(FORTUNE Magazine) – IT CAME as a nasty shock for a large U.S. manufacturer of medical supplies: An important Japanese competitor, Kokoku Rubber Industry, was greatly boosting output at a new plant in Kentucky. The U.S. outfit, caught by surprise, had to cut prices drastically as it struggled to hold market share. Yet details of Kokoku's move had been available years earlier from a hodgepodge of easy-to- reach sources. The plant's cost, expansion plans, number of employees, and product line had been reported in the Lexington Herald-Leader in 1987 -- three years before the plant geared up. Some of the U.S. company's employees almost certainly knew of Kokoku's plans -- but the company had no system for passing along information, so senior management remained in the dark. Stupid? No less a strategist than Frederick the Great said, ''It is pardonable to be defeated, but never to be surprised.'' Alas, that hapless U.S. manufacturer is not alone. Japanese companies and some European ones have a head start in the quickening race for corporate intelligence. Mitsui & Co., the mammoth Japanese trading firm, maintains a staff of dozens in the U.S. dedicated to gathering information. So effective is the company's operation that the Japanese government called on it during World War II. While an enormous number of Japanese companies have sophisticated data-gathering programs, only a tiny percentage of U.S. companies do. Warns professor John Prescott of the University of Pittsburgh: ''Unless you address corporate intelligence, you're not going to get off square one in dealing with global competitiveness.'' The first step toward success in this realm is an ability to see the pattern in disparate information. Says Bernard C. Reimann, professor of management at Cleveland State University: ''The difference between the intelligent and the stupid individual is that the intelligent person can put seemingly unrelated pieces of information together to create a new whole. That's what the corporate intelligence professional does.'' The most consistently overlooked source for those pieces of info is a company's own staff: Theirs are the eyes and ears out in the marketplace, and incorporating what they learn is crucial to any intelligence program. The experts suggest that every department should have an intelligence liaison -- typically a staffer with access to the local chief. Said operative can canvass co-workers for news and other tidbits on a regular basis and, when necessary, prod her or his division head to action. Liaisons can pool expertise: The law department can teach production managers the legal import of a competitor's environmental problems, for example. ''Networking is critical,'' says Neil B. Bunis, planning manager at Du Pont Co. ''There's no point in relearning what someone else in the company already knows.'' Computerizing the network of intelligence gatherers can mean quicker responses from more people. That's what AT&T did 6 1/2 years ago when it launched an on-line computer service called AAA -- Access to AT&T Analysts -- to help employees learn from the hundreds of thousands of workers with specialized insight on the competitive arena. Staffers are invited to fill out questionnaires identifying their areas of expertise, among other things. Users can log in key words and get a list of company experts on, say, PBX technology, along with their job titles and phone numbers. If a strategist is | looking for information about Northern Telecom's PBX output, he'll have a list of in-house people ready to talk. Says Martin Stark, a district manager in AT& T's strategic planning department: ''If you can answer a question for me in three hours that would otherwise take me several weeks, the whole company has benefited.'' The network also operates in the other direction: If a staffer uncovers a tidbit about MCI, he can ''broadcast'' it on the AAA system to employees in long-distance operations. Good stuff may come from surprising sources, so spread the net as wide as possible within your organization. AT&T's Stark recalls how a pair of maintenance workers who had signed up for the AAA program were the best source when a team designing a home-alarm feature needed information on fire codes. Disseminating a statement of the company's plans for intelligence gathering to all employees or putting on a roadshow for them also helps get the information flowing. PAY SPECIAL ATTENTION to your salespeople: They are practically stumbling over competitors daily, and their constant contact with customers can be a veritable hotline to what the other guys are up to. Even the most casual observation can prove valuable. Maurice Welsh, marketing director at Pacific Bell, tells how he first became aware of a rival's move into Southern California when an account representative reported seeing a truck from an unfamiliar company parked outside a customer's office. Says Reimann: ''Salesmen often have a wealth of information, but they try to keep it for themselves. Tapping into that information is difficult.'' Some companies won't reimburse salesmen's expense accounts until they fill out a form detailing the competitive information they uncovered in a sales outing. One way to encourage the troops is to shower them with awards or bonuses. But even more important is making sure that intelligence is a priority of top management -- and that everybody understands this. Says a strategic planner at a large drug company: ''The intelligence department has got to be plugged into the fear, the greed, and the power that run the corporation. Otherwise it's an exercise for overpaid dilettantes.'' James Paige, Xerox's manager of competitive intelligence, adds: ''It helps if there's a senior executive who acts as a sponsor for the program. There's an awful lot of salesmanship in the corporate intelligence person's job.'' AT&T and other companies stoke enthusiasm with letters of thanks from high-ranking executives.

$ Make it policy that when staffers visit trade shows, they bring back the competition's literature for examining by intelligence professionals and filing in the company library. The industry trade show is a vortex of industry scuttlebutt and a prime spot for getting the first peek at rivals' new products and marketing strategies. Ditto for technical seminars and symposiums where professional papers are presented: A vigilant Intel monitors competitors' progress in developing eight-inch silicon wafers by keeping track of scientific literature. This tactic may require extraordinary effort. Intel staffers in Tokyo and California sift the thousands of technical papers published in Japan each year and translate the most interesting into English. But Jan P. Herring of the Futures Group, a consulting firm, estimates that not more than one American company in 25 can translate the Japanese equivalent of a Securities and Exchange Commission filing. Don't make the mistake of discounting the most common intelligence network of all: the gossip chain. ''What is rumor today may be dangerous fact tomorrow,'' says Leonard M. Fuld, who runs a consulting firm in Cambridge, Massachusetts. He believes that most rumors eventually prove correct. Encourage your network to report whatever hearsay they chance upon; the corporate intelligence department's job is to verify it. Even information that is only partially corroborated can be helpful in piecing together a large corporate-strategy puzzle. Catalogue the item and pass it on to the pertinent parties, making sure the source and reliability of all such hearsay is clearly noted. Fuld recommends grading each bit of intelligence data with a reliability factor of one, two, or three. Intelligence pros also advise mining several sources outside your company:

-- LOCAL NEWSPAPERS. What's fit to print in the New York Times or Wall Street Journal may not fit your information needs. While national papers won't report on a dozen layoffs at a plant in Knoxville, the Knoxville News-Sentinel will. Just as important as the news columns is the help-wanted section, which can hold key data about the timing and success of a rival's initiative. Hiring a newspaper-clipping service to scan the dailies where competitors have operations can yield a wealth of information. Better yet, if your organization has a nationwide work force, tap selected staffers around the country to monitor local dailies, making sure they pass on relevant clips.

. -- DATABASES. Knight-Ridder's Dialog has some 400 databases tracking corporate and scientific developments, while McGraw-Hill and Dun & Bradstreet maintain computer databases on specific industries. Have a hankering to find out some specs on a competitor's new plant in Bayonne? Tap into McGraw-Hill's F.W. Dodge, a database that provides plant type, size, lead contractors, and other data.

-- THE U.S. GOVERNMENT, especially the Occupational Safety and Health Administration, the Environmental Protection Agency, the Federal Communications Commission, and the Food and Drug Administration. Under the Freedom of Information Act, schematics and source suppliers for many devices that may interfere with radio frequencies, from telephones to microwaves, are available from the FCC. OSHA inspection reports can reveal critical manufacturing details -- often including the machinery involved. The EPA requires some companies to file reports that can indicate production volume and technology. Many companies regularly check on who is using these avenues to make inquiries about their plants, but anyone can hide behind a third party, such as a lawyer or research firm.

-- LOCAL GOVERNMENT FILINGS. Another data trove, although some states (Rhode Island is one) require that the information obtained not be used for competitive purposes. A Uniform Commercial Code filing -- which identifies goods that are leased or pledged as collateral -- can provide details down to, say, the serial numbers of photocopiers installed at a plant. In one case a food-packaging company couldn't understand how a rival was consistently undercutting its prices by 10%, and asked Fuld's firm for help. Making use of UCC filings, they discovered the competitor's depreciation charges were just 3% of sales, vs. 7% for its client. A trip to the local Building Department yielded architectural plans for the rival's plants, together with the name and phone number of the manufacturer of its machinery. A call to the manufacturer revealed that the company had devised a way to use cheaper machinery in a simpler configuration. One result was lower depreciation charges; another was lower prices.

-- SUPPLIERS. Go ahead and ask them about the quantities of cardboard boxes going to your rival; if they've signed a nondisclosure agreement, they'll let you know. Procter & Gamble likes to think it's a fortress, but a competitor learned the precise launch date of a concentrated laundry detergent in Europe when one of its consultants visited the factory where a packing machine for the product was being made. A few questions about what the machine did, whom it was for, and when it would be delivered, and P&G was one naked company indeed.

-- COMPETITORS. On certain issues they may be more forthcoming than you expect. When a large drug company was looking into acquiring new catalytic converters for some manufacturing plants, archrival Merck was glad to offer a peek at its own. The company eventually used the converter with Merck's blessing. Intel canvassed competitors' benefits departments several years ago to see how its compensation practices stacked up. Result: twice-a-year rather than annual bonuses for employees. Be sure to identify yourself and your company when calling a competitor. And don't talk about prices.

-- NEIGHBORS OF THE FACILITY YOU'RE CURIOUS ABOUT. You can be sure that the regulars in the coffee shop or car dealership across the street from a plant have a pretty good handle on what's happening in that facility. Consult the directory published by R.L. Polk that lists phone numbers by street address as well as alphabetically. Chambers of commerce can help too, with specifics about employment, as can labor unions, which are often happy to tell you how many staffers work on a given shift and other production data. Gathering information is one thing. Turning it into practical intelligence and delivering it to people who can use it is another. For help on the processing, your own colleagues are, again, usually your best bet. Suppose you have a competitor's EPA filing and want to divine the expected opening date of the factory for which the filing was made. A call to your legal department can tell you when in the approval process a company typically makes such a filing. An engineer can estimate time needed for construction after EPA approval. The two might also be able to guide you to additional sources of information -- say filings for zoning variances in the local tax assessor's offices that they had to cope with in the past. Including several departments in the analysis also brings more members into the network. With luck, information should begin finding its way to the natural beneficiaries as your intelligence program becomes routine -- technical reports of a competitor's appliance simultaneously transmitted from engineering to R&D, sales, production, and design, for example. More complicated or sensitive projects obviously need to be communicated in a closed forum; your network again is crucial. Query intelligence users and gatherers continually about how to improve the process. Viewed broadly, intelligence is no zero-sum game. If three or four rivals know more about each others' strategies, strengths, and weaknesses, the result is likely to be more efficient and productive competition. Company by company, however, there will surely be winners and losers. Says professor Prescott: ''You can't build a competitive house unless you have intelligence as its foundation.'' A sophisticated intelligence operation is beginning to look like the assembly line, the telex, and the computer did in decades past: Your competitors are getting one -- so you'd better get one too.