As the economic times become more uncertain, business leaders search for the proper strategy to be successful. If consumer confidence falls and they become less willing to spend, many companies seek to entice them by cutting prices. However, although this may be successful in garnering a few sales in the short term, this strategy is often easily matched by the competition. Even worse, customers are trained to expect lower prices and to focus on price as the only differentiator. Lastly, profits will become drained even more quickly out of the industry. As Sun Tzu said,
"Your aim must be to take All-under-Heaven intact.
Thus your troops are not worn out and your gains
will be complete. This is the art of offensive strategy."
His point is that you don't want to destroy the objective while trying to achieve it. Related to business, this means you don't want to destroy your marketplace by seeking market share through rounds of price cutting. Unless a company has been designed around a low-cost strategy and business model and enjoys a real competitive cost advantage (think Wal-Mart or Southwest Airlines), starting a price war can lead to long-term ruin.
Rather than starting a price war it is wiser to redouble efforts to find the competition's weaknesses. Sun Tzu said,
"Now an army may be likened to water,
for just as flowing water avoids heights
and hastens to the lowlands, so an army
avoids strengths and attacks weakness."
By attacking the competition's weaknesses and not their strengths a company can leverage its limited resources, shorten the length of the competitive conflict and maximize its profits. Weaknesses to attack may include such things as the competitor's reputation (or lack thereof) of quality, its distribution strategy (trying to lure away their channel partners) or playing upon the uncertainty of its future given the tough economy. It is also wise to look beyond the top competitors to focus on the weaker ones in the industry or to create new markets in which other competitors cannot afford to invest.
To know which weaknesses to attack and which strengths can be leveraged against the competition it is essential to perform solid market research and competitive analysis. The Art of War states:
"Know the enemy and know yourself:
in a hundred battles you will never be
in peril."
As cost cutting occurs one must be careful not to eliminate market research and competitive analysis, as good analysts can often be the eyes and ears of the company.
In tough economic times major seismic shifts in the industry can often occur. Competitors merge, production input prices fluctuate wildly or demand swings up and down. Sun Tzu said,
"To rely on rustics and not prepare is the greatest
of crimes; to be prepared beforehand for any
contingency is the greatest of virtues."
While none foresaw the exact events of September 11th, the impact of those events have pulsed throughout the economy. Now is the time to do some thinking about further ramifications of those events as well as other potential changes in one's specific industry.
As we have seen and know too well, economic downturns are quickly followed by layoffs. In times of mass reductions management is well-advised to ensure the best people are retained. Also, those who are talented but are laid-off should be treated as compassionately as possible, as they may become future customers or may even be rehired in the future. In addition, with the job pool flooded with talent now may be the time to judiciously hire some top employees. The Art of War states:
"A sovereign of high character and intelligence
must be able to know the right man, should
place responsibility on him and expect results."
Lastly, for leaders to navigate their companies through these turbulent times it is essential the leader publicly exude confidence. As Sun Tzu said,
"If a general is not courageous he will be unable
to conquer doubts or to create great plans."
In General Dwight D. Eisenhower's unpublished memoirs he said, ''.....optimism and pessimism are infectious and they spread more rapidly from the head downward than in any other direction.'' (A leader's positive attitude) ''has a most extraordinary effect upon all with whom he comes in contact. With this clear realization, I firmly determined that my mannerisms and speech in public would always reflect the cheerful certainty of victory.''
Sun Tzu knew this many centuries ago, when he stated,
"The responsibility for a martial host of a million
lies in one man. He is the trigger of its spirit."
