The Five Constant Factors
Sun Tzu’s “Five Constant Factors” lends itself to an application in modern business competition. Understanding and leveraging these factors can help firms maintain their existing competitive advantages as well as grow those advantages as they expand into new markets.
In the opening passages of Sun Tzu’s classic The Art of War, the great military strategist states: “The art of war, then is governed by five constant factors, to be taken into account in one’s deliberations, when seeking to determine the conditions obtaining the field.” He then I identifies these factors as (1:3-4):
- Moral Law
- The heavens
- The earth
- The Commander
- Methods and discipline
Lately I’ve been studying the subject of business competitive strategy, and couldn’t help but to see similarities between the battlefields of ancient times and the competitive markets of modern enterprise.
If I were to adapt the “five constant factors” to competitive market strategy, I might label them as follows:
- The firm’s values and culture
- Market conditions
- Market location
- The firm’s leadership
- The firm’s internal structure
Values and Culture
On an episode of Russ Roberts’ EconTalk, Joel Peterson, the Chairman of the Board at JetBlue, identifies three ingredients for a “High Trust Culture” (Peterson, 2018):
- First, employees must be shown respect
- Second, employees must believe that they’re winning
- Third, employees must believe that they’re doing something meaningful.
An in depth discussion of how those ingredients might be applied is outside the scope of this article, but if the firm – and, more importantly, the firm’s leadership – can succeed in integrating those elements into their culture, they can likely achieve the standard set by Sun Tzu who goes on to say that the Moral Law (i.e. culture and values) “causes the people to be in complete accord to their ruler, so that they will follow him…undismayed by any danger” (1:5-6).
A fearless and dedicated workforce who demonstrates total alignment by embracing the firm’s mission and core values is an assent in the competitive marketplace. Studies have shown a positive correlation between job satisfaction (which is largely driven by cultural factors within the organization) and competitive advantages (Belias & Koustelios, 2014), and that “ by improving job satisfaction, employees may be able to channel…[negative job factors, such as ] stress into creativity and enhance sustainable innovation” (Delmas & Pekovic, 2018).
Market Conditions
Much like trying to predict the weather, market conditions are inherently variable and contain a measure of risk and uncertainty. Nevertheless, intelligent forecasting can provide the diligent analyst with informed data regarding market trends, consumer behavior, product life cycles, etc. This information is foundational in developing a effective marketing strategy, and can be further leveraged in performing targeted competitor and market segment analysis.
Market Locations
Market locations similarly hold importance – especially in today’s global economy. Location factors may be distilled using the four pillars of the National Diamond framework:
- Factor conditions such as labor specialization, natural resources, and geography
- Related and supporting industries
- Demand conditions
- Firm strategy, structure, and rivalry
Additionally, institutional frameworks and government regulations vary across geographic regions and can prove favorable or prohibitive depending on the nation’s pragmatism, protectionism, and the firm’s industry.
It is the obligation of the firm’s leadership to carefully consider all of these variables in defining the firm’s competitive strategy.
Leadership
Sun Tzu has much to say about the role and responsibilities of Generals, many of which are instructive when read in the context of leadership in competitive business. This is a subject which deserves a more thorough examination, but for now a few examples will suffice:
- “The general who wins a battle makes many calculations in his temple ere the battle is fought” (1:26)
- “a wise general makes a point of foraging on the enemy” (2:15)
- “…that general is skillful in attack whose opponent does not know what to defend” (6:8)
- “If a general shows confidence in his men but always insists on his orders being obeyed, the gain will be mutual” (9:45)
In an environment where success and failure is measured in capital, rather than the loss of lives (thankfully), leaders should demonstrate a keen ability to plan, analyze, and consider both the whole and parts; leaders should analyze competing firms for weakness and failings; leaders should be careful and calculating in their strategies, never predictable and always effective; and, perhaps most importantly, leaders should earn the respect and confidence of those they lead.
Internal Structure
Sun Tzu clarifies that “By method and discipline are to be understood the marshaling of the army in its proper subdivisions, the graduations of rank among the officers, the maintenance of roads by which supplies may reach the army, and the control of military expenditure” (1:10), that is to say, the internal structure and logistics of the firm.
Research confirms the importance of organizational structure in the competitive market, and has demonstrated that organizational structure is often developed in response to the firm’s competitive strategy (Chandler, 1962).
Specifically, competition can, and often does, determine the nature of the authority structure within the organization – for example, the level and nature of competition can be the determining factor in whether a firm’s principal decision-maker will retain absolute authority or if she will introduce new delegates. This is especially true for new entrants entering an established market (Hur & Riyanto, 2012). The impact of the chosen authority structure often has a significant effect on the firm’s success.
Conclusion
It may be that viewing business practices through the lens of ‘tactical warfare’ is unnecessarily harsh and contentious. In a perfect market firms live and die by their ability to offer new products. However, in a vast global marketplace – one that’s made complex by a variety of institutions, legislation, and regulations, and wherein markets are seemingly in a perpetual state of flux – being able to leverage competitive advantage can often mean the difference between life and death for the firm. It therefore behooves leadership to seek evolutionary and revolutionary means of sustaining that advantage.
This doesn’t have to be a bad thing. Innovations in healthcare technology, communications, data analysis, and data security are examples of positive growth fueled by the need to remain competitive in an ever-changing marketplace.
References
Belias, D., & Koustelios, A. (2014). Organizational Culture and Job Satisfaction: A Review. Retrieved from https://econjournals.com/index.php/irmm/article/view/746
Chandler, A. (1962). Strategy and structure: chapters in the history of the industrial enterprise. Cambridge, MA: MIT Press
Delmas, M. A., & Pekovic, S. (2018). Corporate Sustainable Innovation and Employee Behavior. Journal Of Business Ethics, 150(4), 1071-1088.
Hur, J., & Riyanto, Y. E. (2012). Organizational Structure and Product Market Competition. Journal Of Economics & Management Strategy, 21(3), 707-743. doi:10.1111/j.1530-9134.2012.00340.x
Peterson, J. (Chairman of the Board). (2018, May 7). EconTalk [Audio podcast]. Retrieved from http://www.econtalk.org/joel-peterson-on-leadership-betrayal-and-the-10-laws-of-trust/
Sun-tzu & Giles, L. (2017). The art of war. Greyhound Press.