lessons from the art of war as building blocks for business strategy
DESCRIPTION
LESSONS FROM THE STRATEGIESOF WAR FROM ANCIENT INDIA ASBUILDING BLOCKS FORORGANISATIONS AND THEIRSTRATEGIESTRANSCRIPT
LESSONS FROM THE STRATEGIES OF WAR FROM ANCIENT INDIA AS
BUILDING BLOCKS FOR ORGANISATIONS AND THEIR
STRATEGIES
by
Rahul Mirchandani
INDIAN MANAGEMENT THOUGHT
Doctoral Programme in Management (Ph.D.)
Narsee Monjee Institute of Management Studies
INDIAN MANAGEMENT THOUGHT 1
ABSTRACT
Kautilya’s Arthashastra was perhaps the first authoritative treatise that gave structure in
the Indian context to subjects including administration, law and order, justice, taxation,
revenue and expenditure, foreign policy, defence and war.
This paper looks at Warfare strategies put forth in the Arthashastra and their relevance to
building organizations, instilling efficiency within the organization structure and
developing corporate strategies.
Upon discussing the process of creating an efficient organizational framework, the paper
attempts to understand certain tactical options that may be used by corporations in the
business battleground. The Arthashastra outlines several key methods like strategic
deception (trickery and deceit), guerilla warfare, psychological warfare (Katayuddha),
diplomacy (Mantrayuddha), clandestine warfare (Gadayuddha) and open warfare
(Prakasayuddha). This paper constructs the broad framework for use of these tactics.
More importantly, wars create chaos. “It is at the edge of chaos that interesting things
happen”. Upon analyzing the rules of engagement and related operational tactics, the
paper concludes with strategies for creating order after the conflict subsides.
INDIAN MANAGEMENT THOUGHT 2
LESSONS FROM THE STRATEGIES OF WAR FROM ANCIENT INDIA
AS BUILDING BLOCKS FOR ORGANISATIONS & THEIR STRATEGIES
Rahul Mirchandani
The business battleground has a terrain that is tricky and difficult to understand. The wars
are totally intellectual wars with a battleground that no one has ever seen. It can only be
imagined. Reconnaissance is thus, extraordinarily difficult. There is no one best way to
fight such wars. And knowing which type of warfare to use during a fight is the first and
most important decision a business needs to make.
War evolves as an Organized Enterprise
In the western world, by the end of the 4th Century BC, the mighty armies of Persians
(Darius) and Greeks (Alexander) had come and gone. The new model armies of the
Romans had already created an empire. Hannibal’s campaign over the Alps with
elephants had been conducted in 216 BC. Warfare had become an organized
enterprise in all its aspects, viz., financing, organizing, recruiting, tactics,
generalship, logistics and training.
In India, prior to the 5th Century BC, warfare had remained ritualistic, either based on
unorganized masses crashing into each other, or of feudal knights battling individually
according to the rules of personal combat, e.g., the probity of Prakasha yudha. Chivalry
and the warrior’s code took precedence over results. King Porus’ regal answer to
Alexander on how a defeated king be treated is indicative of the attitudes that guided
warfare.
INDIAN MANAGEMENT THOUGHT 3
Kautilya’s Arthashastra was perhaps the first authoritative treatise that gave structure in
the Indian context to subjects including administration, law and order, justice, taxation,
revenue and expenditure, foreign policy, defence and war. We would be looking at
warfare strategies put forth in the Arthashastra and their relevance to building
organizations and developing their corporate strategies today.
Kautilya on War
Kautilya’s India looked at war as a feature of the state’s life, something to be lived with,
almost as if one puts up with a chronic illness with the help of palliatives. The army was
just one of seven elements that constituted the state (king, ministers, land and people,
towns and cities, treasury, forces, allies).
War in the Arthashastra was more an ongoing effort instead of a climactic, decisive
act to shatter the present and shape the future. The perils of indecisive and therefore
protracted wars from which no country ever benefits, as advised in Sunzi Bingfa (The
Chinese philosophy), were never quite understood in Indian strategic thought.
Even in recent times Mao Zedong emphasized protracted war as the people’s means to
defeat the stronger tortes of a state. Arthashastra does not mention protracted war at all.
Perhaps living in a protracted state of conflict had made the rulers and peoples inured to it.
The Arthashastra focused on preservation of the state through alliances, and the
elaborate and almost esoteric “Mandalas” by which to determine inter-state relations. It
thus emphasized balance of power.
INDIAN MANAGEMENT THOUGHT 4
India had by then absorbed numerous military and civilisational invasions. A
culturally accommodative state had emerged which is reflected in the Arthashastra’s
emphasis on alliances and spheres of influence.
Kautilya’s Arthashastra viewed good counsel and correct judgement as the
constituents of power and as more useful than military might. One also wonders in the
light of the history of the time, if Kautilya was not more concerned with the intellectual
and moral qualities of Indian leadership of his time than their personal valour!
Along with power the relative importance given to decisive action is another area of
divergent outlook. Sunzi Bingfa places a high premium on decisive, even deterrent action.
There is a clear preference for action directed towards decisive results. The story of the
author of the Chinese classic, actually beheading a few concubines of the King of Wu
while teaching them drill, to show how obedience is to be obtained may be apocryphal,
but is indicative of the ruthless emphasis on decisive results. The Arthashastra is almost
managerial in its outlook on managing the affairs of the state. Hence, its immense
relevance to creating strategies for business.
From Ideal Army to Ideal Organisations
The Arthashastra’s verses on War begin with defining an ideal army. Kautilya insists that
it should be well paid (fair, adequate remuneration), honoured (motivation, incentives,
performance appraisals with corresponding rewards) and kept up to strength (re-trained,
work-life balance, reinforced with fresh talent pools). It should not have any traitors or
dissention with its ranks (employee loyalty and involvement). It should not be scattered
but kept together (networked organizations). In war, it should never be left abandoned,
INDIAN MANAGEMENT THOUGHT 5
left leaderless (leadership imperatives) or totally merged into someone else’s army
(identity crisis). It should always have adequate reinforcements (backup teams, support
staff). It should not be allowed to become too tired by long marches (task allocation and
work day planning). The terrain most suited to the type of force should be chosen for the
battle (experience, task-skill set balance). Modern theorists have very similar views on
building organizations. There is no successful organization that has been built without
using this framework.
IDEAL FOUNDATIONS FOR ORGANISATIONAL STRUCTURES
PEOPLE
Experience
Appraisals & Rewards
Task-Skill Set Balance
Work-life balance
Appraisals & Rewards
Involvement & Loyalty
Clear Identity
Visible, strong Leader
Support & Backup
Task allocation
Interpersonal Network
Training & Reinforcement
INDIAN MANAGEMENT THOUGHT 6
Creating and Instilling Efficiency within the Organizational Structure
The importance of vision and mission was captured in the Arthashastra. Kautilya advised
his King (Swamy) to rule through Vision (Prabhu Shakti) and Mission (Mantra Shakti)
and Motivation (Utsah Shakti).
Anything that weakens a constituent of a State is called a ‘calamity’ in the Arthashastra.
It is essential to identify and keep a check on these calamities that adversely affect the
Army’s (or organization’s) functioning.
Kautilya was a strong believer in the power of motivating and inspiring the human beings
within his troops to do extraordinary things. This belief is most evident when he
enumerates the factors that can adversely affect the efficiency (performance) of an Army.
He believed, as do managements today, in the need for motivation (Utsah Shakti). An
army not given due honours (recognition & rewards), not paid, tired, low in morale,
angry, disunited, dispersed, demobilized, encircled (cornered by competition), obstructed,
or abandoned by its commander (leader) cannot perform efficiently. Moreover, the need
for adequate and necessary resources is also crucial. Kautilya stressed the need for
adequate supplies and reinforcements to ensure that efficiency is sustained.
A significant opinion of Kautilya on salaries is noteworthy. He says the princely salaries
paid to the top officials and Chiefs were “to prevent them from succumbing to the
temptation of the enemy or rising up in revolt.” The pay of the middle rung was fixed at
levels that were enough to get them to “carry their men with them”. This is perhaps a
pointer to look at fixing remuneration as a strategic rather than an operational decision.
INDIAN MANAGEMENT THOUGHT 7
Suitability of terrain and season while launching the assault is also a major factor that
determines success. This is in congruence with the principles of diversification that stress
on the imminent dangers of unrelated diversification whereby corporations enter
uncharted territories, alien to their own work cultures. Timing the onslaught is also
crucial and the effect of the element of surprise can never be underestimated.
Kautilya talks in vivid detail about concepts like division of labour, departmentation,
specialization, unity of command, delegation and scope of control.
The Arthashastra shows the armed forces being headed by the Chief of Defence and
clearly structured into four divisions, each having distinctly defined functions and
specialized in their own activity. Each of these divisions was headed by a Chief
Commander and the forces also had an independent Chief of Ordnance. This independent
position avoided multiplicity of ordnance positions within each division. Similar cross-
divisional positions are put in place in organizations to improve co-ordination and
capitalize on economies of scale. Under the Chief Commanders were the Divisional
Commanders and other officers like Camp Superintendents who were given specific
functions during the march to battle. Every ten units (each with its own chariot, horses
and men) was placed under a company commander (patika). For every ten patikas, there
was a battalion commander (senapati) and for every ten senapatis there was a divisional
commander (nayaka). Once represented on a chart, the structure is almost identical to
organizational hierarchies today. Moreover, it identifies the standard scope of control as
ten. Modern theorists have also looked at this concept of the ideal scope of control to
prescribe the number of subordinates that a manager can effectively manage.
INDIAN MANAGEMENT THOUGHT 8
Kautilya has given a lot of thought to human resource development. Verses in the
Arthashastra are very clear on the qualifications and responsibilities of each position
within the Army’s structure. He writes about these qualities as qualifying standards for
appointment. These qualities are: Drudhachitta (power of concentration), Shilavan
(character), Pragna (analytical skills, thinking capability), Vangmi (communication skills)
and Daksha (observation / vigilance). In addition, he highlights the competencies that a
leader must possess. These competencies are the same as the competencies advocated by
the management gurus of the present times, namely, Knowledge, Skills and Attitude.
Ample evidence is provided on the fact that Kautilya instituted frameworks that had
Unity of command. No multiple leaders and clear responsibility-authority structures were
also in place. These are recognized today as essential in any effective corporate structure.
The essence of leadership, Kautilya stresses, lies in its acceptance by the subjects
(followership). He therefore, advises the King never to forget the two pillars of the art of
governance: Nyay (justice) and Dharma (ethics). He also decries autocratic behavior as a
leader. He advises the King to introspect, identify his atma doshas (deficiencies, areas of
self- improvement) and develop himself. The King is constantly advised that Mantris
could be incompetent, Senapati could be over ambitious, Purohit may not consider the
present day practices or traditions while enacting laws or justice, which might lead to
injustice.
Another crucial element to be considered while building Organizations is succession
planning. Kautilya advises specific training to prepare for the eventual succession. He
states that the successor should be trained in three specific areas: Arthashastra (economic
INDIAN MANAGEMENT THOUGHT 9
administration), Nitishastra (foreign affairs) and Dandaniti (political science). From a
business perspective, these can be identified as the crucial areas of economics/treasury
management, public/external relations and liaison/networking and administration.
Identity was also considered crucial. Every division or formation had its own
distinguishing trumpet sound, flags and banners. Companies today work very hard on
creating corporate identities. Even within organizations, building and nurturing corporate
cultures are given strategic importance today. A distinct identity instills a sense of pride
and belonging within divisions and also nurtures a healthy competitive spirit across
divisions.
BUILDING EFFICIENT ORGANISATIONS
VISION
MISSION
MOTIVATION
Pay Rewards Recognition
Leadership Morale Unity
CHOICE OF SUITABLE ENVIRONMENTS
DIVISIONALISATION BY OBJECTIVES & COMPETENCIES
Unity of command
Scope of Control
Dele-gation
RECRUITMENT & SELECTION
Character Communication
Analytical & Observation Skills
Attitude Knowledge Justice &
Ethics
RESOURCE MOBILIZATIONSuccession Planning
Training, Development & Improvement
IDENTITY
PERFORMANCE GOALS
INDIAN MANAGEMENT THOUGHT 10
From Base Camp to Corporate Headquarters
Kautilya gave clear directions on the location of and methods to set up an army’s base
camp. From a corporate view point, a base camp is akin to the company’s headquarters.
The Arthashastra suggests division of the headquarters in concentric circles. From the
centre (top management) outwards, each succeeding sector was occupied by less
important officials and less trustworthy troops. In the innermost sector were the King (the
head of the organization), the treasury, the communications centre and the core team.
Entry and exit should be controlled and recorded. Discipline must never be compromised
to preserve the integrity of the structure.
To protect business interests and information, organizations should follow similar
practices while deciding organizational designs.
From Objectives of the King to Objectives of the CEO
Kautilya's concept of the objectives of the King seem to be virtually adopted by Peter
Drucker in his book, Managing For Results. Drucker proposed Economic Performance as
the corporate objective and highlighted the constituents of Economic Performance to
include making the present business effective, identifying its potential and realizing it and
making it a different business for a different future.
Kautilya lays down the King’s objectives to include: Acquire power and consolidate what
has been acquired (making present business effective), expand what has been acquired
(identify potential and realize it) and enjoy what has been acquired (making it a different
business for a different future)
INDIAN MANAGEMENT THOUGHT 11
FROM KAUTIYA TO DRUCKER
Acquire Power
Consolidate what has been acquired
Expand what has been acquired
Enjoy what has been acquired
The Rules of Engagement
The Arthashastra outlines several tactical options, each of which has the potential to serve
as building blocks for business strategy. Some key methods are strategic deception
(trickery and deceit), guerilla warfare, concealed warfare (Katayuddha), diplomacy
(Mantrayuddha), clandestine warfare (Gadayuddha) and open warfare (Prakasayuddha).
However, War was treated as any other state enterprise and not considered Vital.
Open Battles
Kautilya believed that open battles should be engaged only when the army is superior,
instigations (in the enemy camp) have been successful, all precautions against dangers
have been taken and the terrain is suitable. Putting this in an organizational perspective,
deciding to engage in open warfare is a strategic choice that must be made only if the
competition is known or perceived to be superior.
Kautilya (in the Arthashastra) Objectives of the King
Drucker (in “Managing for Results”)Objectives of the CEO
Make present business effective
Identify potential and realize it
Make it a different business for a different future
INDIAN MANAGEMENT THOUGHT 12
The most talked about instance of corporations engaging in open warfare is perhaps the
Coke-Pepsi Cola War which began with the Pepsi Challenge. When initiated, Pepsi was
battling a known, superior and established competitor. However, before the battle began,
Pepsi executives had carried out innumerable blind taste tests to ensure that the
consumers had perceived their Cola as better than the competition. Such precautions are
essential before engaging in open warfare. The Cola Wars continue unabated even today.
However, with every new campaign and every new promotion initiative, a new chapter in
the War is written.
The Arthashastra prescribes that in order to be strictly in accordance with dharma, the
place and time of battle must be specified beforehand. However, this is a dictum that a
business in a competitive market environment rarely follows. The element of surprise has
several benefits that are impossible to forego.
Deceptive Battles
Businesses are known to use Strategic Deception in situations identical to when Kautilya
advocated its use by Armies. These include times when the competing forces are
suffering from a calamity (attack when the competitor when it is at its weakest, facing a
crisis or is engulfed in entropy), they are unprotected (lack of leadership, poor structure,
open secrets) or on less suitable terrain compared to the attacker (unfamiliar markets or
new environments, unfavourable cost structures).
Deception could also involve luring the competition into unsuitable terrain. An example
of this could be the feeding of information to the press or deliberate ‘tangential’
INDIAN MANAGEMENT THOUGHT 13
statements being put into the public domain with the express intention of ensuring that
the competition acts on such information. To ensure success of this, complete
confidentiality needs to be maintained and least number of ‘reliable’ spokespersons
enlisted. Most importantly, statements made should not lend themselves to legal
shenanigans. After luring the competition into an unfamiliar corner, a forceful attack
needs to be made to break their structure and create chaos and disarray.
Guerilla tactics may also be employed on two flanks. This involves identifying two
areas, product lines or markets and attacking the competitor simultaneously, with equal
force, on both fronts. Coupled with an element of surprise, the competition may be
unable to protect itself on both flanks and the possibility of losing at least one position is
well within the bounds of possibility.
For example, if a company is launching a new product and it is perceived that the launch
would be in a particular territory where a competing brand is relatively weak or where
there is adequate unfulfilled demand, the competition would have deployed adequate
resources to combat the entry. It may be possible to perhaps take the competition by
surprise and enter a completely different segment of the market, unexpectedly. As their
forces are quickly redeployed to combat your onslaught, a short period may become
available when either their sales force is temporarily alarmed, in disarray or confused
about what move to make next. It is during this short time window that a second launch
in the other territory can be initiated. Coordination is crucial while making such tactical
maneuvers. Timing and force are of the essence.
INDIAN MANAGEMENT THOUGHT 14
The general Kautilyan principle is: “If frontal attack is unfavourable, the attack shall be
from the rear and vice versa. Similarly, if the attack on one flank is unfavourable, it shall
be made from the other.”
Psychological Warfare
Before laying siege (paryupasana), it is possible that the aggressor may wage a
psychological war (upajapa) with the aim of frightening the competing forces and
boosting the morale of his own troops. Corporations have been known to wage
psychological warfare by demonstrating pervasive knowledge. This involves letting the
Chiefs of Divisions know that the secret activities or future moves of the competition
have become known, unmasking traitors (persons passing on information to the
competition) and revealing knowledge obtained from external intelligence sources.
Unleashing propaganda is a very effective form of psychological warfare. Companies
observe the competition and identify small incidents that can be blown out of proportion
and get the organization on the defensive. For instance, a person who resigns from the
competing firm may be allegedly purported to the beginning of an organisation’s
downsizing or of inability to keep key personnel happy, signaling an imminent exodus in
the not so distant future. Kautilya’s armies engaged in similar activities proclaiming
events like the appearance of a meteor, cawing of crows, bird calls, animal noises, etc. as
omens of the imminent defeat of the enemy.
INDIAN MANAGEMENT THOUGHT 15
The use of propaganda to put the enemy lines on the defensive or to create confusion and
sow the seeds of dissention or distrust is an effective strategic tactic that can be used by
corporations looking at grabbing mindshare of potential consumers.
Clandestine Warfare
This is the use of covert methods to achieve objectives without actually waging a battle,
like assassinating the enemy. In the context of business, this could involve ‘poaching’ the
developer of a new product from the competition, thus scuttling their launch plans. In
waging clandestine battles, not only does a company use its own people, but also uses
allies and supporters. A group of companies, for instance, could use joint forces to
strategize ways to keep out a foreign company from entering the domestic market.
Chanellizing energy towards influencing policy of the government towards opening up
the market could be a tactic to keep the foreign competition at bay, without waging an
actual battle in the marketplace.
The Power of Alliances
Kautilya’s choice of Mitra (allies) as one of the essential constituents of the State is
interesting. Networks of allies fortify the kingdom. Mitra, in the business context, would
be a Company which would come to support when under attack. It will also be the duty
of the Company to extend all help if the Mitra is under attack. In today's world of
globalization, the same concept is applied when corporates form alliances to fortify their
territories from external dangers such as cheap imports and the entry of strong
competitors.
INDIAN MANAGEMENT THOUGHT 16
Kautilya did not believe that war was always necessary or that wars had to be fought
alone. The most notable contribution of the Arthashastra is this theory of alliances called
the Mandala theory. Briefly, the Mandala, or a Circle, consists of an aggregate of Kings,
friendly, hostile, and neutral, around the figure of a central King very significantly called
vijigishu. The dictionary meaning of the Sanskrit term is ‘desirous of victory or conquest’,
‘wishing to overcome or surpass’; Indologists like Shamasastry and Ghoshal have
translated it ‘the Aggressor’. Perhaps, ‘hegemonist’ will be the more appropriate
rendering keeping in view the dictionary meaning and the general context of the
Arthashastra.
Professor Ghoshal further elaborates the idea of Mandala and its Vijigishu and states, "It
contemplates a system of States bound by hostile, friendly or neutral relations with an
ambitious potentate --- an Indian Louis XIV or Napoleon --- as its central figure."
Corporations often form groups, associations, alliances and the like, despite being
competitors. Industry groups with firms servicing similar markets are examples of this.
One company from within may be seen to be the “voice” of the association – but they
work towards some common objectives. Lobbying with the government is perhaps the
most common objective of such alliances. Certain other, more diverse organizations also
join groups like the Confederation of Indian Industry. Kautilya had conceptualized the
power of such alliances centuries ago.
Professor Ghoshal states while summing up this Kautilyan concept of alliances that "it
uses the weapons of diplomacy and force with such a strong preference for the
former in all its forms as to make the State administration essentially a work of art
INDIAN MANAGEMENT THOUGHT 17
requiring the exercise of the highest qualities of intellect and character on the part
of the ruler".
Developing a Comprehensive Organizational Framework
Wars create chaos. “It is at the edge of chaos that interesting things happen”. Having
looked at building effective organizations and analyzing the need for engagement and
related operational tactics, it is now apt to draw learnings from the strategies for creating
order after the conflict subsides.
Kautilya's advice begins with setting a goal of creating a framework to run a diversified
economy actively, efficiently, profitably and prudently. In the context of a Corporation,
this points to the setting up of a well integrated network of businesses, effectively
spreading risk across sectors or markets and ensuring the efficient running and
profitability of each such business Unit.
Efficient management ensures setting up of realistic targets and meeting these targets
without using over zealous methods.
Wealth lies in economic activities. Proper direction and guidance from the King will
ensure current prosperity and future gains. Inattention to the economic aspects will bring
the kingdom close to destruction. The King must bear in his mind that a king with a
depleted treasury is a weak king and the easiest target for a take over. The importance of
the Finance Function within Corporations cannot be over emphasized. Kautilya’s dictum
stressed on the strategic importance of managing money, which must remain the
prerogative of the Promoters and Top Management
INDIAN MANAGEMENT THOUGHT 18
ORGANISATIONAL STRATEGY FRAMEWORK
It is the responsibility of the King to ensure the enactment of prudent policies. Prudence
should be based on Justice (nyaya) and Ethics (dharma) that will ensure equal
opportunity for all to earn a decent living. This clearly looks at concepts akin to
Corporate Governance.
Kautilya’s philosophy says that Profitability should not only mean surplus over costs. It
should also mean provision of investment for future growth. It also goes on to say that an
ideal King is the one who has the highest qualities of leadership, intellect, energy and
personal attributes.
Kautilya warns against centralization of power in the hands of the King by stating "one
wheel alone does not move a chariot". Managers can run a corporation only with the
Diversify & Create a well integrated network of businesses
Spread Risk
Ensure profitable operations of each Unit
Set Realistic Targets and manageable Action Plans
Top Management must retain control on Treasury
Enact just and ethical policies – Corporate Governance
Avoid over-centralization of operations
Invest surpluses for future growth
Seek advice from no more than four trusted advisors
INDIAN MANAGEMENT THOUGHT 19
help of others. The Arthashastra says that there should be no more than four advisors who
should be very carefully appointed. The leader should have clarity in terms of the
qualities an advisor should possess. Most important being practical experience, thinking
prowess, sound judgement and ability to differ while keeping total devotion to the CEO.
Conclusion
Kautilya has indeed made several thought-provoking assertions in the Arthashastra.
These Pearls of Wisdom given to the King, which range from the principles of
organizational design, employee selection, empowerment and development as well as the
strategic tactics to win battles of the mind and the market, have immense practical
relevance to running corporations today.
INDIAN MANAGEMENT THOUGHT 20
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INDIAN MANAGEMENT THOUGHT 22
ABOUT THE AUTHOR
Rahul Mirchandani is a Doctoral Student at the Narsee Monjee Institute of Management
Studies, Mumbai, a Deemed University. He is a Chartered Financial Analyst (CFA) and
has a Masters Degree in Business Administration (MBA) from the University of
Canberra, Australia. He has been a lecturer in Marketing and Organisational Behaviour in
Australia and is currently teaching Rural Marketing at the R.A. Podar College of
Commerce and Economics, Mumbai. He has written articles for the Hindu Survey of
Indian Agriculture, RuralScan, Chemical Weekly, Meat International (Netherlands),
Agriculture Online (USA) and has been invited for guest sessions in Rural Marketing and
Concept Selling at several Management Institutes in India. He currently works as
Executive Director, Aries Agro-Vet Industries Limited, Mumbai. His research for the
Ph.D. programme focuses on the identifying the factors influencing demand for specialty
plant nutrition solutions in India’s rural markets, aiming at formulating a demand
forecasting model for the Industry.