Strategize Like a General

2008 | Aug 28 in Business Development , Management , Leadership

We at E-Myth Worldwide place a high value on strategic thinking. Business owners can reap significant benefits by defining a long-term Strategic Objective, designing targeted strategies to reach that objective and implementing those strategies using tactical methods that will move the business towards the goal. We know this approach works, but how do business owners design and build out their strategies?

This article discusses a well-known matrix to assess your industry's potential for profitability, and discusses military history as a source for strategic guidance to help your business march ahead briskly.

Porter's Five Forces

Michael Porter is a professor at Harvard Business School, and in the late 1970's developed a framework now known as Porter's 5 Forces Analysis to understand the 'attractiveness' (profitability) of a given market by measuring the intensity of current competitive pressures. These 5 forces closely affect a company's ability to serve customers and make a profit:

The threat of substitute products. If closely-related substitute products exist, then customers can be more easily persuaded to switch brands, especially if prices change.
The threat of new competitors. Areas of business with high profit margins will attract firms eager to compete. Many new entrants in an industry effectively decreases profitability.
Competitive intensity. The intensity of competition of established rivals is of major importance determining attractiveness of most industries. Barriers to entry in the form of recipes, special formulations, patents, copyrights, etc. can help in this ares.
Customer bargaining power. Customer ability to bargain will apply pressure to a company's prices, and will impact the marketplace's sensitivity to price changes.
Supplier bargaining power. A company can be pressured by those vendors supplying goods and services to the company and to the industry. Industry profitability will suffer as supplier bargaining power increases.

Of course, not all companies in a given industry will achieve equal profitability, as companies differ in business model, strategy, access to resources and ability to execute. And as these 5 forces vary dynamically, a company will need to regularly assess and update its approach to the marketplace. The cycle of process innovation, orchestration of changes and measurement of effectiveness will need to regularly be applied.

With a Strategic Objective identified and an honest assessment of the marketplace completed, you are ready to define strategies to move ahead. We will assume that you have embraced E-Myth's Seven Centers of Management Attention™ as a business model, and that you will develop a strategy for each of those categories. What rules of strategy can be applied to good effect?

Strategize Like a General

Many influential business teachers and practitioners have adapted strategies of armed conflict and applied them (with appropriate revisions) to the business world. Many concepts of battle and business parallel one another, and so can some lessons of armed conflict be applied to commercial contests. Note that these military strategies will apply most often to your positioning with respect to your competitors, not to your customer interactions.

Sun Tzu

The Art of War is Sun Tzu's definitive exposition of military strategy written in the 6th century BCE. Ongoing interest in the work comes from military theorists as well as business scholars. The book stresses subtlety and deception, making indirect advances and the cloaking one's true intentions. Much of the text discusses engaging the enemy without giving battle, relying on outsmarting the opponent and thereby avoiding unfavorable engagements. The tenets expressed in the book have found wide utility in various competitive enterprises.

"So it is said that if you know your enemies and know yourself, you will fight without danger in battles. If you only know yourself, but not your opponent, you may win or may lose. If you know neither yourself nor your enemy, you will always endanger yourself."

Knowledge of the field, of yourself and of your opponents is central to success. Another of Sun Tzu's points is that good strategy requires quick, effective response to ever-changing conditions. A simple plan may work in isolation, but competing plans interfere with one another, creating less predictable outcomes. One must always be ready to re-evaluate the competitive landscape.

Captain B.H. Liddell Hart

Sir Basil Henry Liddell Hart was an English military historian who greatly influenced the 20th-century development of strategic theory. He spent time in the trenches during the First World War and was driven afterwards to understand why casualties had been so very high. He began publishing his works in 1920's, based on a set of strategic principles:

Adjust your ends to your means
Keep your objective always in mind
Choose the line of least expectation
Exploit the line of least resistance
Take a line of operation which offers an alternative objective
Ensure that all plans and dispositions are flexible and adaptable to circumstances
Don't throw your weight into a stroke while your enemy is on guard
Don't renew an attack on the same line (or in the same form) after it has failed

Captain B.H. Liddell Hart believed that direct attacks against a firmly-entrenched opponent almost never work and should never be attempted. He also held that to defeat an opponent one must first throw him off-balance, which must be done before the main thrust of a campaign can succeed. He eventually formalized his theories of the Indirect Approach and the Expanding Torrent effect.

Indirect Approach and Expanding Torrent

The Indirect Approach advises against launching simple frontal attacks in favor of using surprise and flanking maneuvers to gain control of opposing positions. Successful use of the Indirect Approach requires delegated decision-making, as conditions on rapidly-changing ground require on-the-spot choices.

The Expanding Torrent effect describes the concentrated, expanding force applied to points of weakness identified in the Indirect Approach. Speed, exploitation of disruption and enabling those on the ground to act autonomously are crucial to success. The aim of the Expanding Torrent effect is to achieve confusion, disruption and demoralisation. Ironically, German military leaders embraced Captain B.H. Liddell Hart's theories, applying their Blitzkrieg strategy (an Expanding Torrent) against Britain and the Allies during World War II.

Synthesis

At E-Myth we believe that business owners should have a strategy for each of the Seven Centers of Management Attention. For example, in Lead Conversion, Liddell Hart's precepts can be used to inform a robust strategy with respect to your competition.

Stay within your financial means
Use innovative closing methods that competitors aren't using, e.g., coupon specials or free tech support.
Identify and use tactics that deliver optimal return on investment
If prospects resist buying, be ready with alternatives
Give your sales people some flexibility in pricing
Stay away from tactics that have not performed well

Liddell Hart's approach can of course be applied to the other six areas requiring strategic planning. And once you have formed strategies for your particular industry and marketplace, stay alert to changing conditions and be ready to revise your tactics based on current and anticipated conditions.