Strategy (93 page)

Ries and Trout offered four strategies for a marketing war—defensive, offensive, flanking, and guerrilla—with market share determining which was appropriate. Those with the greatest share were interested in market domination, while those with the smallest could concentrate on survival. In the face of a serious challenge the strongest had to respond: if they failed to do so they would progressively lose market share until their dominant position was threatened. The second in the market could mount an offensive to gain some market share from number one, but this would best be done on a narrow front against a critical weakness in the leader's position. The weakness must be chosen carefully: if it was simply high prices, for example, a firm with sufficient resources would be able to respond by cutting prices. If an offense was too risky, a flanking attack could be mounted with a clearly differentiated product. The risks here involved unfamiliar territory and insufficient signaling to competitors. Small firms were best advised to adopt a guerrilla strategy, in a market segment all of their own, avoiding any serious competition with larger firms and staying nimble, ready to move in and out of an area as circumstances changed. Approaching the enemy indirectly à la Liddell Hart, and then attacking in strength at the enemy's weakest point, à la Clausewitz, were the key principles imported from military theory. The core advice was to avoid a frontal assault against well-established positions.

During the 1980s, there was a shift toward Sun Tzu.
¹⁰
Sun Tzu's influence was attested to by two references in popular culture. In the movie
Wall Street
, the villainous Gordon Gekko advises Bud Fox: “I don't throw darts at a board. I bet on sure things. Read Sun Tzu, THE ART OF WAR. Every battle is won before it is ever fought.” Fox later used Sun Tzu to prevail over Gekko: “If your enemy is superior, evade him. If angry, irritate him. If equally matched, fight, and if not, split and re-evaluate.”
Wall Street
was a morality tale involving junior stockbroker Bud Fox caught between his blue-collar father, a foreman and trade unionist who represented the virtues of hard and honest labor, and the ruthless, cynical Gordon Gekko, a corporate raider whose motto was “greed is good.” Bud became wealthy by following Gekko's methods until he realized that a plan to buy the airline where his father worked was all about asset-stripping. The movie appeared in 1987, the year of a Wall Street crash, and seemed to capture the financial mindset that had created both financial mayhem and a loss of moral bearings.

Another villain, Tony Soprano, the eponymous mob boss in
The Sopranos
, was told, somewhat sarcastically, by his psychiatrist Dr. Malfi: “You want to
be a better mob boss, read
The Art of War
.”
¹¹
Later Soprano reported back to her: “Been reading that—that book you told me about. You know, The Art of War by Sun Tzu. I mean here's this guy, a Chinese general, wrote this thing 2400 years ago, and most of it still applies today! Balk the enemy's power. Force him to reveal himself.” Soprano clearly felt that his introduction to Sun Tzu had given him a competitive advantage; “Most of the guys that I know, they read Prince Machiavelli.” Soprano claims to have found Machiavelli, whom he read in a study guide, no more than “okay.” Sun Tzu, however, “is much better about strategy.”
¹²
As a result of Tony Soprano's endorsement, Sun Tzu became Amazon's bestseller in New Jersey.

Sun Tzu's discovery by business strategists generated a whole library offering insights from the master. Mark McNeilly in
Sun Tzu and the Art of Business
promised explanations of “how to gain market share without inciting competitive retaliation, how to attack a competitor's weak points, and how to maximize the power of market information for competitive advantage.”
¹³
The value of Sun Tzu was seen to spread wider. One book suggested that careful study of
The Art of War
would help “preserve your marriage vows, and attain the marital bliss that you and your partner deserve to help with marriage.”
¹⁴
Following
The Art of War
elevated the strategist. Instead of encouraging managers to be mini-Napoleons, it urged them to use their wit and outthink their opponents. It was also far less dependent on the Clausewitzian “business-is-battle” metaphor.

Sun Tzu and Liddell Hart appealed to business strategists for the same reason they appealed to military strategists. They required intelligence, imagination, and nerve. There was no skill in outspending a weak opponent, other than possibly getting round anticompetitive regulation. The real skill was in creating new products and developing new services—even new markets that the most likely competitors had missed. Sun Tzu added a degree of moral complexity, illustrated by his supposed attraction to the fictional rogue trader who used insider information to get rich, and the gangster who got rich through extortion and intimidation. As with the tricksters of classical times, this could prompt admiration about their cunning but a deep unease about how this was used to better those who led more virtuous lives. The ability to deceive and outwit an external foe might be celebrated, but there was still something inappropriate about using these tactics at home to gain an unfair advantage.

Another reason for the fascination with Sun Tzu was that it might provide a clue to Asian thinking. Japan, the country defeated so decisively in the Pacific War, had gained a remorseless competitive advantage by adopting business methods that Americans might once have known but appeared to
have forgotten.
The Art of War
suggested a distinctive philosophical outlook, a reliance on patience and intelligence, gaining advantage through a superior grasp of dynamic situations and an ability to conceal one's own capabilities and intentions while seeing through those of the opponent. By comparison, American managers had become myopic, fixated on finance and the short term, while their opponents thought long term and focused on products. Miyamoto Musashi, a swordsman of the seventeenth century, was a key Japanese figure. When close to death he set down his philosophy for his disciples in
The Book of Five Rings
(
Go Rin No Sho
). Although he did participate in a variety of battles, his main skill was in dueling, an art he practiced constantly after opening his account at the age of 13. Musashi's approach to dueling allowed for a degree of trickery (for example, arriving late to unnerve his opponent or early to catch him by surprise), but there was no doubting his strength and skill. He could fight with a sword in each hand and was still able to throw his short sword. During his life he is said to have fought at least sixty duels without defeat. Although Musashi claimed that his philosophy was relevant to all forms of combat, the duel provided a distinctive perspective, especially when it came to its objective, which was simply to cut down the opponent.

In terms of an overall approach, there was a lot in common with
The Art of War
, which Musashi almost certainly had read.
¹⁵
Musashi described strategy as “the craft of the warrior,” to be enacted by commanders. He explained the importance of his insights by noting that “there is no warrior in the world today who really understands the Way of Strategy.” He urged the development of the sort of intuitive wisdom that comes from hard study of everything that could possibly be relevant (“Know the smallest things and the biggest things, the shallowest things and the deepest things”), stressed staying calm in all circumstances, urged flexibility and a change in tactics (as an evident pattern would enable the opponent to identify vulnerabilities), and was wary of head-on clashes. In order to strike when the enemy was not properly focused, he urged getting to the high ground, checking whether the opponent was left- or right-handed, and trying to push him into difficult terrain. Timing was important, which meant varying pace and staying alert. His preference was to attack first, but attention had to be paid to whether the enemy's strength was waxing or waning.

Whether, as some claimed, a winning Japanese business strategy could be adduced from all of this was less clear.
The Book of Five Rings
was not intended for a general reader but for those being trained in a particular martial arts style and attuned to its distinctive spiritual foundations. One authority described it as being “terse to the point of incomprehensibility” and suggested that
its “unintelligibility” allowed “the text to function as Rorschach inkblots within which modern readers (businessmen, perhaps) can discover many possible meanings.”
¹⁶
To the extent that Musashi was taken seriously in Japan it was as likely to be less as a source of strategic insight and more as something of a role model, as a Samurai hero celebrated for his humility, inner peace, courage, strength, and ruthlessness.

George Stalk, who was sent by the Boston Consulting Group (BCG) to work in Japan in the late 1970s, was less interested in the softer side of Japanese strategy than in its harder, tougher side. He developed his ideas in a 1988
Harvard Business Review
article and then a book.
¹⁷
This focused on the importance of time as a source of competitive advantage. He picked up on the similarity between his views, which stressed making decisions and implementing them faster than competitors, and those of John Boyd and his OODA loop, encouraging getting inside the decision cycle.
¹⁸
This led to a line of argument (and language) familiar to anyone who had been following the military reform debate in the United States. In a competitive situation, he noted, strategic choice was limited to three options: seek peaceful coexistence with competitors, which was unlikely to lead to stability; retreat, which meant getting out of markets or limiting exposure through consolidation and focus; or attack, which was the only option that offered growth. But a direct attack through cutting prices and expanding capacity carried high risk, so the best option would be “indirect attack,” involving surprise, leaving competitors caught by the speed of the attack or by their inability to respond. He described how the Japanese did this by tightening up their “planning loops,” from the start of the development of a new product to getting it to the customer. This not only saved money but also left competitors struggling to catch up.
¹⁹

The serious question underlying the “business-as-war” literature was whether the two activities were sufficiently similar for military strategy to work in a business context. In some areas, where companies were competing hard for market share, trying to protect themselves from acquisitive predators, repulsing sneaky insurgents, or going on the offensive against a vulnerable establishment, the similarities could appear compelling. By and large, the case studies in this literature involved companies competing head-on (Coca-Cola versus Pepsi-Cola was a classic). Once companies could be represented as armies in battle they could be subjected to the same principles. American military strategists in the 1970s and 1980s began to explore the relevance of Sun Tzu and Liddell Hart, and contrast the virtues of maneuver warfare with unimaginative and costly attrition. Encouraged by John Boyd, they considered how to get inside the decision cycles of opponents to leave
them disoriented and confused. With a certain lag, these themes were also picked up by business strategists. A number were certainly well aware of Boyd's work.

Military strategies were tested only occasionally in one-off encounters that might not always be as decisive as hoped but could be expected to change the terms of any future encounters. Business strategies were tested daily but did include opportunities that could be quite unique to one company and once exploited could create a durable advantage. It was not true that military strategy only involved states as fixed and unchanging entities. Though rare, states could disappear through takeovers and new ones come into existence through fragmentation. With business this was, however, far more normal and possibly its most important distinguishing feature. Companies could break up, be taken over, or simply go out of existence as new ones formed. This made the interaction of internal organization and external environment much more complex. The strategic literature, however, paid surprisingly little attention to this interaction. Arguably, the disciplinary divisions in the social sciences did not help. By and large, economics addressed questions of the relationship of firms to their markets. Its eventual forays into organizational structures were influential but generally disastrous. To understand organizations, sociology was much more helpful but provided few tools (and a disciplinary lack of interest) for analyzing relationships to operating environments. The division in the literature means that our account must follow the first of these strands, led by economics, before it can return to the second, led by sociology.

The ideas of economists and political philosophers, both when they are

right and when they are wrong, are more powerful than is commonly

understood. Indeed the world is ruled by little else. Practical men, who

believe themselves to be quite exempt from any intellectual influence, are

usually the slaves of some defunct economist
.

—John Maynard Keynes

E
CONOMICS CAME TO
acquire an almost hegemonic position in strategic management. This was not because it was uniquely fitted for this intellectual purpose but because of deliberate decisions to adopt it as the foundation of a new science of decision-making and the active promotion of this new science by bodies such as the RAND Corporation and the Ford Foundation, both of which encouraged its embrace by business schools. As with Plato's philosophy, a new discipline that offered eternal truths was created in part by disparaging and caricaturing what had gone before for its lack of rigor.