I’m doing an exception from one stratagem per post convention. I wanted to stick with it, but the more I researched and contemplated about Surprise and Deception & deceit, the more it made sense to combine them into a single article.

Stratagems #4 and #5: Surprise, deception and deceit

Boy, do these stratagems ever get a lot of love from Sun Tzu. Where to start, right? The Art of War is full of strategies and insights that include elements of surprise, deception and deceit. From doing battle and planning a siege to maneuvering armies, surprise and deception appear everywhere in Sun Tzu’s thinking.

To Sun Tzu, all warfare is based on deception:

A military operation involves deception. Even though you are competent, appear to be incompetent. Though effective, appear to be ineffective.^[1]

When you are going to attack nearby, make it look as if you are going to go a long way; when you are going to attack far away, make it look as if you are going just a short distance.^[2]

Draw them in with the prospect of gain, take them by confusion.^[3] — Sun Tzu

A wise military leadership understands the value of intelligence and uses disinformation campaigns to deceive the enemy.

Dead spies transmit false intelligence to enemy spies.^[4] — Sun Tzu

Sun Tzu emphasises surprise by advising on not divulging the formation of one’s forces and tactics beforehand and attacking when they are unprepared.

Be extremely subtle, even to the point of formlessness. Be extremely mysterious, even to the point of soundlessness. Thereby you can be the director of the opponent’s fate.^[5]

The formation and procedure used by the military should not be divulged beforehand.^[6]

Attack when they are unprepared, make your move when they do not expect it.^[7] — Sun Tzu

How does one utilize surprise to the point that opponent is in constant reactive mode? One has to fight according to the enemy, with rapid OODA loop cycle, constantly reorienting and acting faster than the opponent. Therefore you can be making one, two, three or five decisions and take necessary actions on those decisions while your opponent is responding to your first move.

Surprise is the essence of victory. In battle, confrontation is done directly, victory is gained by surprise^[8].

All right, we’ve hopefully established that surprise and deception are important elements of the battle when the bullets fly for real. How about when we compete for monetary units and markets?

Businesses hate surprises

I’m telling you a little secret: people don’t like surprises. Sure, they might tell you that they do like them, but the ones they like are the ones they want. The surprises people do not want are called problems or challenges^[9]. Businesses hate them, because a surprise immediately represents a challenge, a call to action or a need for change to their existing business model, offering, market situation.

And since businesses are run by people, people hate surprises. It’s one thing being surprised on a personal level – let’s say your significant other suddenly fells ill and you can’t make the weekend trip – and completely another being surprised on corporate level, where entire staff’s economic livelihood might be jeopardized when competitors suddenly merge to create even larger rival and threat to your business. If the personal level situation just irritates you, the other one might strike a fear of losing the job to the whole company, thus hampering company performance or maybe even paralyzing the personnel.

Of course, it is a completely different ballgame and mindset when you are the one business surprising the competition and the markets. You’ll love being on introducing game-changing surprises to the economic battlefield because it positions you advantageously compared to your competition.

Ethical deception and deceit in business

Wow, quite a loaded headline: ethical deception and deceit in business. Is there such a concept as ethical deception and deceit? Everybody can probably think illegal and unethical deception tactics, recently unearthed the world-famous Bernard Madoff Ponzi scheme comes quickly to my mind as an example.

However, I think that words ethical and deception can co-exist together in a context, kind of. When I talk about ethical deception in business, what I mean is that a business keeps its cards close together its chest, its appearance to competitors seem to be different what it really is or what it wants and its actions seem like trivial ones until it’s too late for the competitors to know what hit them.

Example uses of this stratagem can be found in an excellent book Hardball: Are You Playing to Play or Playing to Win by George Stalk and Rob Lachenauer. The authors talk about two hardball strategies called Threaten Your Competitor’s Profit Sanctuaries^[10] and Enticing Your Competitor To Retreat^[11]. The first one means that one determines its competitor’s areas of business that generate the largest profits for the competitor and attacks those areas and key accounts with aggressive pricing, expanded product or service offerings, or combination of these. The intent is to choke the cashflow of the competitor and therefore forcing a change in competitor’s practices on perhaps one’s own profit sanctuaries.

Japanese car manufacturers play hardball with the Big Three

An example shown in the book described how Japanese automakers attacked the Big Three automakers’ (GM, Chrysler, Ford) profit sanctuary – minivans, light trucks and SUVs. By the late 1990s, the Big Three sold more light trucks in North America than they did cars. These light trucks could bring in $10.000 or more in profits per vehicle sold. However, in early 2000s, this profit sanctuary was almost completely financing the rest of the companies as the other business units were eating the profits.

With their superior knowledge of costs and production systems producing high quality cars, Japanese automakers such as Toyota and Honda began an onslaught by offering their vehicles on very competitive prices while high quality assured higher resale value of the vehicles. Gradually over time they gained market share and began on chipping away the profits the Big Three was and had been enjoying for quite some time. This obviously hit hard on the Big Three and threatened to choke the cashflow of the companies. They tried to fight back with the same weapons that they were successfully attacked with, lower prices and increased quality. But feeble was their attempt to strike back as they weren’t able to recapture the lost market share and profits that the competitors had significantly pushed down with their actions.

In retrospective, this is probably one of the main reasons why the car companies have now been pleading for bailout from the U.S. Congress. Toyota, Honda and Nissan have indirectly controlled the cash faucets of the Big Three and forced them to eat away their capital in the fierce fight to retain the positions in the market. Now that the vaults are empty, they’re desperately looking for American taxpayers to bail them out for bad business practices.

But why did Japanese automakers attack this profit sanctuary, other than choking the cashflow? Well, they had free reign in lower end spectrum of the vehicle market. They could quietly continuously innovate and take over more market share as the Big Three were keeping their smaller car lines in the market mostly just to meet U.S. regulations of corporate average fuel economy (CAFE) for their whole product line. The vehicles in profit sanctuary were gas guzzlers and smaller, fuel-efficient cars were offsetting fuel-wise inefficient product lines. The Big Three were also too busy trying to counter the punches in high-end market to pay attention to the low-end and changing business and regulatory environment – poor Observation and Orientation. To Toyota, Honda and Nissan, the attack on profit sanctuary was a Nebenpunkt while the takeover of low-end market and choking the cashflow were the Schwerpunkt of the hardball strategy.

Rounding out the attack with a push to retreat

Enticing Your Competitor To Retreat can be seen as both a counter-move to the threat or attack on profit sanctuaries or a complementary move to one’s own attack. In this strategy, one wants to lure a competitor out of a profitable business area into a different, less important and profitable one by leveraging the superior knowledge of one’s business activities.

Well, this is exactly what Japanese automakers did in the low-end market while attacking the profit sanctuary of the Big Three. With relentless focus on lowering the production costs and pushing the quality even higher, Toyota and the others made the Big Three to gradually abandon one by one all low-end and eventually middle market segments by making it more attractive and profitable to fight on the high-end market. Once a credible competitive threat was out of each market and only the fuel regulation window dressings remained, Toyota and the others could focus on capturing the market which would be nicely profitable when a certain high volume had been reached.

Gradually, the quality of Japanese vehicles have raised the demands and expectations of customers. Customers got accustomed to high quality cars that were fuel-efficient and affordable. That’s why sales numbers for the Big Three have been dropping like a rock when customers have been rejecting the vehicles that Detroit is pushing out of its factories. Adding to the insult was the “Great Speculation of the Oil Market”, the price hike that from 2006 to 2008 took the price of oil to some $150 per barrel and gas prices to over $4 a gallon at the pump. American vehicles had lousy fuel economy in every class while Japanese automakers could brag and boast with their energy-efficient vehicles such as Toyota Prius, capturing ever more market share.

Epilogue

Combining hardball strategies such as Threaten Your Competitor’s Profit Sanctuaries and Enticing Your Competitor To Retreat in deceptive manner can lead to devastating effects on competition as this Japanese automakers vs. the Big Three example shows. While these strategies are not easy to pull off as they require deep knowledge of the business activities and their costs, you can always start looking into using them by at least identifying the profit sanctuaries for both your business and most important competitors. Once you’ve done that, I’m sure you already have a leg-up on the competition and can start plotting ways to take advantage of these strategies.

Next up, formlessness and being unfathomable.

References

1. Sun Tzu, The Art of War, p. 67
2. Ibid., p. 68
3. Ibid., p. 69
4. Ibid., p. 219
5. Ibid., p. 137
6. Ibid., p. 74
7. Ibid., p. 74
8. Ibid., p. 124
9. Anthony Robbins, TED talk at TED 2006
10. George Stalk, Rob Lachenauer, Hardball: Are You Playing to Play or Playing to Win, p. 55
11. Ibid., p. 87

Stratagem #2: Foreknowledge

In the last post, I talked about shaping the opponent and acting according to the enemy. One of the core components of this principle is foreknowledge – foresight and intelligence that helps us to better orient to the situation, environment and the opponent.

Sun Tzu talks about the necessity of foreknowledge.

A major military operation is a severe drain on the nation, and may be kept up for years in the struggle for one day’s victory. So to fail to know the conditions of opponents because of reluctance to give rewards for intelligence is extremely inhumane, uncharacteristic of a true military leader, uncharacteristic of an assistant of the government, uncharacteristic of a victorious chief. So what enables an intelligent government and a wise military leadership to overcome others and achieve extraordinary accomplishments is foreknowledge. – Sun Tzu^[1]

To Sun Tzu, not knowing the opponent’s goals, objectives, plans and position of forces as well as the character of command, is inexcusable and a way to failure and defeat.

Frans P.B. Osinga notes in his book that foreknowledge is essential for the grand strategic level, but it permeates the whole body of thought.^[2] Foreknowledge means something different at each level of war and battle. Each level has different issues to address and in the different levels of detail. For example, on grand strategic level it’s obviously important to know what is the agenda of the opposing nation or band of nations; on military strategic level it’s perhaps the drivers of the policies put forward by one’s opponent; on battle strategy level it might be what forces each party has in the theater; on tactical level it might mean the number of enemy units of particular type, their mobility and how long they can hold a position.

One must be active gatherer of intelligence and not resort to assumptions, calculations and other means of interpreting the enemy and not obtaining the facts.

Foreknowledge cannot be gotten from ghosts and spirits, cannot be had by analogy, cannot be found out by calculation. It must be obtained from people, people who know the conditions of the enemy. — Sun Tzu^[3]

As Chet Richards noted in his study A Swift, Elusive Sword, Sun Tzu’s commanders are not passive “consumers” of intelligence^[4], but actively and by all means seek out the very pieces of intelligence that will give them the upper hand and a decisive advantage against the enemy.

Therefore, no one in the armed forces is treated as familiarly as are spies, no one is given rewards as rich as those given to spies, and no matter is more secret than espionage. — Sun Tzu^[5]

This implies that the commander and leader must be very close to the sources obtaining foreknowledge in order to get the truth, unfiltered, and to be able to interpret the weak signals.

But before even one gets to war-time intelligence gathering phase and using spies, an important pieces of foreknowledge must be obtained and that must happen before deciding whether to start clashing sabres at all. In grand strategy level, because the survival or destruction of a country and the life or death of its people may depend on military action, it is necessary to examine it carefully. Sun Tzu encouraged to measure and assess oneself with five things:

Therefore measure in terms of five things, use these assessments to make comparisons, and thus find out what the conditions are. The five things are the way, the weather, the terrain, the leadership, and discipline. — Sun Tzu^[6]

The way is the ability to find a common goal, purpose, einheit, so that leaders and the people will share the same fate (life or death) together. The weather means the seasons, knowing when to fight. Don’t go into another’s territory at an unfavorable time.^[7] The terrain is obviously the battleground environment, the lay of the land. If your forces consist only of tanks, don’t go fighting in mountain range. The leadership is a matter of intelligence, trustworthness, humaneness, courage and sternness.^[8] And discipline means organization, chain of command and logistics.^[9]

Once this groundwork has been done, then you can determine who is superior, who is likely to prevail and should you mobilize your forces after all.

Business foreknowledge

Let’s examine foreknowledge and Sun Tzu in business context. Why foreknowledge is very important in, let’s say, product development or customer development?

Obviously, one should not run a business by blindly developing an offering and trying to market and sell it to the world. Yet this is what most of the companies seem to do. Jussi Laakkonen, founder of Everyplay, wrote a great piece on customer development. He said that according to Steve Blank, a lecturer at Stanford and a serial entrepreneur, 9 out of 10 startups fail from the lack of customers. Put more simply, nobody wanted to buy what they were making. They failed because they didn’t obtain necessary foreknowledge. They didn’t get out of the office to talk to their prospects and customers, to study them, to survey the market, to study their competitors and find out where and how the company could offer greater value than anybody else. Instead they resorted to phony assumptions, calculations and suppositions about the customers, the size of the market, etc. To paraphrase Sun Tzu,

Foreknowledge cannot be gotten from assumptions and suppositions, cannot be found out by calculation, cannot be gotten from outside analysts. It must be obtained from people, people who know the conditions of the customer, the conditions of the competitor, the conditions of the market.

Of course one can make educated guesses about all of these things, but those guesses shouldn’t ever be treated as facts, a business shouldn’t ever rely solely on them, and the guesses should be validated by the obtained foreknowledge and business intelligence.

Now that we have probably established the need for obtaining foreknowledge and business intelligence, how do we go about obtaining it? Here are few means of gathering foreknowledge:

• Talk to your prospects and customers
  This is a no-brainer. If these folks dislike and don’t buy your offerings, it’s irrelevant what the competition, the market, all the rest of it do or look like. Work together with these people as they possess the key knowledge for competitive advantage. Look for value gaps or needs that haven’t been either discovered or addressed yet and value innovate like crazy.
• Study your competitors
  Research their marketing and sales efforts, material and methods. Buy their products and services to find out how their order management cycle, production and delivery processes, and customer service works and operates, and where they fall short of excellence.
• Observe your own processes and behaviour
  At least observe your company’s order management cycle to find out how customers will experience buying from you or try to think through the processes that customers see, experience and interact with. Does your company have the way of doing business and serving customers that all stakeholders buy into? Are you disciplined enough to prevail?
• Observe the market and the world
  Get up to speed with the megatrends happening in the world and trends happening in your markets. Know the terrain you’ll be competing on and what is the economic weather like.
• Look outside your market and industry
  Observe successful businesses outside your market or field. Try to get another point of view on a particular business subject, to broaden your view of the ways of doing business. You might gain an unfair competitive advantage from bringing in existing elsewhere well-known practices to your industry or market.
• Challenge all assumptions
  If everybody have done something some way for fifty years, it’s still not necessarily the best way of doing business. Look everything with critical eye.

If you use these means and more to know everything that there is to know about your business, customers, competitors and the market, you’ll be leaps and bounds ahead of most of the companies in the market. Now that the world economies seem to enter a downturn, competing for all business becomes more fierce and important, and all means of getting the upper hand on your competition are very valuable. Don’t waste your time on ever improving your offerings with features that the customers might not find valuable but get out there and boost up your foreknowledge.

Tomorrow we’ll look into Cohesion.

If you happen to read these through and find them at least a bit valuable, please let me know what you think of this material and how I could improve these posts. Am I rambling for too long, am I not explaining myself clearly, any comment would be very helpful.

References

1. Sun Tzu, The Art of War, p. 219
2. Frans P.B. Osinga, Science, Strategy and War: The Strategic Theory of John Boyd , p. 39
3. Sun Tzu, p. 219
4. Chet Richards, A Swift, Elusive Sword: What if Sun Tzu and John Boyd Did a National Defense Review?, p. 19
5. Sun Tzu, p. 220
6. Ibid., p. 60
7. Ibid., p. 63
8. Ibid., p. 63
9. Ibid., p. 64

Stratagem #1: According to the enemy

As I noted in the prefacing post of this series, John Boyd was heavily influenced by Eastern cultures, especially classical Taoism and Zen. In Chinese philosophy, there’s well-known concept of yin yang and it is used to describe how seemingly opposing forces are interdependent in the natural world.

Wikipedia gives the following description for the relationship between yin and yang^[1]:

The relationship … is often described in terms of sunlight playing over a mountain and in the valley. Yin (literally the ’shady place’ or ‘north slope’) is the dark area occluded by the mountain’s bulk, while yang (literally the ’sunny place’ or ’south slope’) is the brightly lit portion. As the sun moves across the sky, yin and yang gradually trade places with each other, revealing what was obscured and obscuring what was revealed.

Yin-yang is an active concept. Yin and yang are opposing forces or qualities, they are rooted together, they transform each other and they are balanced, a dynamic equilibrium. However, yin-yang is not an actual substance or force, as it is usually often mistakenly conceived in western terms. It’s a universal way of describing interactions and interrelations between natural forces of the world.

Sun Tzu and yin-yang

Sun Tzu took the concept that yin and yang can transform each other and made the assumption that one can shape the opponent through the principle of ‘according to the enemy’. This principle requires foreknowledge (foresight, knowledge of the environment or battlefield) and cohesion of one’s forces in order to effectively shape the opponent and to orient and adapt oneself to the situation and the environment. Every situation has its give and take, and can be turned into an opportunity.

For example, when Sun Tzu talks about maneuvering armies in the battle, he says^[2]

“Whenever the terrain has impassable ravines, natural enclosures, natural prisons, natural traps, natural pitfalls and natural clefts, you should leave quickly and not get near them. For myself, I keep away from these, so that opponents are nearer to them; I keep my face to these so that opponents have their backs to them.” — Sun Tzu

This resembles the foreknowledge that a commander must have so that he can effectively position his forces for combat and shape the opponent by positioning its forces in disadvantageous position.

According to the competition – what it means in business context?

How can this stratagem be applied to business context? According to the competition might mean that a business is able to 1) observe the competition and the markets, 2) orient and position itself to act according to competitors’ position and actions, and therefore 3) shape the competitors’ environment and markets.

As in war and on the battlefield, being successful in #1 and #2 requires a wealth of foreknowledge and very good foreknowledge gathering capabilities. Get up to speed with the megatrends happening in the world and trends happening in your markets. You need to study your competitors’ offerings closely by researching their marketing and sales efforts, material and methods. Buy their products and services to find out how their order management cycle, production and delivery processes, and customer service works and operates, and where they fall short of excellence.

Once you’ve done this, do the same thing on your own company. At least observe your company’s order management cycle to find out how customers will experience buying from you or try to think through the processes that customers see, experience and interact with.

Last, observe successful businesses outside your market or field. Try to get another point of view on a particular business subject, to broaden your view of the ways of doing business. For example, the “best practice” or the way of doing business in sales in your field might not be the optimal one, and someone else in totally different industry might have methods or practices that will blow your competition out of the water once you adapt them.

Boyd talked about doctrines and how everybody seems to have a doctrine – the German doctrine, the Air Force doctrine, the Army doctrine. He argued that one cannot have or adopt only one doctrine but one must study them all. Then one isn’t captured by any one doctrine, can pull ideas and practices out of any doctrine, form a synthesis and do better than anybody else. Boyd also argued that doctrine is a doctrine on Day One, but becomes a dogma every day after. Therefore, you need to constantly challenge the assumptions, the “best practices” and the standard way of doing things in your industry and field of business.

“Because if you have got only one doctrine, you are a dinosaur.” — John Boyd

After you’ve gathered the intelligence, analyze your competitors and your own company side by side, pick out the remarkable components that will give your business an edge and form a synthesis from these to create an offering, business model or a process that’s superior than your current one. Now you’ve completed the observation and orientation parts of the OODA loop.

Now you can shape your competition and the markets by (deciding and) acting on the foreknowledge you’ve accumulated. By accelerating your OODA looping to faster pace than your competition, you can start putting the competition on their toes and forcing them to accepting positions that they would not like taking. The rapid pace of change or advancement lets you orient and start acting on the next thing when your competition is scrambling to respond to your previous move.

This might mean doing product or service innovation at very rapid pace, incrementally and iteratively bringing small batches of new value into your value chain all the time. Let’s call it Innovation Blitzkrieg, a phenomenon where you’d delight your customers on a daily or weekly basis by visibly improving your offering by adding new value and constantly communicating with them how they experience the new offering and how you should develop it even further. Once you start doing this, your competitors are quickly seen as laggards, trying to play catch-up and look up to you for driving the innovation in your industry. Don’t pile large chunks of new value into “new releases” of your product or service, but immediately increase the value of your offering by bringing the new value to the market as soon as you can reliably deliver it most of the time.

That’s it for stratagem number one. I might have stepped off track for a while there, but as I’m thinking these through, it seems that many of Sun Tzu’s and John Boyd’s stratagems and concepts are so intertwined that picking out just one and trying to analyze just that one seems to be nigh impossible.

Next up, Foreknowledge.

References:

1. Wikipedia: Yin and yang
2. Sun Tzu, The Art of War, p. 173

But back to the book. Osinga talks about Sun Tzu, whose name many people recognize and associate him as the author of The Art of War, an ancient Chinese book on military strategy. According to Osinga, Sun Tzu must be considered to be the true conceptual, albeit ancient, father of Boyd’s work^[1]. Boyd was heavily influenced by Eastern cultures, especially classical Taoism and Zen. In the book, Osinga fleshes out ten stratagems^[2] that influenced Boyd and lead him to incorporate them into his thinking and theories.

These stratagems are:

1. According with the enemy
2. Foreknowledge
3. Cohesion
4. Surprise
5. Deception and deceit
6. Formlessness and being unfathomable
7. High tempo
8. Variety and flexibility
9. Orthodox and unorthodox
10. Vacuous and substantial

My journal was filling up page after page of notes while I studied and reflected on these stratagems. While these ideas and concepts were originally conceived for describing strategy and nature of war, with a little bit of analysis and synthesis I think these can be applied to business world. While war is a concentrated form of human struggle against environment^[3], so is running a business even though we’re not defeating nations and killing human beings. We as a company are competing against other businesses and ultimately our goal is to defeat other players or diminish the possibility of strong competition.

Reading about these stratagems and how they relate to Boyd’s work inspired me to reflect on these in light of business context and how to use them to play hardball with one’s competition and markets. In other words, how these themes and Boyd’s ideas might work together in business situations and how to get an edge on one’s competition by applying these ideas in one’s business strategy.

I’m going to do a series of blog posts on these stratagems. You’ll find links to each post on this one, so you can get to all of them easily from one page.

• Stratagem #1 According to the enemy (Sun Tzu Series)
• Stratagem #2 Foreknowledge (Sun Tzu Series)
• Stratagem #3 Cohesion (Sun Tzu Series)
• Stratagems #4 and #5 Surprise, deception and deceit (Sun Tzu Series)
• Stratagem #6 Formlessness and being unfathomable (Sun Tzu Series)
• Stratagem #7 High tempo (Sun Tzu Series)
• Stratagem #8 Variety and flexibility (Sun Tzu Series)
• Stratagem #9 Orthodox and unorthodox (Sun Tzu Series)
• Stratagem #10 Vacuous and substantial (Sun Tzu Series)

I’ll try to write about one per day so you should be reading about stratagem number ten on Christmas Eve.

References:

1. Frans P.B. Osinga, Science, Strategy and War: The Strategic Theory of John Boyd, p. 35
2. Osinga, p. 38
3. Liddell Hart, Strategy, p. 330