Now, it’s The Art of Business by Sun Tzu

Companies, executives can learn much from ancient military classic

A military mindset is a familiar concept in modern-day business. Take the notion that a company needs to “crush the competitor,” or “dominate the field,” or even “bring out the big guns.”

It should come as no surprise, then, to learn that a professor of strategy, management and organization at the Nanyang Business School in China would analyse that nation’s oldest and best-known military classic, The Art of War by Sun Tzu.

“The relevance of Sun Tzu’s work is not confined to the military realm,” says Dr. Chow-Hou Wee. “In fact, much of his philosophy inspired countless corporate boardroom strategists both from the East and the West.”

For example, Langdon Morris, a researcher and partner at InnovationLabs, performed an analysis of Fortune 500 and Forbes 100 companies over the past several decades.
Dr. Chow-Hou Wee, Nanyang Business School professor

He found that, between 1979 and 1983, one-third of the Fortune 500 went out of business or fell off the list; even more surprising was that the list had a six-per-cent annual turn over. The Fortune 100 list was almost as bad.

By extrapolating the data and projecting it forward we see that only a third of today’s major corporations will survive as businesses for the next 25 years; most will die or be bought out and become absorbed.

Speaking to insurance and financial professionals at the Million Dollar Roundtable conference in Toronto last month, Wee said the root cause of the dropoff is the inability of business to adapt.

As a result, business leaders, like military generals, need three essential qualities in order to adapt, grow and win the business legacy war. These three qualities are:

* Be proactive;

* Be objective;

* Be willing to learn.

“By being proactive, a business will not only have ample time to prepare and gain market initiative, but will also have an opportunity to deal with the competition. By being proactive, a business owner will have more options and can respond more rationally and effectively under almost all circumstances.”

As an example, Wee cites a common set of answers that C-suite officials identify as their company goals: Maintaining market share, or staying No. 1. “If these were your answers, you are only half-right,” says Wee, “and saying half-right is an Oriental way of telling you politely that your answer is not good enough.”

This is because these answers come from a passive mindset – translated from Tzu’s 2,500-year-old epic work, a passive mindset leads to an idle army.

But the stance is not uncommon. Many companies forget how to hunger and earn for innovative gains, says Wee.

“The corporate executives become too concerned with defending and protecting their market share and forget how to lead. What happens? The leader becomes a follower.”

Most importantly, this passive mindset “violates the principles in the Art of War – namely to stay proactive at all times,” says Wee.

Instead, businesses must be encouraged to take risks – an attitude that must be nurtured from above.

“To be a leader, there is a need to continually innovate and be creative. This implies the necessity to take risks, to withstand stress and the ability to tolerate and accommodate mistakes,” says Wee.

One way a leader can accommodate mistakes (and nurture tactical risk-taking) is to appreciate and learn about their strategic advantage.

In The Art of War, Tzu guides decision-makers by saying: “Never move your troops unless there is something to be gained and refrain from fighting unless the position is critical.”

In today’s business environment, strategic risk-taking is the equivalent of corporate differentiation, says Wee.

By remaining objective, and creating a unique company culture (that includes product, service, customer and employee loyalty and everything in between), a business can differentiate itself from the market and create its own branding niche – thereby avoiding unnecessary and costly front-line battles.

Wee uses pricing wars as an example. If a leading company is always reacting to competitors’ temporary price drops, it will exhaust its team and resources.

However, if a company concentrates on the larger war at hand – to maintain and then surpass its current market share – it will develop strategies that do not include small skirmishes and wasted resources.

Instead, it will differentiate by creating distinction for its customers and the marketplace.

“Leading companies capitalize on their momentum of leadership,” says Wee. “They concentrate on mastering distance between they and their competitors, not on winning the battle of the day.

“Not surprisingly, corporate giants like Microsoft, Intel and Dell computers continue to dominate because they understand the inherent power of distancing.”

One way to develop a strong differentiation is to develop a willingness to learn, says Wee.

“Remember,” Wee says, “a proud and arrogant army is bound to face defeat. That means, when one is on top, one should not be arrogant. This is because there are still useful lessons to be learned from direct competitors who may be smaller, but more agile and adaptive.”

Wee uses the opening of Kentucky Fried Chicken in China as an example.

Since opening its first location in Beijing in 1987, the chain has expanded rapidly.

As of late 2007, there were more than 1,000 KFC restaurants across China. More importantly, it was the most prevalent foreign-owned fast-food chain in China.

“One would be tempted to think that, given its great success, (KFC) would have little to learn from its competitors, especially from the small, local Chinese food operators,” says Wee.

“Instead, (KFC) sought to learn from the product offerings of the smaller food operators. The result? Over the years, KFC introduced menu items that were popular with their resident population. This included Chinese-style vegetable soup, porridge and other dishes that cater to local tastebuds.”

Without diminishing its own differentiation in the market, KFC was able to create competitive distance and become a well-respected food establishment in a nation with a growing population.

Another important area businesses can grow from is through their employees.

“Rather than simply getting employees to meet sales quotas, you should also consider how to use them to get closer to customers and the market,” explains Wee. This is essential, according to Tzu, as it ensures that “the army is animated by the same spirit throughout all its ranks.”

By motivating an employee, say through performance evaluations, a company can begin to instil a competitive yet co-operative and innovative spirit within all divisions of the business.

“By asking questions, your personnel can be trained into openly sharing their ideas, successes and failures. As a result of sharing and learning, motivation and morale will also be reinforced.”

Wee believes the entire process can be summed up in an aphorism by Tzu regarding victory: “Thus it is that in war the victorious strategist only seeks battle after the victory has been won. Whereas he who is destined to defeat first fights and afterwards looks for victory.”

Says Wee: “It is always better when the enemy has to prepare himself against you than the other way round. And such an enviable position is only available to those enlightened few who know not only how to stay ahead of the field, but know how to distance themselves with differentiation and continue to learn and grow from that process.”

Originally published in Business Edge on July 25, 2008

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