Strategy

by Lawrence Freedman

  McNamara emerged as the leader of the group and on November 9, 1960, the day John F. Kennedy won the presidential election, he was made president of Ford Motor Company. Within two months, however, he resigned to become Kennedy’s secretary of defense. We have already noted McNamara’s impact on the Pentagon as he imposed forms of centralized, analytically based control. We can now see how this fit in with developments in management theory. It was telling that McNamara’s predecessor at the Pentagon, Charles Wilson, who served President Eisenhower, had also come from the same industry. Wilson had been Sloan’s successor as president of General Motors and had run the Pentagon on the M-form basis, seeing the individual services as separate divisions and the assistant secretaries in charge of each service as his vice presidents. As Eisenhower was determined to hold down defense expenditure, Wilson’s tenure was marked by intensive inter-service rivalry, which he struggled to contain. The individual services worked independently from each other, with much animosity and little coordination, fortified by their friends in Congress and industry.35 McNamara’s approach was quite different, more Ansoff than Chandler and Drucker. His aim was to get a grip on the process by strengthening his office, challenging the services to justify their budgets and programs in the face of intensive questioning by his whiz kids, largely brought in from RAND and gathered in the Office of Systems Analysis. This aggressive, analytical approach had a major impact on the management of U.S. military programs and the conduct of operations, particularly Vietnam. Whereas at first McNamara was celebrated as the exemplar of the most modern management methods, by the time he left the Pentagon in 1968 his approach was derided for its relentless focus on what could be measured rather than what actually needed to be understood—criticisms that McNamara in later life accepted.

  In corporations as in government, whole departments were established to develop the plans, working out in meticulous detail the steps to be taken and their appropriate sequence. Planning cycles came to dominate corporate life, with everybody waiting for a formal document that would tell them how to behave, setting out budgets and programs with warnings of the danger if they went off plan. Politically, the consequence was to strengthen the center at the expense of alienating those responsible for implementation, who were apt to become cynical in the face of meaningless targets. “The matrix picked the strategy,” one executive exclaimed in frustration, “the matrix can implement it.”36 The long-range forecasts upon which they depended were inherently unreliable, and the organizational information was often dated, collected haphazardly into inappropriate categories and taking little account of cultural factors. Even Ansoff became concerned that the structures he had initially advocated risked paralyzing decision-making and came at the expense of flexibility.

  One of the economist Friedrich Hayek’s most famous papers put the central problem of planning for a rational economic order as “the knowledge of the circumstances of which we must make use never exists in concentrated or integrated form but solely as the dispersed bits of incomplete and frequently contradictory knowledge which all the separate individuals possess.” The problem set by knowledge was not one that a single mind could solve in order to allocate resources but rather “how to secure the best use of resources known to any of the members of society, for ends whose relative importance only these individuals know. Or, to put it briefly, it is a problem of the utilization of knowledge which is not given to anyone in its totality.”37 Writing twenty-five years later, Aaron Wildavsky commented on the vogue for planning at both national and company levels. The intensely skeptical Wildavsky noted the lack of evidence that the process had any value. At one level, all decisions were forms of planning as attempts to improve on a future state of affairs. The success of planning depended on “the ability to control the future consequences of present actions.” In a large corporation, let alone a whole nation, this meant “controlling the decisions of many people, with different interests and purposes, so as to secure a premeditated effect.” Some causal theory must connect the planned actions with the desired future results, and then the ability to act on this theory. The more people and types of action involved, the greater the demands on the theory as it had to explain how to get all to act differently than would otherwise be the case.38

  By the 1980s, strategic planning was losing its luster. The planning departments had become large and expensive, the next cycle began as soon as the previous one finished, and the outputs were ever more complicated. Evidence of past difficulties and failures were assessed not as symptoms of a flawed system but of too much independent thought in the course of implementation, requiring even more prescription and explicit budgets and targets. The break came when General Electric, a company famed for and apparently proud of its elaborate planning system, decided to abolish it completely. Complaints were reported about an isolated bureaucracy, relying on dubious data instead of market instincts, persisting with incorrect predictions because they lacked the flexibility to change course. The senior executives were at the mercy of the process, with no alternative to the grand plan. Meanwhile, as General Electric’s new chief executive, Jack Welch, observed: “The books got thicker, the printing got more sophisticated, the covers got harder, and the drawings got better.”39 Welch was said to have been impressed by a letter in Fortune in 1981 that criticized “the endless quest by managers for a paint-by-numbers approach, that would automatically give them answers.” Drawing parallels with Clausewitz and von Moltke’s senses of battle, he observed that: “Strategy was not a lengthy action plan. It was the evolution of a central idea through continually changing circumstances … Any cookbook approach is powerless to cope with the independent will, or with the unfolding situations of the real world.” Welch embraced this approach at General Electric, using von Moltke’s aphorism about plans not surviving the first contact with the enemy to explain why the company did not need a rigid plan but instead a central idea that could be adapted to circumstances.40

  In 1984, citing General Electric, Business Week pronounced the end of the “reign of the strategic planner,” with few achievements to its credit and many disappointments. The coup de grace was delivered by Henry Mintzberg in 1994 with his book The Rise and Fall of Strategic Planning.41 In 1991, in response to an earlier article by Mintzberg, Ansoff complained that Mintzberg seemed to commit all prescriptive schools for strategy to the “garbage heap of history,” adding sadly that if he was to accept this verdict he had spent “40 years contributing to solutions which are not useful to the practice of strategic management.”42

  In the business world, as in the military, the loss of confidence in models based on centralized control, quantification, and rational analysis left an opening for alternative approaches to strategy. These centralizing models had fewer shortcomings in theory than they turned out to have in practice. They set out an ideal of how a chief executive might operate, but this was based on heroic assumptions about how optimal decisions could be made and then implemented. In particular, it was a model for the powerful—a superpower country or even a superpower corporation. As the environments became less manageable, the cumbersome processes the model demanded became dysfunctional and unresponsive.

  Alternative approaches required a better understanding of how to cope with conflict within and between organizations. By and large, economics helped answer the questions on the horizontal axis regarding developing strategies for competition, while sociology assisted with those on the vertical axis about how to get the best out of an organization. Before we come to these approaches, which developed as the flaws in the planning model became apparent, we shall first consider another type of approach, not least because it provides a further link with military thinking.

  CHAPTER 31 Business as War

  Managers have always fancied themselves in the officer class. Strategy is

  what separates them from the sergeants.

  —John Micklethwait and Adrian Wooldridge

  AS HAD HAPPENED with the military, the reaction against t
he business planning models of the 1950s and 1960s led to attempts to rediscover the essence of strategy as practiced. Just as the experiences of Vietnam and a sense of developing Soviet strength encouraged defense reformers in the United States to return to the classics of military thought and insist on addressing the harsh realities of war and battle, a harsher competitive environment also encouraged businesses to think more in terms of victory and defeat, and the need to infuse their strategies with the mental toughness and passion required in battle. Chief executives might imagine themselves as generals, leading their troops into battle, with an appropriate blend of cunning, charisma, and calculation. The resemblances between intense corporate tussles and war were a regular theme in management books, and the language of campaigns, attacks, and maneuvers could seem quite natural.

  At the popular end of this tendency were the regular suggestions that lessons for the boardroom could be drawn from the battlefield exploits of such figures as Alexander the Great or Napoleon. Military figures, even some with mixed reputations, were turned into business models from which relevant leadership tips might be taken. In addition to the obvious candidates (Alexander, Caesar, Napoleon), Albert Madansky has identified books drawing on the strategic wisdom of Attila the Hun, Sitting Bull, Robert E. Lee, Ulysses S. Grant, and George Patton.1 The bestselling Leadership Secrets of Attila the Hun by Wess Roberts, for example, while not quite offering Attila as a role model hailed him as an exemplar of leadership, for he “accomplished difficult tasks and performed challenging feats against ‘seemingly’ insurmountable odds.” This implied for Attila and his Huns “a slightly more positive image than can perhaps be found elsewhere.” Great chieftains adapted rather than compromised, dealt with adversity, learned from mistakes, did not ask questions for which they did not want to hear answers, only engaged in wars they could win, preferred victory to stalemate, and they had tried their best even if they lost. And so on. There was only a vague hint of the sinister when reference was made to the importance of loyalty and how it might be enforced. In general, the chieftains emerged as enlightened and inspirational leaders—taking seriously their responsibility for the welfare of Huns, explaining to them what they were doing and why.2

  When examples were picked selectively, and carefully extracted out of their context, historical events and figures could be used to illustrate a variety of business theories. In such books strategy became collections of aphorisms and analogies, often contradictory, trite, and at most pithy restatements of best practice—exactly what the social scientists with their careful methodologies sought to avoid. They were unlikely to lead to much behavioral change among their readership or affect corporate performance and plans. In the back of one such book, for example, there was a list of maxims and quotes. What was the business manager supposed to make of “War is cruelty and you cannot refine it” (General W. T. Sherman), or “Shoot them in the belly and cut out their living guts” (General George C. Patton), or “War, by definition, means a suspension of rules, laws and civilized behavior” (General Robert E. Lee)? This author dismissed “smiley-face, win-win, love-thine-enemy kinds of business thinking.” Business, he insisted, “like war, is basically a zero-sum adversarial game with economic and professional stakes of the highest order.”3 Similarly Douglas Ramsey described modern business as a “brutal battlefield,” sharing the goal of “victory.” His aim was to show how some of the key principles of warfare, such as clarity of objective, unity of command, economy of force, and concentration of strength could be as relevant for chief executives as for generals. He did note that when it came to their strategic decisions, few business leaders drew on wartime analogies. There was, however, a clear inference that they might be better off if they did so.4

  The influence of most books in this genre was limited, more of an enjoyable read than a manual to be kept at hand. There were occasions when business rivalry took on the appearance of a fight to the finish, but as often as not the competition was continuous, ebbing and flowing, with many participants. Moments of decisive victory would be few and far between. In fact, the elements of military experience, captured by the concept of “friction” or by examples of stunning incompetence, warned about how campaign plans could go very wrong. In a declining or stagnant market, where the spoils would go to the last firm left standing, a fight to the finish employing ruthless strategies might be encouraged. But in growing markets competition might be less intense, and in those marked by complexity there were opportunities for cooperation and even collusion as well as conflict. The military metaphor, if taken too seriously, could lead to inappropriate and unethical behavior. An enthusiasm for a fight and a reputational fear of losing might lead to “price wars” or “takeover battles” being pursued well beyond the point of possible gain and possibly into substantial losses. As with all metaphors, warfare could be illuminating for business so long as it was not mistaken for the real thing.5

  Yet some of the standard tropes of military strategy could appear pertinent. As early as the 1960s, in his more conceptual musings about strategy, Bruce Henderson of the Boston Consulting Group6 drew explicitly on Liddell Hart, emphasizing concentrating strength against a competitor’s weaknesses. He sensed the drama of competition, which was lost when it was presented as “some kind of impersonal, objective, colorless affair,” and discussed the trickery that might be employed to divert competitors. Strategy would be about exploiting differences in management style, as well as matters such as “overhead rate, distribution channels, market image, or flexibility.” He noted how competitors might become friends when a system needed stabilizing. The fundamental strategic rule was: “Induce your competitors not to invest in those products, markets, and services where you expect to invest the most.”7

  In a seminal 1981 article, Kotler and Singh argued that the need of businesses “to develop competitor-centered strategies to win market share will lead managers to turn increasingly to the subject of military science.”8 Marketing Warfare, published by Al Ries and Jack Trout in 1986,9 used Clausewitz for inspiration. Marketing strategy was distinct from military strategy because at stake was the mind of the consumer rather than territory (although few military strategists doubted the importance of psychology). Just like the strongest armies, the strongest companies should be able to use their power to stay on top. A company dominating the market had more resources to devote to keep prices down and develop products. Therefore, to have a chance, small companies, like weaker armies, must employ guile and not brute force. Better people, products, or even productivity would not be enough. A well-entrenched defensive position could only be overwhelmed by a much larger force. Nor, following Clausewitz, was surprise likely to compensate for weaker numbers.

  Ries and Trout offered four strategies for a marketing war—defensive, offensive, flanking, and guerrilla—with market share determining which was appropriate. Those with the greatest share were interested in market domination, while those with the smallest could concentrate on survival. In the face of a serious challenge the strongest had to respond: if they failed to do so they would progressively lose market share until their dominant position was threatened. The second in the market could mount an offensive to gain some market share from number one, but this would best be done on a narrow front against a critical weakness in the leader’s position. The weakness must be chosen carefully: if it was simply high prices, for example, a firm with sufficient resources would be able to respond by cutting prices. If an offense was too risky, a flanking attack could be mounted with a clearly differentiated product. The risks here involved unfamiliar territory and insufficient signaling to competitors. Small firms were best advised to adopt a guerrilla strategy, in a market segment all of their own, avoiding any serious competition with larger firms and staying nimble, ready to move in and out of an area as circumstances changed. Approaching the enemy indirectly à la Liddell Hart, and then attacking in strength at the enemy’s weakest point, à la Clausewitz, were the key principles imported from military theory. Th
e core advice was to avoid a frontal assault against well-established positions.

  During the 1980s, there was a shift toward Sun Tzu.10 Sun Tzu’s influence was attested to by two references in popular culture. In the movie Wall Street, the villainous Gordon Gekko advises Bud Fox: “I don’t throw darts at a board. I bet on sure things. Read Sun Tzu, THE ART OF WAR. Every battle is won before it is ever fought.” Fox later used Sun Tzu to prevail over Gekko: “If your enemy is superior, evade him. If angry, irritate him. If equally matched, fight, and if not, split and re-evaluate.” Wall Street was a morality tale involving junior stockbroker Bud Fox caught between his blue-collar father, a foreman and trade unionist who represented the virtues of hard and honest labor, and the ruthless, cynical Gordon Gekko, a corporate raider whose motto was “greed is good.” Bud became wealthy by following Gekko’s methods until he realized that a plan to buy the airline where his father worked was all about asset-stripping. The movie appeared in 1987, the year of a Wall Street crash, and seemed to capture the financial mindset that had created both financial mayhem and a loss of moral bearings.

  Another villain, Tony Soprano, the eponymous mob boss in The Sopranos, was told, somewhat sarcastically, by his psychiatrist Dr. Malfi: “You want to be a better mob boss, read The Art of War.”11 Later Soprano reported back to her: “Been reading that—that book you told me about. You know, The Art of War by Sun Tzu. I mean here’s this guy, a Chinese general, wrote this thing 2400 years ago, and most of it still applies today! Balk the enemy’s power. Force him to reveal himself.” Soprano clearly felt that his introduction to Sun Tzu had given him a competitive advantage; “Most of the guys that I know, they read Prince Machiavelli.” Soprano claims to have found Machiavelli, whom he read in a study guide, no more than “okay.” Sun Tzu, however, “is much better about strategy.”12 As a result of Tony Soprano’s endorsement, Sun Tzu became Amazon’s bestseller in New Jersey.