Stratagem 19:Watch the Fire on the Other Shore
“When a serious conflict breaks out within the enemy alliance, wait quietly for the chaos to build. Because once its internal conflict intensifies, the alliance will bring destruction upon itself. As for you, observe closely and make preparations for any advantage that may come from it.”
—From The Thirty-Six Stratagems
Stories of companies that acted when they should have held back litter business history. By not considering the reaction an attack might invite, you risk unsettling a salutary balance between you and your competition.
In the mid-1990s the Swiss national postal service (the Swiss Post) found itself in a trying competitive situation. Overall demand had been shrinking as the Swiss turned increasingly to electronic instead of traditional mail. Swiss Post’s monopoly on this shrinking market was also slipping to international carriers including DHL and FedEx. Many of the historical legislative advantages the institution enjoyed were being challenged. Swiss Post had grown up under protection. With an office covering every Swiss town, sorting facilities, and a fleet of trucks and planes, the Swiss Post had built unparalleled scale. Now liberalization and globalization were eating into its monopoly. Revenues declined, but the costs of maintaining its real estate and equipment held firm. Swiss Post’s size was transforming from an advantage to a liability.
To survive, the postal service needed to change. In 2002 the board reconstituted itself. Several long-serving members and executives left so that a new line of leadership could take over. This new
leadership began testing the demand for new businesses including electronic mail and special post boxes serving remote areas.
Swiss Post, adopting the practices of for-profit firms, was following demand. But because it failed to contemplate the competition, this reinvented public service took a costly mis-step.
Market research and tests encouraged Swiss Post in 1994 to begin selling paper, pens, and other office products in its stores. The decision seems logical: Customers would easily associate the Swiss Post brand with office supplies, and Swiss Post’s locations enjoyed heavy foot traffic. In that year, Swiss Post enjoyed a significant spike in revenue and credited much of this uplift to its new office-supply business.
But Swiss Post was not convincing people to buy more office supplies. It was convincing them to shift their purchases away from office-supply stores, and these stores, to protect profits, had to respond.
Their response was to match Swiss Post’s offer. If customers were now able to mail a letter and stock up on supplies at a post office, office-supply retailers would have to allow the same service.
These retailers began offering shipping services through private letter carriers (e.g., DHL) in their stores.
By entering the office-supply business, Swiss Post introduced a new class of competitor into the battle. It had to contend not only with private carriers providing service to customers in their offices; additionally, it had to fight the neighborhood office-supply store, which was tempting consumers with a convenient postal service.
The Benefits of Inaction
Inaction can be a powerful and aggressive choice. Puma, for example, made a critical strategic decision in the mid-1990s to stop competing with its traditional opposition, Nike and Reebok. Facing a financial crisis, Puma realized it was incapable of succeeding as an athletic shoe company. So it chose to leave this battle to others.
Instead, Puma reconceived itself as a fashion and lifestyle brand. It began producing sneakers that placed aesthetics over performance. It hired well-known designers to create exclusive Puma shoes. It expanded its apparel business and diversified its product offerings, even producing a Puma bicycle.51
The results have been astounding. Fashionable Puma has been outpacing its athletic-oriented rivals, averaging 20 percent annual revenue growth over the past ten years, compared to 10 percent for Nike and just 1 percent for Reebok.
Intel is similarly careful about which battles it chooses. It intentionally holds back from many opportunities in order to avoid competing with customers. It will not, for example, introduce
products such as mobile phones or PDAs (personal digital assistants) that depend on Intel chips but would compete with existing Intel customers.
Forgoing such tempting opportunities is difficult. A near-term cost-benefit analysis might prove that such a move would create value; for example, a new Intel-manufactured PDA would generate
more profits than Intel would give up in lost customers. But the longer-term lens shows that Intel’s policy is highly profitable. Intel remains a trusted supplier of choice for most large electronics
companies. Intel may “lose” current battles, such as the PDA battle, but the long-term payoff of steady customer relationships is well worth it.
“The most yielding parts of the world
Overtake the most rigid parts of the world
The insubstantial can penetrate continually.
Therefore I know that without action there is advantage.
This philosophy without words,
This advantage without action,
It is rare, in the world, to attain them.”
—Lao Tzu, Tao Te Ching52
Cao Cao Lets a Family Destroy Itself
In AD 200, there was a turning point in the war between Cao Cao and a rival warlord, Yuang Shao. In that year, Cao Cao inflicted a number of victories over Yuang Shao and built momentum that
demoralized his opponent. In 202, the shame of constant defeat led Yuang Shao to sickness and then death. He had three sons, all of whom desired to succeed him.
In a break with tradition, the eldest son was passed over, and power was given to the middle son. The youngest son supported this decision. Naturally, the eldest did not. So the Yuang brothers began to fight for control.
Cao Cao saw the brothers’ internal conflict as an opportunity, and he attacked. But his threat convinced the Yuang brothers to set aside their quarrels and unite in defense. Cao Cao pulled back
from his offensive in order to give the Yuang brothers’ conflict more time to gestate. The brothers quickly picked up their differences, which again escalated into battles.
Over the next three years, Cao Cao capitalized on the Yuang brothers’ disunity. He picked off four of their provinces and convinced many of their subjects, including their generals, to defect. But he held off launching a full direct assault.
By 205, Cao Cao’s soldiers attacked and killed the eldest brother. By this time Cao Cao had taken control of a great portion of the Yuang family’s territory. The two remaining brothers were forced
to flee their kingdom. They found shelter with a nomadic tribe called the Wuhuan. Cao Cao’s application of the stratagem Watch the fire on the other shore was successful because he had captured all of the Yuang family’s territory at minimal cost.
He might have ended his conquest there, but he felt the remaining Yuang brothers still posed a threat. Strains of Yuang loyalty were still woven throughout the populace. If the brothers returned, Cao Cao might face a revolution.
Two years later, in 207, Cao Cao attacked the Wuhuan tribe that was sheltering the brothers. After a long march, Cao Cao’s troops crushed the Wuhuan and killed the clan’s leader. The Yuang brothers, however, managed to escape. They sought shelter from the leader of a more distant nomadic tribe, Gongsun Kang.
Cao Cao’s advisors urged him to continue his pursuit. But Cao Cao declined. He explained that he would simply request Gongsun Kang to deliver the Yuang brothers’ heads. His request was soon answered with the arrival of two boxes. Each contained the head of a Yuang brother.
Cao Cao’s advisors eagerly questioned how he knew that Gongsun Kang would grant his request. Cao Cao said, “Gongsun Kang has always been wary of the Yuang tribe. He was afraid [the brothers]
might usurp his position. . . . If we had pressed them with violent attacks, they would have joined together in defense. But our retreat prompted them to plot against one another.”
The first application of Watch the fire on the other shore delivered Cao Cao’s victory over the Yuang brothers’ territory. The second application made this victory permanent.