CENTRA Measures Espionage Losses By Industry Sector!

Michael D. Moberly   March 10, 2014   ‘A long form blog where attention span really matters’.

Economic espionage is an unrelenting and costly hazard…

I have been variously engaged in studying, conducting investigative research, publishing, and consulting on a variety of open source matters related to economic espionage directed toward U.S. companies, particularly including start-ups and university-based research.  To anyone paying more than passing attention to economic espionage recognize it as being an unrelenting and costly hazard, particularly to companies possessing – producing valuable and strategic intangible assets, i.e., intellectual, structural, and relationship capital.

Political and institutional agendas in calculating economic espionage costs…

As for extrapolating the costs – losses of economic espionage of a single company to a country’s economy as a whole, those figures come with a host of challenges, and I believe, not the least of which is, the subjective nature of the findings which, it’s not unrealistic to assume have been embedded with various political and/or institutional agendas . Interestingly, in the 25+ years that I, and numerous others, many of whom have become colleagues, have been examining and consulting in the economic espionage arena, there is little that I can readily point to insofar as objective methodologies to measure (a.) the specific damages and/or costs to a targeted/victim company, and (b.) how to specifically attribute –differentiate the source of those losses to acts of economic espionage, and then (c.)  extrapolate same to the U.S. or other country’s economy as a whole.

Go fast, go hard, go global business transaction environments…

For example, the full range of economic – competitive advantage repercussions of a single incident/act of economic espionage are challenging to fully grasp, in part due to the go fast, go hard, go global.  For example, a company’s awareness of trade secret theft seldom emerges immediately and its adverse economic consequences to the victim company may be felt – realized in strategic (longer term) vs. tactical (shorter term) contexts.  Based on my experiences, that’s in large part due to the reality that a single (stolen, misappropriated) trade secret may have multiple combinations of intellectual and structural capital embedded within it which could be applicable to various products in different industry sectors. I am not suggesting that the loss – theft of a single trade secret is immeasurable. Rather, I am suggesting that measuring its real loss value to a company must include both longitudinal and latitudinal calculations which can only come, in my view, from recognizing that trade secrets can, and often are, embedded with not just one, but numerous intangible assets.

CENTRA Technologies 2010 study, close to perfection…

In an excellent report published in May, 2010 and prepared for CENTRA Technology by the George Bush School of Government and Public Service at Texas A&M University, researchers constructed a model initially designed for use by federal government employees, but which I find has many applications to the private sector.

More specifically, the model identified and distinguished the severity and consequences of an economic espionage incident to the U.S. economy. The model itself was designed in a manner that publically available (case study, incident) information could be applied to provide a qualitative estimate of “consequence”, again, as they relate to economic losses attributed specifically to economic espionage.

The model Texas A&M constructed applies a ‘severity score’ between 0 and 1 linked to (a.) low, (b.) moderate, and/or (c.) high adverse (economic) consequences. This model, clearly suggests the potential consequence(s) on the U.S. economy from an incident of economic espionage is dependent on the victim company’s industry sector, and thus must integrate/factor two sets of variables, i.e.,

Industry variables i.e., assess the significance of where the incident of economic espionage occurred.

Note: Industry is derived from a combination of the percentage of GDP in terms of value added for each of the 14 industry sectors and the susceptibility/vulnerability of each of the sectors. This process enables the CENTRA model to be individualized to a specific industry by recognizing – allowing for the potentially different consequence to the U.S. economy.

Case variables i.e., assess the significance of economic espionage incidents on the basis of…

  1. characteristics of the theft (incident) itself.
  2. costs directly attributable to the incident (loss) to the victim company, and
  3. who the beneficiary or beneficiaries to the incident actually are.

There is certainly no disagreement here, that seldom, if ever are two incidents of economic espionage identical. To address this, Texas A&M researchers developed a system for weighing the variables and the respective questions and further analysis those ‘weights’ prompted.

So, the Texas A&M model requires practitioners to…

  • first, identify the industry sector in which the incident occurred, and
  • second, identify (individual, specific) ‘case – incident variables’.

Ultimately, with all the variables measured, standardized, and weighted against each other, the model calculates an overall severity score, which corresponds to the level of individualized consequence to a specific incident of economic espionage.

This was inspired by a George Bush School of Government and Public Service, Texas A&M University research project titled   “Estimating the Economic Costs of Espionage”. The reports was prepared for CENTRA Technology by the the Capstone research team comprised of Rich Bell, J. Ethan Bennett, Jillian R. Boles, David M. Goodoien, Jeff W. Irving, Philip B. Kuhlman, and Amanda K. White.  



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