday, February 10, 2013

Contractors, Agents, and Other Spies


Industrial espionage is not a thing of the past.  It's alive and well, and happens every day, and is so common a practice that it has become institutionalized and accepted.   Firms regularly hire agencies to gain access to the privileged information and strategic plans of their competitors, and others hire agencies to gain access to theirs.  It's done so openly that many espionage agencies openly call themselves "agencies," though the spies themselves are called "consultants" or "contractors."

Some firms that hire them can plead ignorance - which is to say that they chose to ignore certain facts.   They needed some expertise for a short period of time, wanted to save on overhead, wanted to bring in skills without having to invest the time and money to develop their employees, or whatnot.  They failed to consider that they were bringing in workers who would learn a great deal about their organization, who would later go to work for a competitor, bringing with them all the knowledge they had gathered.

The irony of it is that they were aware at the moment they engaged the contractor that he had experience working for their competition, and they may have even been overtly interested in gaining access to the secrets he knew about the competition.  How could they have been so naive to think that, when the contractor was done with them, he would not take their secrets to his next contract?

There isn't much in the way of a legal defense: if a contractor steals data, that's likely something that can be prosecuted - but even then, prosecution punishes after the fact and prevents nothing, though it may arguably discourage others from doing the same in future.      But data is the least important thing that contractors make away with: the ideas, plans, best practices, and other "general" knowledge does not have protected status under the law (unless it has been patented), and there is no legal recourse with which to threaten prosecution to silence the spies.

That is to say that they can, and do, freely communicate your plans to competitors, which is valuable business intelligence in that it enables them to understand your strategy so they can outmaneuver you - either using your plan to get there first, or at least be hot on your heels - or even if they do not choose to imitate you, having the certainty of what you intend to do and the luxury of time to plan their defense.

"Don't hire contractors" is likely an effective solution to keep your strategy safe from the competition - but is also likely to be expensive or impractical.    The reasons companies give for hiring contractors are all valid ones: they may not need skills on a long-term basis, they may not have the ability to train and develop their own people, or they may need bodies faster than their HR department can obtain them (which is an entirely separate problem, but a reality with which most managers must cope).

"Disinform contractors" is another expensive and impractical solution, though I suspect that it is fairly common: a firm will engage multiple agencies, such that no single agency has access to the full picture, and given that four teams may be working on a different plan, a contractor has only a 1:4 chance of being able to tell the competitors what you actually plan and a 3:4 chance of telling them a plan that you have developed and considered, but ultimately decided not to pursue.  Even then, you're absorbing the R&D cost of a plan that might be viable.

"Hire contractors selectively" may be a better solution.   For supporting tasks that don't involve information pertinent to your competitive advantage (installing equipment, handling payroll accounting, and the like), the information to which they have access might help a competitor to make their own operations more efficient, but will not give them a peek at your battle plans.    But for other tasks (planning your marketing strategy, implementing an operational innovation related to your core product, etc.) contractors are given access to information that can be exploited to undermine or counteract your competitive advantage - and the companies that hire them afterward know this.

In any case, controlling contractors will not be a completely effective solution for employers who have a bigger leak - key employees who are poached by competitors bring with them the same knowledge.   In a former era when employers offered long-term employment, they could likely count on having loyal employees who would protect their secrets, but in the present day in which employees are treated as disposable assets (which is to say, they are treated like contractors), a firm can't expect much loyalty.   This, too, is a problem that should be rectified, but an entirely separate issue to managing the spies you invite into your headquarters office.


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