By David Kane, BA, BCom, and Josée Santoni, MBA, CA

An ancient military doctrine still holds a lot of value in today's business environment

Is business all that different from war?
Recently, a colleague said we should not make comparisons between war and business, since the consequences of losing in war are far more serious than losing in business. This might be true in some cases, but for those who have invested a lifetime of sweat and money into their enterprise, losing is catastrophic.

Many people, regardless of their status in an organization, do not appreciate the seriousness of business and are often offended by the attitudes of those who do. They work for large companies where their connection to the venture's success or failure is distant at best. As a sales representative once said, "If I get the business I'm a superstar. If I don't, it's everyone else's fault." In these large organizations, employees get the impression that errors and omissions will easily be absorbed by the company's vast pool of resources.

People who take business seriously – including those who own or have worked in a small business — are acutely aware of the value of a dollar and know how quickly it can be spent.

Within the limits of ethics, professionalism and legality, business is all about protecting your investment and making enough money to provide for your family. When you realize this, business becomes deadly serious.

Impact of business failures
In recent times, we have seen the failure of large organizations such as Enron and the difficulties faced by companies such as Kmart and Nortel. These kinds of failures are massive — hundreds of millions of dollars, tens of thousands of employees – and the ripple effect on the economy is difficult to quantify. Although well publicized, these failures do not have a profound effect on most of us. We may have lost money through our investments but this to be expected from time to time and we generally accept the risks, especially since friends and colleagues are also suffering.

We hear of senior managers in these organizations whose careers have changed course. Most of us do not sympathize with them, since we believe they have already made fortunes and are mobile enough to resurface somewhere else.

On a personal level, however, things are much different. Consider middle managers or other employees who suddenly find themselves without a job, benefits or recovery plan. In the case of Enron, employees have even seen their hard-earned pension funds melting.

Think of the suppliers who may have millions of dollars of inventory or accounts receivable owing to them. Much of this will never be paid.

Consider a small business operator who has sales of $2 million a year with a dozen employees and is supplying a large organization called ACME, which is also facing a difficult time. Now, the entrepreneur's sales are declining by 10% to 15% a month and he is not sure why. He does realize, however, that he is facing a crisis. In the short term, he may choose to lay off some of his staff. He knows this is a stop-gap measure but he has to do something — anything.

As time passes, things get worse. The entrepreneur has reduced his prices to encourage additional sales, extended his line of credit to the max, remortgaged his house and refinanced his business, asked employees for concessions and extended his payments to suppliers from 60 to 90 days. His bank manager is less friendly than ever. Suppliers begin to get nervous and require cash payment on all deliveries. Customers notice a change in attitude on the part of the staff and a decline in the quality of his products or services. He spends his time addressing the concerns of employees, customers, suppliers and the bank.

Finally, the business spirals downward and closes. The loyal employees are left with nothing — no pension plan, no severance — and are resentful toward the owner. Moreover, the entrepreneur faces lawsuits from individuals or organizations who feel (rightly or wrongly) they have a case against him. And, depending on the guarantees he has provided, his business debt may become personal debt. Dealing with this mess is a full-time job: he has little or no income, a family to support and a reputation to salvage.

We can assume the entrepreneur had invested heavily in his business to keep pace with the growing demand from ACME. But ACME had realized the potential for difficulties long before the entrepreneur did and had faced the same problems with suppliers, banks, shareholders and employees. ACME would have reassured everyone in the same way the small company did, explaining that the difficulties were temporary, the strategy was sound and the outlook bright. Sound familiar?

In all of these situations (and there are thousands of them), suppliers, regardless of their size, must decide whether to believe their client's often convincing stories and hope for the best or to plan for the worst. These are truly difficult decisions to make, especially after a period of good growth and significant investment in plant, equipment and inventory.

Basically, the cost of failure is massive. When companies finally realize the seriousness of their problem, they do everything they can to keep the business operating – both for financial reasons and because they don't want to admit failure.

The art of war
One of the oldest manuscripts dealing with the implications of struggles (who would argue that business does not meet the definition of a struggle?) is The Art of War, written by Sun Tzu, a Chinese general, military strategist and scholar, circa 400 BC (a sobering thought for consultants trumpeting the novelty of business strategy). In his manuscript, Sun Tzu outlines the key elements for success.

Sun Tzu defines success in terms of "making victory pay." In other words, an organization should take part in a struggle only if it can benefit. The organization should aim to gain territory, not to damage adversaries just for the sake of it. Even though it has won the battle, it has not succeeded unless it has been rewarded. Letting go when there is little or no possibility of concrete gain allows an organization to engage in more profitable battles, such as conquering new territories or launching new products.

Furthermore, Sun Tzu identifies five essentials for victory¹:

Timing: knowing when to fight and when not to fight.
Management and strategy: knowing how to handle superior and inferior forces.
Vision: ensuring your army's spirit is consistently animated throughout all its ranks.
Planning: being prepared and waiting to take the enemy unprepared.
Commitment and authority: having the necessary military capacity and not being hampered by the sovereign.

Timing To succeed, we must pick our battles and choose the most opportune time. Merely choosing the timing puts you in control of the situation, at least initially. In a struggle against a larger competitor, you may choose to attack in a small market for a short time and then retreat. This will provide you with valuable information about the market, its customers and most importantly how the competition will react.

Management and strategy An organization must choose its strategy according to the size and strength of the opposing forces. If facing a superior force, it should take a defensive position. If facing an inferior force, it should take an offensive approach. Do not underestimate your competition and make sure your stronghold is well defended. While some say the best defence is a strong offence, Sun Tzu teaches that defence always comes first.

Vision This is the dream – the tool that allows everyone to focus on the objective. Organizations in which all members are striving for the same objective are more likely to succeed than those in which everyone has a different interpretation of what they are trying to accomplish. As former British prime minister Benjamin Disraeli said, constancy of purpose is the foundation of success.

Planning The more you know about yourself, the competition and the marketplace, the more you can anticipate the competition's moves and guide or shape the way the battle will unfold. Sun Tzu says it best: "If you know yourself and the enemy, you need not fear the result of a hundred battles. If you know yourself and not the enemy, for every victory gained you will also suffer a defeat. If you know neither yourself nor the enemy, you will succumb in every battle."

Commitment and authority "It is the sovereign's function to give broad instructions, but to decide on battle it is the function of the general," Sun Tzu says. In business, this means once the objective is set and the authority provided, the board of directors should not interfere with the execution of the plan. However, there should be mutual support for both the plan and its execution. If this support is compromised, the chances of success decrease rapidly. 

Sun Tzu applied his doctrine in the context of war. However, the same ideas are used by many of the world's top business minds – which shows the striking similarity between war and business. Sun Tzu's no-nonsense philosophy, while somewhat of a slap in the face, is right on target. 

Assessing risk
Even when growth is strong, there are still risks, which can be fatal if not properly assessed. These risks must be faced head on. The success or failure of a business revolves around its management team's ability to clearly understand the market and take advantage of this knowledge.

If we revisit the entrepreneur whose business failed, we could speculate that he did not adequately assess his risks or do what was necessary to minimize their impact. He might have been relying on the company's past performance, or not doing enough forward thinking.

Any organization, large or small, should devote time to identifying and monitoring business risk in a formal and well-structured manner. The obvious risks come from the competition; however, some others are not so obvious. Think of the Tylenol scare, mad cow disease, major equipment breakdowns, or the departure of your star salesperson.

It may be fun to run through a few "what-if" scenarios to test your readiness, but be prepared to follow up with action. First attempt to identify critical suppliers, pieces of equipment, information or customers that could severely affect your business if they were suddenly to disappear.

Prepare for war
Clearly, General Sun Tzu's ancient doctrine still holds a great deal of value in today's environment. Business is and should be a very serious undertaking, since you are dealing with the hopes, aspirations and livelihoods of a great many individuals, including yourself. Be careful, be patient, know your stuff and reduce your risk as much as possible. Basically, prepare for war.

¹ Five points taken from www.kimsoft.com.