He who can modify his tactics in relation to his opponent and thereby succeed in winning, may be called a heaven-born captain.
Sun Tzu, The Art of War
Note: None of the material or content contained herein constitutes investment advice. It is solely for educational and informational purposes. Past performance is not an indicator of future performance.
As in war, sport, fashion, business and many other facets of life, there are those that can see the game in front of them better than their opponents or at least, their ability to make a call on where it’s going, ahead of time sets them apart in their outcomes.
EXAMPLE OF SUN TZU
There are many examples of this in business and many counterexamples. Apple is such an example. Many today might not know that Apple began as a personal computer company. They are now known for smartphones but this was not always the case. What seems like a no brainer in hindsight was a tenuous time for the company and a bold move my its captain, Steve Jobs.
In 2007, even though Mac’s and Ipods made up the majority of revenues for Apple, he saw the direction of travel for PC’s and Ipods and then saw the direction of travel for mobile phones and he made the call to modify the tactics of the business.
This was no small decision. It was a signal to all his teams that their roles and everything they had done to that point would not be the focus going forward. If he was wrong, the results would be disastrous for everyone involved - which is why Sun Tzu says, “and thereby succeed in winning”. He was effectively ending the Ipod which had been an incredibly successful and revolutionary product for the company that was only a few years in the world.
Steve Jobs was right of course, mobile phones was the strategy to pursue. In releasing the Iphone he also raised the bar for others, he introduced a smartphone that was intuitive and exciting with revolutionary new technology, touchscreen.
COUNTEREXAMPLES
Apples entry into the space and their innovation drove some counter examples to Sun Tzu’s advice that didn’t “modify their tactics” or did so too slowly. Nokia was the first counterexample, it failed to modify in relation to its opponent i.e. move to the smartphone.
They instead held the belief [full addendum detail for paid subscribers] that this new player and new technology was not a threat to their 50% market share. This belief was quickly proven false, by which time it was too late for them to reposition their resources and people to offer a defence. Another counterexample, cut from the same product launch was Blackberry. They owned the corporate mobile markets and they looked at the iPhone launch and saw a fragile toy with terrible battery life, a clumsy digital keyboard, and a lack of military-grade security. They assumed no serious businessperson would ever trade the efficiency of a BlackBerry keyboard for a flat piece of glass. Again, they were quickly proven wrong and by the time they went to reposition, it was too late [full detail for paid subscribers].
TAKEAWAY FOR INVESTORS
For investors, when looking at a company, it is important to consider Sun Tzu’s words and ask
1. is this company sitting at an inflection point for its products or industry?
and,
2. if it is, does it have a leader who can modify their tactics accordingly to protect, or even better, expand your investment.
Today there are several industries and companies facing dilemmas of innovation and I break down some of the names, industries and behaviours to watch out for in the [addendum for paid subscribers].