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Strategy

The Art of War – In Business Strategy

 

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Sun Tzu, and the Art of War & Business

We start our posts on Strategy with a series on the ‘Art of War’ – known to have been written by the master military general and strategist – Sun Tzu. These ancient principles have stood the test of time (about 25 centuries at least!), and while they were written for military strategy, it is useful in any ‘campaign’, ‘launch’ or ‘positioning’ – essentially, these are recipes for winning.
Wars are now fought on economics, and, more between corporations than between countries – however, the spoils have remained the same – Markets !

In the series of posts we try to first mention a particular principle, try to give you a real life military example of it being successfully put to use and finally give you a real. business case where it has been used.

 

 

Before we go in depth, a few key generic principles:

  • Any ‘campaign’ is costly, you are better off not investing in any head-to-head campaigns
  • It is better to take the enemy’s assets (market) in tact, without destroying value
  • Success lies in the art of deception – This is the toughest part to maintain in today’s connected world, but still is the most vital component of warfare.
  • Draw the enemy to the battle points where you are at your strongest.
  • The best strategists are those who know themselves and the enemy very well. ‘Know the enemy and know yourself; in a hundred battles you will never be in peril’

Strategies – Base approach

Firstly, lets take a look at approaches in their order of superiority – strategy wise:

  • Attack the enemy’s strategy
  • Use diplomatic means or disrupt the enemy’s alliances – Alliances could now mean agreements for distribution, sourcing or imagery sources, with third parties, which the competition currently enjoys.
  • Resort to arms – In business, this would be an equivalent of a price war, a ‘Share of Voice’ war, etc. Several players have destroyed value of their industries by resorting frequently to this.
  • Besiege a fortified city – This would be the equivalent of taking head-on, a market leader with a high competitive advantage, or high loyalty levels or a brand with deeply tied in positions.

Why we bring this early on is to re-iterate the ‘winning without fighting’ principle. Very often, we would resort to first attacking a competitor on price, a media blitz, which actually destroys value for the industry.

Also, before plunging into an attack, consider your size in relation to the enemy:

  • If your size is Ten to one of the enemy’s – Surround them
  • If your size is Five to one of the enemy’s – Attack them
  • If your size is Two to one of the enemy’s – Divide (segment) their army into two 
  • If your both are equally matched – Engage them with superior strategy 
  • If your size is slightly inferior to the enemy’s – Circumvent them
  • If your size is Inferior – Flee / Retreat.

Warfare Strategies for business

 

 DIRECT FRONTAL ATTACK

 These are the most inefficient forms of warfare and are to be avoided at all costs. It generally leads to a stalemate in trench warfare, or a price war in today’s business. However, in fast growing high potential markets, it could sometimes be the need of the hour. Typical success occurs if you have the following with you.

  • You have resources to the tune of atleast 3X your competition. You can view ‘resources’ in terms of media budgets, manpower, distribution tie ups, shelf spaces, and the like.
  • As an organisation you have significant control to be more swift and quick than the competition.
  • Continuous resources to back the initial launch. Your very first attack would most likely fall to defenses. Consistent reinforcements will eventually break the enemy’s physical and mental defenses.
  • As soon as any part of the defense gives in, the front has to advance as quickly as possible creating more destruction in its path and lowering the enemy’s morale. Reinforcements should thus be behind every part of the offense. (Notice how deep the central arrow is in a typical formation). This will fail if there is no follow-through.
  • You should have the element of surprise.

FLANKING STRATEGY

This is done by not attacking the enemy at their point of strength but at their sources of support. Any organisation would have a particular strength that shapes / defines their strategy (or business model). There is always a point where they would never attack themselves. For the enemy to attack a flanking opponent, they would have to injure themselves and at times – the very foundation they seek support from. This is also the area where psychologically the enemy never thought you would attack – since they rest on this area at a fundamental level.

Battle of Leuthen (1757) – A smaller army of 35000 Prussians under Frederick the Great defeated a far larger Austrian army of 60 – 70,000 by using this strategy. The maneuver is quite self explanatory in the maps below ( ordered counterclockwise) – Frederick feigned forces to the left while few infantry columns marched under the cover of low hills to the extreme right. Prince Charles (leading the Austrians), did not see or expect any attack in the south, and hence moved all his reinforcements to his right. In fact, it was due to the protection of the hills, that Prince Charles had positioned his weakest forces on his left. Suddenly, an entire army was at right angles to an enemy that had surprised it at its weakest point. The Austrian army soon collapsed under this well orchestrated move by Frederick the Great – eventually giving the Prussians control over the region till the end of the war. 

Battle of Leuthen Flanking Strategy

Maginot line - flanking warfare strategyThe same strategy was also used (on a larger scale) during 1940 by Germany. Since the 1930s, as a preventive measure, France had fortified itself along its border with Germany – the Maginot Line – to avoid a surprise attack and give itself time to send reinforcements. France had built it to state of the art levels – with air conditioning, capabilities to withstand any forms of attack, even an underground railway system !  

And how did the germans solve the problem ? Invade Belgium first, then attack France through Belgium. The speed of the blitzkreig proved how worthless the toughest, most concrete defenses can prove to be at a strategic level.  Germany conquered France in 6 weeks. 

The Flanking Strategy is repeatedly used by new entrants – either through pricing, product sizing / form, and positioning. For example, Mc Donalds had set itself up as an ideal Family restaurant – centered on quick service, foods that children would have no qualms on, clean experience, toys as consumer promotions, a clown for a Mascot, etc.  A parent wouldn’t think twice in taking his / her children to the nearest Mc Donald’s for a family bite. This was so ingrained into their system its practices had become regimented – the whole experience was a well oiled machine.

At first, Burger King tried many tactics – essentially copying Mc Donald’s product line and actions before attacking McD’s where they could not change – their “one-size fits all” feel of burgers. Burger Kings famous campaign of “Have it your way” changed the rules of the game. They also offered larger sized burgers termed Whoppers. Now how could McD’s change their very foundation of regimented service?

Burger King, also appealed to young adults as they now had a place of their own – and were not surrounded by families / children. Burger King’s communication strategy also later took routes of irreverence to appeal to teenagers.

Burger King vs Mc Donalds - Flanking Strategy 2

ENCIRCLEMENT (or PINCER or ENVELOPMENT) STRATEGY

This is a strategy that can be used when resources, speed and coordination is to your advantage. The Primary Idea is to engage the enemy at multiple points – keeping him engaged in frontal attacks, using the element of surprise to attack his rear / reinforcements, attacking the north, then suddenly the south… etc. The enemy gets disoriented and confused which creates panic – resulting in more mistakes.

  • Ideal if you have numerical or geographic superiority (to the tune of 10 to one)
  • You have advantages of speed and coordination across the organisation – in comparison to your target
  • You have placed the right teams in the right locations / positions.

This is both, a tactic successfully used in offense as well as defense. In fact, in the example below despite smaller numbers, speed and coordination won the day.

Cannae-BattleSchematics-1480px

Battle of Canae: During the Second Punic War, Roman Legions marched to confront Hannibal with a force roughly twice his size (approx 86,000 vs. Hannibal’s 50,000). With the objective of breaking Hannibal’s centre, the Roman consul Varro, deployed a strong centre of infantry, with considerable depth instead of width, flanked by cavalry. An open battle field was selected to ensure that Hannibal’s trickery doesn’t lead to a sudden ambush. Despite clear advantages in size, the roman army was annihilated.

While the cavalry factions were engaged in fierce combat in the sidelines; Hannibal, ordered his center on a controlled retreat – creating an enveloping movement of the roman army. Sudden flanks were exposed in the roman army’s formation at which point Hannibal ordered his North African infantry to turn inward into the roman flanks. When the cavalry attacked the rear, the roman army was completely surrounded and were decimated – their superior numbers worthless against master strategy. 

Encirclement strategy can work in many ways:

  • Portfolio – Utilise your portfolio of products to attack on many fronts – Price (high priced and low priced), Attribute specialists (keep a specialist in each of the attributes) or brand / demographic /  psycho graphic positioning (youthful, mature, etc.)
  • Single product – Exceptional product, lower price, higher media spend, wider distribution, etc.

To gain control of the smartphone market, Samsung launched a slew of phones – across sizes, technologies and prices against Apples iconic iPhone. This encirclement with a dizzying 200 models – against Apples one icon – created many alternate scopes for re-evaluation, severely creating pressure on Apple leading to its fall within that category.

You can also think of encirclement from a defensive point of view of a market leader. Taking toothpastes as an example, the market leader in every country would hold variants with different attributes – Whitening, cavity protection, for kids, sensitivity, etc. and a main variant (say ‘total’).  Even if the variants do not perform well individually, the player would continue to hold the variant and in fact, extensively advertise the variants’ benefits. This ensures that all these benefits cumulatively get attributed to the main variant. Also, any attempt by a new variant to flank it (by focusing on particular benefits) would see limited success as the leader can ‘encircle’ the new entrant easily.

BYPASS STRATEGY

Under  some circumstances, avoidance of conflict could be the best strategy, especially when you have no significant advantage in either size, resources or strategy. This is also a good strategy in industries where the pace of innovation is high – technology, gadgets, fashion, etc. One doesn’t have a need to fight with existing players since there is ample scope to either grow the market or ‘leap frog’ to higher stages of innovation. You could also interpret the bypass strategy as unrelated diversification or new segment development. In all, key elements of the strategy are:

  • This has to be done by targeting an uncontested area
  • Quickly drive volume / networks and gain complete control of the new market
  • Your entire business model should be focused to delivering value to this new segment.

Despite being part of a tough industry (airlines – the industry that has most burnt investor value cumulatively), South West Airlines had profitable operations by focusing on new fliers on direct, short haul flights. This was the cornerstone of their strategy, which allowed them to create a new market and avoid a head on collision with established players. Their whole method of operation was different – Operate point to point (while entire industry operated hub and spoke), Operate 1 type of aircraft (while industry operated  atleast 2-3 depending on distance, demand, etc.), No / low frills to keep costs low (while industry spent on customer service, etc.), faster utilisation of planes due to quick turnaround time, focus on new fliers (vs. developing frequent flyers)… all to keep costs well below the industry and still go on to become the most profitable airline in an industry saddled by losses. By targeting a new customer and by having a totally different mode of operation, South West Airlines completely managed to bypass a direct fight with the competition.

GUERRILLA STRATEGY

Guerrilla warfare has been mentioned from ancient times – from nomadic tribes that have created havoc to well established kingdoms, to partisans in the world war who blew key supply routes only to blend in to the mountains, to the Viet Cong who developed a network of tunnels to disrupt a superpower. This can work if –

  • You are small and quick while the competition is large.
  • You use the terrain to your advantage, and you have focused on a very small part of the market.
  • You should be able to ‘Hit and Run’ – have very small entry and exit barriers. Also your mode of operation is different – where economies of scale have no benefits.
  • Having an ‘Aura’ helps. You need to also cultivate fiercely loyal supporters.

Many family businesses operate in the high end fashion / accessories market, with a completely different business model. They focus on a niche segment of users, have excellent understanding of their clientele, and in turn generate fiercely loyal supporters willing to do anything for their product. They have very low overheads – enabling them to start and stop their entire business as per demand. The market leaders who focus on volume never enter this segment or fail miserably when they try – the market seems too small to them and moreover, they just cannot replicate the customer intimacy !

Suggested Further Reading:

Marketing Warfare, Al Ries and Jack Trout

The 33 Strategies of War, Robert Greene

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