When looking at the challenges that the fast-moving tech landscape throws up, it is often tempting to think that these problems are new to the 21st century and consequently need completely novel approaches. While the mechanics, business process and technologies may well be new, the underlying problem is very likely to be one that has been around for centuries. Just as the Roman Republic can provide a casebook of the entire gamut of political mechanations and intrigue, similarly, history books can provide invaluable advice on competitive strategies. These can be as applicable to how to compete in the gig economy and big data as they were in the times of Ancient Greece. More specifically, military history offers a treasure trove of relevant analogies, particularly when business strategy is viewed through the prism of seeking an advantage against competitors in the marketplace.
1. The Art of War – the original business strategy text
One of the oldest documented treatises on military strategy was written by the Chinese general and philosopher Sun Tzu. While whether The Art of War was actually written by Sun Tzu is still to be resolved, there is no doubt that it is one of the seminal texts of military strategy. It has also become a leading influence in business leadership and strategy, so its inclusion is this post is not particularly original. Nevertheless, many of its aphorisms remain true, and its guidelines have an oddly contemporary feel, even in today’s unpredictable business environment.
Mark McNeilly provides a good overview of the applicability of The Art of War to the modern business leader. Some of the standout principles he highlights are:
Avoid Strength and Attack Weakness – An obvious one perhaps, but a surprising number of businesses, especially start-ups, try to take on incumbent players head-on, in the belief that their superior products will prevail. Needless to say, they often end up at the losing end of an attritional battle. For example, easyjet and Ryanair exploited the structural high cost base of full-service carriers such as British Airways and Air France to build very successful, fast-growing companies that couldn’t be emulated by the established airlines with their high and inflexible staff-related costs.
Know the Enemy and Know Yourself – Again, this is not a particularly original principle, but is also a recommendation that is often misunderstood and ignored. This is not simply an exercise of carrying out a SWOT analysis and comparing your competitors’ strengths and weaknesses with your own, but also involves putting yourself in your competitors’ shoes and viewing the market from their landscape. For example, in Laurence of Arabia’s famous attack on the Turks at Aqaba, the crucial insight was that the Turks assumed no-one would attack from the desert, believing it to be impossible.
Speed is the essence of war. “Take advantage of the enemy’s unpreparedness; travel by unexpected routes and strike him where has taken no precautions” – A precept that we have looked at a number of times elsewhere in this blog, speed allows both businesses and armies to out-manoeuvre the competition, or to gain an unassailable advantage.
Use Alliances to Your Advantage A mainstay of modern business strategy, the formation of strategic alliances is a recognition that few businesses have the scale or scope to compete without some form of symbiotic partnership. This is particularly true in the tech industry, where most technology-based products are the culmination of such a broad and diverse level of technologies, that no single company can go it alone. Hence, Google are partnering with Chrysler in their self-driving car efforts, and Apple relies on Google to provide Internet search on its iPhones.
Use Control Points to Your Advantage The use of Control Points within a value chain is perhaps more subtle strategy, but equally important. For example, the Apple App Store is a uniquely powerful control point of the iPhone ecosystem, as through it, not only can Apple extract 30% of all app revenues, but it is also in effect imposes a retail monopoly on iPhones, by acting as a gatekeeper for all businesses wanting to sell there wares to Apple users. Similarly the mobile SIM card was for long a key control point that gave mobile operators control over revenue associated with with making a mobile voice call. The emergence of WiFi-capable phones and networks, as well as services like Skype and WhatsApp, made it easy for users to circumvent these control points.
2. Adapt or Die
In the first century BC, the Roman army was the most formidable fighting machine the world had ever seen. The army was made up of legions of professional foot soldiers (or legionaries), whose discipline was the foundation of centuries of dominance in Europe. Building on tactics introduced by the Spartans, the legionaries fought as very dense groups of foot soldiers, effectively forming a solid mass of shields, spears and stabbing swords. These formations could defeat any other fighting force lacking the same discipline and training, allowing the Romans to break out of Italy and slowly take control of most of Europe and the rest of the Mediterranean basin. The Roman army was a classic example of an organisation supremely optimised to take on and defeat any known opponent, whether infantry or cavalry.
This all changed when the Romans came across the Parthians, an empire that covered much of modern Iran, Iraq and Turkey. In a classic case of hubris and greed, the Roman general Crassus, took seven legions, estimated at more than 40,000 men on an expedition of conquest. The Parthian army was ready for them, and used tactics not seen before, namely the use of mounted bowmen who could shower the slow-moving Roman infantry with a deadly hail of arrow fire. The two armies met at Carrhae (now in Southern Turkey) where the Parthian tactics proved devastating. Despite outnumbering their foes four-to-one, the Romans were annihilated. Only 10,000 survived, with 20,000 killed and a further 10,000 captured. Crassus himself was captured and killed. The Roman legions were thought to be invulnerable to cavalry charges, and indeed up to this point they were. However, they were completely unable to deal with an army who engaged them on completely different terms. Although optimised for European warfare, the Roman army proved to be no match for nomadic horsemen from the Eurasian steppes.
When encountering a competitor who cannot be beaten with your existing capabilities, organisation or technology, there are two options. Retreat and concede territory (or markets) to your rival, or adapt. Adaptation can mean copying your enemy’s tactics, at which point you will rely on other sources of differentiation to prevail, often superior resources (money, people, persistence), or preferably adopt superior tactics. In this example, the defeat at Carrhae proved a terrible shock for the Roman Republic, and they withdrew and disengaged from hostilities with the Parthians. Three centuries later, when the Roman Empire took on the Persians, they defeated them using a combination of light and heavy cavalry, paired with legions of disciplined ranks of foot soldiers. The number of horsemen in the Roman armies had risen from one in ten to one in three. However it wasn’t simply a case of increasing the size of the cavalry. The Roman army developed a way of fighting that combined the speed and versatility of its enemies’ mounted archers with its own core strength of densely-packed infantries. By learning from catastrophic defeats, the Romans were thus able to defeat the mounted armies from the East.
The lessons and parallels are obvious. Most large multinationals are, by definition, successful organisations that have grown and competed successfully with all known competitors. However, when the technology or business landscape changes, these need to decide whether to concede the markets under threat to the upstart competitors or to take them on, either copying their tactics, or preferably improving them. Microsoft chose the latter approach. With its Office and Windows markets set for interminable decline, Microsoft has used its software engineering and enterprise expertise to build itself as a dominant cloud services player with much more success than competitors such as Oracle and HP.
In the airline industry, many full-fare carriers, savaged by the marauding likes of Ryanair and EasyJet simply decided to copy them, maintaining their full-fare offerings while setting up or buying low-cost competitors. BA-Iberia now owns low-frills Vueling, while Lufthansa operates Air Berlin, though in both cases with mixed results.
3. The Cold War: The Doctrine of Imposing Disproportionate Costs
In his excellent book Good Strategy – Bad Strategy, Richard Rumelt gives his opinion on why the Americans won the Cold War. In essence, they forced the Soviets to lose it. Realising that the economic advantages of the West only gave a relatively modest advantage in the arms race of the ’70s and ’80s, they decided that technology would make the difference. Up to that point, the Cold War arms race was increasingly becoming an expensive numbers game – with each side trying to produce ever greater numbers of tanks, missiles, aircraft than their adversary. Effectively it had become an economic war of attrition.
Under the new doctrine, the United States decided to focus on areas in which not only did they have a technological edge, but which were also expensive to counter. Hence, giving much prominence to the ‘Star Wars’ anti-missile programme forced the Soviet to develop prohibitively expensive missile systems. Even though the system was never deployed, it forced the Soviets to invest heavily in areas it didn’t really need to. Similarly, providing low-cost Stinger anti-aircraft missiles to Afghani fighters had a disproportionate cost on the Soviet army’s ability to retain control of the country.
In the tech industry, the exploitation of network effects, by which the value of a system increases exponentially as the number of users increases, provides an extremely effective way of imposing exorbitant costs on competitors. Both Apple and Google used these principals to good effect by developing the two de-facto smartphone platforms in iOS and Android. Although Microsoft had been shipping modest volumes of its Windows Mobile platform for many years before Apple or Google entered the fray, once they fell into third place, they were no longer able to become a credible player. When choosing a smartphone, users want the reassurance that they will find all their favourite apps. Conversely app developers will only create apps for which there is a market, and hence an addressable base. Microsoft tried to overcome this disadvantage by funding app development out of its own pocket, but ultimately found that it could not compete effectively.
Qualcomm, a manufacturer of chips used in mobile phones is another company that has thrived by imposing disproportionate costs on its competitors. Having originally developed much of the technology for use in 3G mobile phones, Qualcomm undertook a very aggressive strategy of growing its portfolio of patents in this area, both through a heavy investment in R&D as well as through acquisition. It extended its intellectual property dominance into the next generation of phones, known as 4G. As a result, not only was it able to develop market-leading products, but any company that wanted to compete, or indeed, simply purchase its products would have to pay hefty license fees. This strategy was extremely successful, giving with Qualcomm achieving a reported 65% market share in 4G chipsets earlier this year.
4. Overwhelming Force
In 1991, when faced with the task of liberating Kuwait from a well dug-in Iaqi army, US General Norman Schwarzkopf successfully petitioned President George H Bush to provide half a million troops. He argued that increasing the number of soldiers at his disposal for the task at hand would reduce the number of US and Allied casualties. When the ground invasion was launched, it took only four days (or one hundred hours) for the Iraqi army to be thoroughly destroyed and a ceasefire declared. The strategy adopted was a casebook study of Force Concentration, the theory whereby concentrating your forces against a portion of the enemy allows for such a disparity of resources so as to overwhelm them. The introduction of armoured warfare was an embodiment of this theory, as the combination of firepower and mobility allowed tank formations to rapidly concentrate firepower on given sections of the enemy.
When applied to business strategy, the lesson is simple – Focus! Too often, having an abundance of riches at your disposal, be they logistical, capital or people, is a curse and a precursor to bad strategy. This is because it becomes tempting to spread these assets and resources thinly to cover all bases – perhaps by covering too many markets or geographies, or addressing too many markets, in a misguided view that all covering all options is a viable strategy. This is a clear case where a lack of decisiveness masquerades as strategy.
For this reason, large companies tend to ignore the importance of force concentration. One classic example was Walmart’s focus on smaller rural towns. It had determined that these were ignored by the (then) larger Kmart and Sears retailers, and saw these as ripe for the taking. Similarly, when Apple entered the mobile phone market, they did so with a single phone, and only rolled out a second model a year later. Distribution in the US was initially limited to AT&T Mobility, a model replicated in other markets. This ensured that all their development effort was aimed squarely at the aspirational high-end mobile-phone segment, a target segment where Apple’s brand and design values were singularly well placed to succeed.
What we have seen here are just a few examples of how the maxims, principles and theories of military strategy are relevant to competitive business strategy. While I am not for a instant suggesting that companies should lose the focus on customer needs, at the end of the day, what matters in business is being more successful than your competitors. If there were no competitors, then customers will flock to you, simply out of necessity. When viewed through this perspective, then the modern business landscape becomes much like manoeuvre mobile warfare, with companies seeking out their competitors’ weak points, trying to anticipate their actions, while at the same time, ensuring that they don’t fall victim to a surprise assault. So while it may be tempting to reach for the latest over-hyped business book at an airport bookshop, for a true understanding of the real fundamentals of business strategy, you should consider something a bit older, but perhaps equally topical and relevant.
- Edward Luttwak – The Grand Strategy of the Roman Empire
- Ian Morris – War – What is it Good For?
- Richard Rumelt – Good Strategy – Bad Strategy