1장
Ancient Wisdom for Modern Business Battlefields
Sun Tzu's "The Art of War" has transcended its original military context to become a cornerstone of business strategy across the globe. This 2,500-year-old text has influenced everyone from Mao Zedong to Wall Street titans, with its principles appearing in boardrooms from Tokyo to New York. What makes this ancient text so enduringly relevant? While many executives display the slim volume prominently on their bookshelves, far fewer have truly mastered its subtle wisdom or successfully translated its military concepts to business applications. Mark McNeilly bridges this gap by distilling Sun Tzu's holistic strategic approach into six practical business principles that have predicted success or failure for companies like Microsoft, Southwest Airlines, and General Motors. The book's enduring popularity stems from its universal truths about competition, human nature, and strategic thinking-elements as crucial in today's global marketplace as they were on ancient Chinese battlefields. As Jack Welch, legendary former CEO of General Electric, reportedly kept a copy on his nightstand, recognizing that in business as in war, victory goes not to the strongest but to the most strategically astute.
2장
Win All Without Fighting: Capturing Markets Without Destroying Them
Sun Tzu begins with a fundamental truth: war is "a matter of vital importance to the State; the province of life or death; the road to survival or ruin." In today's global economy, business has become the new battlefield where nations and corporations compete for prosperity and survival. The ultimate goal of business strategy must be "to take All-Under-Heaven intact"-to capture your marketplace and achieve relative market dominance.
Companies that succeed define their target markets clearly and commit to achieving dominance through technology leadership, brand recognition, or cost leadership. Market dominance brings tremendous advantages: higher customer loyalty, better economies of scale, and strong distribution capabilities-all of which increase profitability. We've seen this approach exemplified by GE under John Welch, who required business units to be #1 or #2 in their industries, and Microsoft under Bill Gates, who dominated PC operating systems.
While small "corporate Switzerlands" can survive with low market share by finding defensible niches, they ultimately exist at the mercy of dominant players who could eliminate them if desired. The strategic imperative is clear: achieve market dominance or risk extinction.
However, market dominance shouldn't be pursued blindly or destructively. Sun Tzu advises that "the best policy is to take a state intact" rather than ruin it. In business terms, this means not destroying industry profitability while battling for market share. Philip Morris's disastrous 1993 decision to cut Marlboro prices by 20% demonstrates this danger perfectly. When competitors matched the cuts, industry profits collapsed, Philip Morris lost $1 billion in profits and $13.4 billion in market value, and 14,000 employees lost their jobs.
Similarly, the airline industry's post-deregulation price wars led to 120 bankruptcies, $12 billion in losses, and 100,000 layoffs between 1989-1995, while also damaging aircraft manufacturers. These cases demonstrate Sun Tzu's warning that "war is a grave matter" requiring careful consideration of competitors' potential responses.
Perhaps Sun Tzu's most counterintuitive principle is that "to subdue the enemy without fighting is the acme of skill." Research confirms that subtle, indirect attacks are less likely to provoke competitive responses, allowing market share gains without triggering damaging price wars. Companies should avoid high-profile attacks, especially price cuts, which tend to be countered quickly and directly. The goal is to gain market share prosperously without destroying your industry.
When companies engage in outright price confrontations, they deplete resources and damage the entire market. The wise strategist seeks to dominate and prosper in a healthy industry rather than merely survive in a sick one. This principle forms the foundation for the remaining five principles, which together create an integrated strategy for market dominance without industry destruction.
3장
Avoid Strength, Attack Weakness: Strategic Targeting for Maximum Impact
Just as water naturally flows around obstacles to find the path of least resistance, successful businesses should concentrate resources against competitors' vulnerabilities rather than strengths. This approach leverages limited resources, shortens the path to victory, and maximizes return on investment.
Many Western companies fall into the trap of direct, head-to-head competition-the "frontal attack" approach embedded in Western culture. This attrition strategy requires not only superior resources but also the will to expend them until competitors capitulate. History repeatedly shows this rarely works. Consider the U.S. in Vietnam, which dramatically underestimated the communists' ability to leverage limited resources through guerrilla warfare, eventually exhausting American will despite overwhelming resource advantages.
In business, Xerox's failed attempts to beat established competitors in computers while neglecting the low-end copier market allowed Canon to exploit this vulnerability. Even with vastly superior resources, attacking competitor strengths leads to destructive competition where "winning" comes at such high cost that opportunities are missed and resources depleted.
Instead, Sun Tzu advises: "Take advantage of the enemy's unpreparedness; attack him when he does not expect it; avoid his strength and strike his emptiness." Successful strategists attack the weakest part of competitors' value chains, as Japanese companies did by leveraging manufacturing quality against American weaknesses in the 1980s.
Wal-Mart exemplifies this principle by initially targeting small-town Mom & Pop stores rather than directly confronting major retailers, using superior buying power to defeat smaller competitors while surrounding larger ones. Companies can also "go into emptiness" by creating entirely new products (CNN, ESPN, MTV), attacking market niches, or entering untapped geographic markets (GE's investments in China, India, and Mexico).
Being the "first mover" allows preemptive strikes along the value chain, as Apple did by securing classroom markets and Hewlett-Packard does by continually making its own products obsolete before competitors can.
Boundaries between organizations or functions create natural vulnerabilities. In war, these occur where two units' areas of responsibility meet, creating coordination difficulties and gaps. In business, these boundaries might exist in a competitor's value chain (between development and manufacturing), geographic regions, or relationships with business partners. Even mental boundaries-how competitors define their market limits-can be exploited as weak points.
Psychological weaknesses offer another avenue of attack. "The supreme excellence in war is to attack the enemy's plans." High-tech companies exemplify this by attacking competitors' future product strategies, casting doubt on their technical viability to worry customers into desertion. These verbal attacks through trade shows, interviews, or press releases require minimal resources yet can effectively distract competitors.
The German concept of schwerpunkt or "center of gravity" represents the critical weak point where concentrated resources achieve maximum impact. Resources must be concentrated to build strength that can exploit competitor weaknesses, not trying to make every function "world class"-to be strong everywhere is to be strong nowhere.
Strategic patience is essential when facing strong opponents. Even when pressured by claims that entering a market is a "strategic imperative," a wise strategist must refrain from ordering assaults destined to fail. Sun Tzu advises not to engage enemies in impressive array or those occupying advantageous positions. Instead, wait for weakness to emerge before attacking.
Too many managers fall into the trap of imitation, attacking competitors at their strongest points as Kmart and AT&T did. This "safe" strategy rarely succeeds. Competitive imitation may be flattery, but it's the lowest form of strategy-if you try to be someone else, the best you can be is second best. Success requires applying your strength against competitors' weak points, which maximizes return on investment, conserves resources, and avoids costly wars of attrition.
4장
Deception and Foreknowledge: The Power of Strategic Intelligence
Sun Tzu states that "foreknowledge" is essential for the enlightened leader to surpass ordinary achievements. This isn't mystical prediction but rather firsthand insight and deep understanding of competitors' situations, strengths, weaknesses, plans, and people.
Competitive analysis must be thorough and detailed-not the shallow analysis many companies perform due to lack of funding, skills, or misplaced ethical concerns. Operating without deep competitive intelligence invites disaster, as demonstrated by the failed 1970 Sontay POW camp raid where American forces executed a perfect mission only to find the prisoners had been moved weeks earlier.
Effective competitive intelligence begins with basic facts about your competitor's financials, employees, products, and markets. But this surface information isn't enough. You must understand your competitor's strategy through annual reports, advertising, announcements, trade journals, and business press. Study their past behavior and response patterns to attacks. Look for warning signs of their movements just as Sun Tzu watched for dust columns and startled birds.
Most critically, you must understand the mindset of your competitor's executives-their education, experiences, information sources, risk tolerance, ambitions, and internal disagreements. Hewlett-Packard's failed 1994 "AS/sault" campaign against IBM's AS/400 demonstrates the consequences of not understanding a competitor's management team and product strength before launching a direct attack.
Foreknowledge isn't just about competitors-you must know your own company's strengths and weaknesses. As Sun Tzu states, "Know the enemy and know yourself; in a hundred battles you will never be in peril." This requires understanding your customers, costs, profitable products, critical processes, cycle times, and essential personnel. Gather this knowledge firsthand through management by walking around and structured self-assessments.
Information technology is essential for gaining real-time control and understanding of your company's operations. S-K-I Limited exemplifies this principle, using weather monitoring equipment to optimize snowmaking, bar-code scanners to track customer movements, and customer databases to target marketing efforts. Their information systems provide daily and weekly profit reports by resort and department, allowing immediate action.
Understanding the business terrain requires in-depth market research and analysis. You must know market sizes, growth rates, and industry forces to determine where to concentrate resources. Beyond basic market information, you need an infrastructure that ensures vital market intelligence reaches decision-makers. Borden's 1993 collapse illustrates this principle-by eliminating forty regional managers who provided local market intelligence and struggling with incompatible computer systems, they destroyed their ability to understand market conditions.
Deception complements foreknowledge in strategic advantage. When SCM management thought they'd won against Hanson PLC's takeover attempt, they let down their guard. But Sir Gordon White had only appeared to retreat. Instead, he secretly purchased 25% of SCM's shares on the open market, ultimately taking over the company and profiting by selling off pieces.
Sun Tzu advises to "lay on many deceptive operations"-appearing in one place while attacking from another, feigning weakness when strong, and appearing distant when near. In business, this means being strategic about disclosing information. When planning a surprising new product, avoid revealing details to the press. If competitors expect you to enter a market you don't intend to, let them waste resources preparing for a non-existent threat.
Deception requires discipline, security, and control. IBM's experience shows the dangers of excessive openness-when they relaxed security in the 1980s, employees publicly criticized each other's products, creating customer confusion and exposing weaknesses to competitors. Under Louis Gerstner's leadership, IBM restored discipline to communications, emphasizing teamwork and controlling messaging.
To achieve victory, combine foreknowledge with deception. Study your competition thoroughly, anticipate their responses to your moves, know your own organization intimately, master the business terrain, and practice deception where prudent to mask your intentions.
5장
Speed and Preparation: The Competitive Edge of Rapid Execution
Speed is essential in business as in war. In today's accelerating business environment, slowness means extinction. Companies must move with "rapid relentlessness" to seize opportunities and execute Sun Tzu's principles successfully. Speed serves multiple strategic purposes: it substitutes for resources, shocks competitors, exploits fleeting opportunities, and builds momentum.
A smaller, more mobile force can defeat a larger one through rapid movement-attacking individual segments before the larger force can coordinate its response. Stonewall Jackson demonstrated this in his seven-week Shenandoah Valley campaign in 1862, where his 17,000 troops tied up 50,000 Union soldiers by moving quickly and striking strategically.
In business, speed similarly compensates for limited resources. When your salespeople can complete calls in half the time of competitors, you need fewer personnel. When your manufacturing process takes half the time, you need half the assets. IBM's Greenock plant cut production time from five days to eight hours by replacing one monolithic line with six mini-lines, increasing output 50% while reducing workforce 30%.
Companies significantly faster than industry peers achieve ROI two to five times higher and grow much faster. Wal-Mart, 80% quicker than competitors, grew three times faster, while Thomasville Furniture's 70% speed advantage yielded double the return on assets compared to industry rivals.
Speed is crucial for exploiting weaknesses and fleeting opportunities. Slow attacks give competitors time to respond, as demonstrated in World War I when Allied breakthroughs in German trenches couldn't be exploited quickly enough before German reserves closed the gaps.
Conversely, rapid attacks can overwhelm opponents before they respond. Germany's 1940 blitzkrieg against France succeeded through speed and mobility. Though France had more and better tanks, they distributed them in small numbers tied to slow-moving infantry. Germany concentrated tanks in motorized panzer divisions that could rapidly exploit breakthroughs with maximum shock and firepower.
In business, Southwest Airlines demonstrates this principle-launching service in Little Rock just five days after deciding to enter the market and capturing 25% share immediately. When USAir retreated from Sacramento in 1991, Southwest quickly took over their gates and captured 39% of the Sacramento-Burbank market within weeks.
Speed creates surprise, throwing competitors off balance. As rapid attacks follow one another, competitors become increasingly bewildered until they're paralyzed and unable to respond effectively. Germany's 1940 campaign in France succeeded through both surprise at the location of attack and shock at its speed. Similarly, Sir Gordon White's acquisition of SCM took just 100 working days from strategy conception to victory, including court battles.
Speed provides the ability to sustain and exploit market momentum after achieving a breakthrough. The German military philosophy was to launch simultaneous attacks and reinforce those succeeding rather than those stalling-allowing them to push deeper into enemy territory and maintain momentum.
In business, this means reinforcing success and starving failure. When a product takes off, pour resources behind it rather than diverting attention to struggling products. Many companies make the mistake of giving more support to poorly performing products while starving successful ones just as they're about to break through.
To increase company speed, focus on cycle-time reduction-not just in manufacturing, logistics, and product development, but especially in decision-making and customer responsiveness. The information/decision/action cycle is critical. Companies with faster decision-making claim markets while competitors are still debating whether those markets exist.
Manufacturing processes must be designed for speed from the outset, not as an afterthought. Southwest's fifteen-minute aircraft turnaround (versus the industry's one-hour average) keeps planes in the air eleven hours daily instead of eight, resulting in 29-39% lower costs than competitors.
Responding quickly to customer problems creates loyalty and positive word-of-mouth. Research shows that when companies fix problems to customers' satisfaction, 92% will buy again and 94% will recommend the product. Without satisfaction, repurchase drops to 46%, recommendations to 48%, and customers tell seven people about their negative experience.
Speed requires careful preparation, not frenzied activity. Only by planning your campaign thoroughly in advance can you move with blinding swiftness. Success requires strategic planning that assesses your company's strengths and weaknesses, understands competitors, studies market trends, and accounts for customer needs.
Beyond basic strategic planning, companies must engage in wargaming and scenario planning. By creating potential scenarios and playing them out multiple times using simulated conditions, planners become familiar with possibilities and can develop counter-responses.
The final preparation step is continuous organizational learning. For companies to foster innovation, they must encourage organizational learning by considering new ideas, trusting junior managers, promoting professional education, sharing ideas across organizational boundaries, and maintaining position stability.
6장
Shape Your Opponent: Strategic Mastery Through Competitor Control
To defeat competition, you must make competitors conform to your strategy, your rules, your will. Seize advantage by making competitors meet you at times and places of your choosing. This mastery is what Sun Tzu meant by "shaping."
Effective shaping requires synthesizing all previously learned principles: knowing the situation, deceiving competitors about your plans, and moving with blinding speed. Your strategy must attack not just your competitor's resources but their will to compete.
To attack your competitor's mind and will, you must employ both direct force (Cheng) and indirect force (Ch'i). Direct attacks alone strengthen resistance-they land where expected with no element of surprise. The key is mixing both approaches to throw competitors off balance.
The direct attack focuses attention in one place while the indirect attack lands elsewhere, surprising them. Like Prince Rupert drops that withstand hammer blows but shatter when touched on their tails, the right indirect approach can collapse a competitor's resistance completely. The goal isn't to gradually weaken competitors but to deliver stunning psychological blows from which they cannot recover.
The Soviet counterattack at Stalingrad exemplifies this principle. While Germans fixated on direct attacks in the city, Soviets struck indirectly at their weakly-defended flanks, surrounding and ultimately destroying the German Sixth Army.
Another effective shaping technique is enticing competitors with bait-creating situations they must respond to by offering something they believe profitable. The Fetterman Massacre of 1866 illustrates this principle: ten Native American warriors deliberately stayed just ahead of U.S. cavalry troops, luring them into a devastating ambush where 2,000 warriors under Crazy Horse killed all 81 soldiers.
In business, you might divert competitors by falsely expressing interest in certain markets, withdrawing from less profitable areas to distract them from more valuable ones, or forming small alliances to keep them away from your primary targets. The goal is making competitors "come of their own accord" by offering apparent advantages while you pursue your true objectives.
Controlling strategic industry positions allows you to shape competitor behavior. These positions might be the most profitable market segments, technology chokepoints through patents, influential roles in industry organizations, or strongholds with key customer decision-makers.
Companies like Polaroid and Hewlett-Packard demonstrated this by controlling crucial patents. HP's dominance in inkjet technology forced competitors like Citizen Watch to repeatedly redesign products to avoid patent infringement, causing them to fall further behind as HP continued securing new patents.
Other strategic positions include capturing key decision-makers (as FedEx did with corporate secretaries through its targeted magazine), controlling retail shelf space (Anheuser-Busch's product positioning strategy), repositioning competitors (Pepsi turning Coke's classic American identity into a weakness), or securing influential industry board positions.
When attacking competitors, consider whether total defeat is necessary or even desirable. Leaving your opponent "a way out" often proves more effective than forcing desperate resistance. The Allies' "unconditional surrender" policy against Nazi Germany in 1943 may have prolonged the war by 2.5 years. Without an honorable exit path, the German Army continued fighting rather than overthrowing Hitler to negotiate peace.
Airline industry studies confirm that public attacks against competitors who depend on a market for survival trigger aggressive responses. It's typically more efficient to let competitors exit gracefully than expend resources trying to utterly defeat them.
Effectively managing industry alliances requires following six key rules. First, prevent competitors from combining against you by demonstrating both power and benefits. Microsoft faced an "Aztec moment" in 1995 when perceived domination led to a backlash from industry executives who felt threatened, resulting in antitrust investigations and lawsuits.
Second, avoid attacks against competitors with strong allies. Third, disrupt your competitor's alliances. Fourth, make skillful use of allies, as demonstrated by KLM and Northwest Airlines' profitable partnership. Fifth, choose allies wisely-Germany's poor alliance with Italy in WWII delayed their Russian campaign with disastrous consequences. Finally, maintain alliances through mutual interest and know when to end them.
To prevent competitors from controlling your actions, avoid two critical mistakes: repeating the same tactics and revealing your success methods. Using identical approaches consecutively creates predictable patterns that invite ambush. Henry Ford's stubborn reliance on the Model T's single-product strategy exemplifies this danger-despite revolutionizing manufacturing, Ford failed to adapt when DuPont invented quick-drying paint in other colors, allowing General Motors to overtake them.
Shaping your competition requires mastering both direct and indirect approaches, strategic alliances, competitor limitation, and emotional exploitation while avoiding being shaped yourself. Successful implementation of these principles requires strong leadership, which we'll explore next.
7장
Character-Based Leadership: The Foundation of Strategic Success
True leadership requires putting others' needs before your own-a rare quality that Sun Tzu calls "the precious jewel of the state." This selfless approach demands building genuine character rather than mere image, leading through actions rather than just words, sharing employees' hardships not just successes, motivating emotionally beyond material rewards, assigning clear missions, and ensuring strategy drives the organization rather than vice versa.
Effective leadership fundamentally stems from character rather than manipulation techniques. Sun Tzu identifies essential leadership virtues: wisdom to recognize changing circumstances, sincerity that ensures reward and punishment certainty, humanity that appreciates others' efforts, courage to seize opportunities decisively, and strictness that maintains discipline.
These traits form the foundation of strong leadership because business contains many unknowns requiring wisdom to identify strengths and opportunities, courage to take bold action, sincerity and humanity to accomplish goals through others, and discipline to execute strategy successfully. Leaders must project genuine confidence based on these qualities, not facade, as "if the leader has even one doubt, his followers will have several."
The most powerful demonstration of leadership comes through actions, not declarations. While vision statements and communications matter, they must be consistently supported by aligned behaviors to be meaningful. Employees learn to distinguish between executives' words and actions, following the latter.
If you emphasize strategy's importance but focus entirely on tactical operations, your team will prioritize tactics. If you claim customer listening is critical but never meet customers, your staff will similarly ignore them. Southwest Airlines' CEO Herbert Kelleher exemplifies action-word consistency-publicly committing to maintaining low fares while personally approving every purchase over $1,000, and genuinely treating employees as his most important asset rather than just claiming it.
Sun Tzu advises leaders to "be first in the toils and fatigues of the army," demonstrating willingness to share hardships alongside victories. Leadership starts at the top, with both good and poor examples flowing down the chain of command. Northwest Airlines CEO John Dasburg demonstrated this by returning a $750,000 bonus during employee wage cuts, while Cabletron's executives maintained modest $52,000 salaries despite owning $927 million in company stock.
While material rewards are necessary for motivation, Sun Tzu teaches that financial incentives alone are insufficient for excellent morale. Success itself motivates employees, as does empowerment and delegation. The German Army's Weisungsfuhrung concept demonstrates this approach-soldiers were trained to interpret their leader's intent rather than following exact orders in chaotic conditions.
This concept proves especially relevant for today's information-age workers who must be highly skilled, highly motivated, and able to interpret leadership intent in dynamic business environments. Leaders must provide strategic objectives rather than exact orders, giving employees the means and maneuvering room to achieve goals as they see fit.
For employees to effectively execute strategy, they must understand both the overall plan and their specific mission within it. When executives assign vague or overlapping missions, waste and confusion result. General Motors' decline illustrates this problem-originally each division built specific products for specific markets, but boundaries blurred over time as divisions tried becoming "all things to all people," resulting in wasted resources and market share loss.
Selecting the right management team is crucial for executing strategy. Leaders often make the mistake of focusing on daily crises rather than long-term issues like hiring the right people. True leadership isn't dramatically reacting to problems once they're out of control, but preventing them entirely. As Sun Tzu teaches, "He who excels at resolving difficulties does so before they arise."
The leader bears ultimate responsibility for everything within the organization. When problems arise, leaders must first examine themselves, then their direct reports, then the management chain-employees should be the last place to look for root causes, as organizational strengths and weaknesses flow from the top down.
Effective leadership requires leading by example, knowing your people, sharing their hardships, and following through on commitments. Leaders must communicate strategy so clearly that employees can execute it even in their absence. Personal character development is essential-reading widely, listening well, seeking counsel, and taking time to think increases wisdom.
8장
Putting The Art of Business into Practice
Implementing Sun Tzu's principles requires a systematic approach that integrates all six strategic elements. The Art of Business Approach follows these steps:
First, Win All Without Fighting by prioritizing markets and determining competitor focus. Decide which markets to win and identify which competitors must be defeated in those markets. This involves prioritizing markets strategically and selecting specific competitors to focus efforts against.
Second, Avoid Strength, Attack Weakness by developing attacks against competitor vulnerabilities. Determine both their strengths and weaknesses along with your own. Prioritize those weaknesses that would severely unbalance your competitor if successfully attacked. For the four most critical weaknesses, develop multiple potential attack strategies.
Third, apply Deception and Foreknowledge by wargaming and planning for surprise. Use competitor knowledge to wargame each potential attack, playing out moves and countermoves. Particularly important is forecasting how competitors might leverage their strengths in counterattacks. During this process, develop methods to achieve surprise through deceptive moves.
Fourth, Shape Your Competitor by integrating the best attacks to unbalance your competition. Based on wargaming results, select the one or two key competitor weaknesses to exploit. Determine which set of attacks to utilize and how they can be integrated for maximum impact. This integrated approach becomes your strategy.
Fifth, employ Speed and Preparation by readying your attacks and releasing them. Determine what preparations are required for successfully executing your integrated strategy. Then execute your attacks with speed and shockpower.
Finally, demonstrate Leadership by reinforcing success and starving failure. After launching attacks, use intelligence to determine which are working. Exercise true leadership by reinforcing successful attacks with additional resources while cutting off failing ones. Avoid the trap of propping up failing attacks-once surprise is lost, the resources needed to revive them rarely justify the small probability of success.
Despite massive investments in strategic planning, many executives question its value in rapidly changing environments. But we haven't outgrown strategy; we've abandoned its principles for management fads. Like Germany in both World Wars, focusing on operational excellence while neglecting strategy leads to disaster. Neither strategic nor tactical excellence alone is sufficient-both must work together.
Business leaders must embrace strategy, guided by Sun Tzu's principles used synergistically. This requires being both creative and disciplined, logically assessing the environment while having the heart and urgency to implement effectively. With this immense strength comes the responsibility to use it wisely, for the benefit of all, as "the general who understands war is the Minister of the people's fate and arbiter of the nation's destiny."
