David Goldenberg interview
Attend any number of organizational meetings and you will come to this realization: The quality of a person's words has more value than the quantity of his or her words. The same idea applies to books as well. "Some busy executives accustomed to today's fluffy articles and books may find Sun-tzu tough going in either its historic form or this version." So goes a warning to the reader of Dr. David Goldenberg's The Art of War 3: The Canons of Commerce, a terse, insight-filled 140 page interpretation of Sun Tzu's Art of War from a business perspective.
The Art of War 3 goes straight for the jugular and leaves very little room for a wandering mind. You will not see pointless and prolonged anecdotes that plague many business books. Just 65 pages make up the main 13 chapters; three appendices make up the other half. David Goldenberg's style is certainly reminiscent of Sun Tzu's. In short, The Art of War 3 is an extraordinary book that all Sun Tzu readers should have on their shelves.
Dr. Goldenberg is a professor and corporate executive with over 40 years of business experience, which includes 10 years at Monsanto Corporation and 25 years as founder and chairman of Systematic Forecasting, Inc., a consultancy specializing in applied strategy and business economics. For 25 years, he was Adjunct Professor of economics at Fairleigh Dickinson University, and is currently Adjunct Professor of economics at Lynn University in beautiful Boca Raton, Florida!
He is a graduate of Rutgers University (BA), Columbia University (MBA), and The New School for Social Research (MA and Ph.D. in Economics).
Below is our interview with Dr. David Goldenberg. Enjoy!
Sonshi.com: How did you first come across Sun Tzu's Art of War? What was it about the book that interested you?
Goldenberg: Sun Tzu's Art of War was known to me since childhood. My paternal grandfather - a retired Canadian businessman and a censor of Chinese theater in Toronto - read it to me when I was a child and gave me my first copy. [Family tradition has it that grandpa got his copy from a friend and distant relative, Morris (two-gun) Cohen. Mr. Cohen was a bodyguard of Sun Yat Sen, the first President of China, and later an intermediary both Chiang Kai Shek and Mao Tse Tung trusted.]
My first exposure to the Ping Fa was boring although some of the examples were interesting. A few years later a martial arts instructor recommended studying Sun Tzu's Art of War. But, after rereading it, it still didn't interest me. True appreciation of Sun Tzu's Art of War only came when I began to study and do strategic planning in the mid '60s. Then I was hooked.
Two aspects of Sun Tzu's Ping Fa began to fascinate me. This well-written, coherent, practical and, of course, seminal treatment of a difficult subject by an experienced but remarkably young practitioner posed many provocative ideas for consideration and possible application. Studying the Ping Fa gradually surfaced subtle gaps, obsolete notions and problems in adapting its advice to the commercial world. The latter insights were especially stimulating and commercially useful.
Sonshi.com: Since you wrote a relatively new Sun Tzu book, we think our readers may want to learn more about its author. Would you expand on your background?
Goldenberg: Most of my knowledge of the theory and practice of strategic and functional planning came from sources other than Sun Tzu. About half of my expertise, the basics, was imparted by my parents, particularly my father. Dad was a renowned orthopedic surgeon. My parents taught me by precept and example the crucial importance of not only planning for all foreseeable contingencies but thoroughly preparing to implement those plans.
Two incidents from my father's medical practice drove their lesson home. In 1948, dad had a massive heart attack while operating. He and the patient survived because he had foreseen that contingency and trained his surgical team to deal with it. Dad knew this had happened to other surgeons and so was foreseeable. In the early 1950s a patient's heart unexpectedly failed during surgery. Dad saved him by performing the first successful open-heart massage in New Jersey. That emergency procedure worked, in part, because he insisted that his surgical team take the time to learn the technique from its developers within weeks of its announced availability and thereafter to practice it regularly.
A mentor, Dr. Oliver G. Seidman, enhanced my knowledge by another 10% or so by example and coaching. He formerly was a career army officer specializing in logistics and later a leading business economist specializing in finance and taxation. Ollie not only persuaded me to go back to school at night but found the school with the best faculty for an aspiring strategist.
Two of my dissertation supervisors, Dr. David Schwartzman and Dr. Thomas Vietorisz, were noted authorities on planning. They increased my expertise by roughly another 15%. Dr. Schwartzman had supervised Sydney Schoeffler's dissertation. That thesis was implemented as GE's famous strategic planning system which many consultancies later "adapted." Besides teaching planning, Dr. Vietorisz consulted in planning, mostly using linear programming, to the United Nations, various governments and a number of international firms.
Employers and clients also contributed to my education as a strategist. Those employers sometimes talked about planning. Occasionally they even dabbled with it. But they never made the necessary sustained commitment to doing it. Unfortunately for them, key rivals obtained outstanding results with ongoing strategic planning processes. Fortunately, my clients regarded planning as crucial to their success. They constantly sought to improve their planning processes.
Sonshi.com: We understand The Art of War 3 started due to a challenge from Takashi Aizawa, president of the Asahi Kasei Corporation's North American division. Would you tell our readers what happened and how the idea for the book came about (e.g., the book's title)? Why should a Fortune 500 company follow concepts from a 2500 year old book?
Goldenberg: Mr. Aizawa and I were walking to a restaurant one day when I made an offhand remark about Sun Tzu. He responded that executives at his firm, and many other Japanese organizations, were required to read a different version or translation of the Ping Fa each year and to discuss it with their subordinates and superiors.
Mr. Aizawa paused for a moment and then said that he had some qualms about this process. His concerns were: a military perspective really couldn't be the best guide for modern business as war and business are quite different, surely there are some new developments in business strategy since Sun Tzu wrote and, based on years of reading and rereading, The Art of War seemed to have deliberate gaps or omissions, not just blank spots resulting from missing bamboo strips or poor early translations.
On the way back to his office after lunch, Mr. Aizawa challenged me to rewrite Sun Tzu's Ping Fa. He thought a suitably revised edition would sell well if it: switched the metaphor from war to commerce, was updated with the best modern business concepts, corrected obvious errors and, as much as possible, filled in the apparent gaps. He even volunteered to edit that version. What strategist could turn down such an offer?
The Canons of Commerce, the original working title, was a pun on cannons denoting a military background and canons denoting principles or revealed word. But a friend, Dr. Alexandra Lajoux, a MAD [mergers and acquisitions and divestitures] authority and a successful business author, urged me to explicitly link the title to Sun Tzu and his The Art of War to promote sales. So the working title became the subtitle and Sun Tzu was credited as the lead author.
There were three distinct reasons for inserting a "3" in the title. It signaled that there was more than one Art of War. Western military historians traditionally entitled books on military strategy as The Art of War of ... The "3" also paid homage to Sun Tzu's lineal descendent, Sun Bin. Sun Bin wrote the second book entitled The Art of War about a century after Sun Tzu. Finally, "3" implied that The Canons was the latest book in a series.
No company should slavishly follow the concepts of any book, let alone one 2,500 years old. However, The Canons isn't just any book. Nor is it 2,500 years old. The Canons puts the best and most practical business thinking developed over the last 2500 years, starting with Sun Tzu's Ping Fa, into a readable and coherent format.
Businesses should seek out and carefully adapt sound advice. Sound advice comes from true experts. Real experts gain their knowledge and skills from experience, as Sun Tzu pointed out, and thoughtful study of seminal works and commentary on such works. Some adepts even take the time to write a worthwhile article or book. There may be a few dozen such books and a few hundred such articles published but not many more as yet.
Put another way, there's a lot of BS lurking around to mislead the gullible and desperate. The Canons aimed to ease this reading burden and process for busy executives by offering an updated, thoughtful study of the seminal work on strategy with the metaphor already converted accurately from war to commerce.
Colleagues who successfully switched from military to commercial careers repeatedly pointed out that most executives and/or writers about Sun Tzu's Art of War fail to correctly adapt his military perspective to commerce. On one occasion such a failure was quite embarrassing. The publisher of a new business strategy book invited a number of former military officers who now were mid- to high-level executives at various firms to a luncheon presentation by the author. Those executives walked out en masse in protest when early on the speaker removed all doubt that he had bungled the transformation of a military metaphor into an appropriate commercial one.
Sonshi.com: What are your thoughts about the economic future of China, the origin of The Art of War? Should American companies be concerned?
Goldenberg: History reveals that Sun Tzu's Art of War undergoes periods of popularity and disinterest. It's fashionable reading at the moment, not just in China but worldwide.
My thoughts about China's economic future are tentative. National economic development theory and practice are not my area of interest or expertise. Given that qualifying remark, my thoughts follow.
All non-Chinese companies certainly should be concerned about China's economic future. China has the potential to become an economic powerhouse or, occasionally or temporarily, an economic disaster. China obviously is becoming a major supplier to and perhaps a vast market for many foreign businesses, at least for a while. China also could become a powerful and lasting threat. The People's Republic of China [PRC] presently is developing rapidly under the direction of its government. The exact aims of the PRC's development plans and their soundness remain vague, not only for the PRC's government and most of its population but most overseas businesses and governments dealing with the PRC as well. Vague goals and plans breed uncertainty which, in turn, slows growth/development. The PRC's development planners are struggling with problems facing all governmentally directed planning. Capitalists operating in or dealing with the PRC as buyers, sellers or investors incur significant related problems too. Another problem facing the PRC's economy is making the transition from a not too successful, centrally and regionally planned economy to one attempting to integrate governmental development plans with ever more autonomous entrepreneurial actions. Those plans are set at national and regional levels with varying degrees of expertise, commitment, and coordination.
Another problem is that the PRC's immature economy necessarily is developing unevenly. Upgrading its infrastructure is an urgent need. The transportation system, particularly the road net, and widespread availability of reliable electric power are but two prerequisites for future development. A third problem is that the PRC's planners face a dearth of sound theories to guide their efforts and a shortage of reliable historic data to test the validity of any new theories. This by no means exhausts the list of difficulties. Most are not unique to the PRC. None are obscure or uncommon. But these problems take decades to resolve once acknowledged and actively addressed. As a professional strategist, I'd say that the PRC seeks to exploit the famous vonNeumann turnpike growth theorem but is experiencing familiar difficulties in building its necessarily unique turnpike. In sum, the PRC's economic development will continue. But it certainly won't be a smooth or accurately predictable process. Confusion within and about the operation of an economy assures business cycles. Cyclical behavior in an economy of the size and potential of the PRC calls for careful monitoring and handling by executives, whether they live and work inside or outside the PRC. Doesn't this bring to mind Sun Tzu's famous statement about knowing the enemy and yourself or getting slaughtered?
Sonshi.com: In your book you mentioned fostering social prosperity and creating meaningful jobs. Do they have a place where individualism is so highly prized?
Goldenberg: The answers to the issues you raised are obvious to professional economists but difficult to explain convincingly to those insufficiently trained in that arcane discipline, such as MBAs and most executives. Let me start with a salient and trenchant two-part modern military adage which Sun Tzu surely would have loved. What you don't know can kill you; so too can what you do know that isn't so.
Your initial query raises the issue of what's the proper goal(s) for any business. Introductory economics posits profit maximization as THE SOLE GOAL of business. That's popular with economists because it's easy to teach and lets us build models yielding unique answers. Despite its convenience, however, that classical economic PREMISE implies two important questions. Is profit maximization feasible? And, if so, are firms really committed to achieving that aim? In other words, is it a valid assumption or just a convenient one? It's definitely invalid. At least three economists with substantial but different business experiences won Nobel prizes for directly invalidating that assumption in disparate ways.
Herbert Simon won a Nobel for, among other things, proving that it's impossible to maximize anything, even profits, in the real world for various reasons. Harry Markowitz won a Nobel for portfolio theory. Portfolio theory proved that firms have to invest by simultaneously trading off two markedly different goals, rates of return on investments and the variability or riskiness of those returns, instead of simply attempting to maximize profits. Markowitz's portfolio theory revealed how to make such trade-offs but only for purely financial assets. As Markowitz pointed out, his technique is entirely inappropriate for investing in non-financial assets as firms. [Non-financial assets include capital equipment, raw materials, people, intellectual properties, etc. See Appendix 2 of The Canons for the details and a viable technique for investing wisely in non-financial assets.]
Franco Modigliani won a Nobel for showing that firms should act to maximize wealth rather than profits. Wealth, according to Modigliani, consists of a person's, a firm's or a country's stock of assets plus the inflow or outflow from profits earned on or losses incurred by holding those assets. Those interested will find more details about these objections to profit maximization and additional strong lines of attack in Appendix 1 of The Canons.
If profit maximization isn't business' ultimate goal, what is? I reasoned as follows. Business exists at the sufferance of society / government. Other institutions have and could perform all business functions, albeit at possible costs in efficiency and/or variety. Therefore one should ask, what economic goal(s) matter most to society / government in the long run? A long-term economic perspective certainly implies doing better than just surviving. Promoting general social prosperity or welfare clearly is a key aim. Ideally everyone wants a rising standard of living, that is, increasing prosperity.
Conversely, a society unable to survive at all or stuck in abject poverty isn't desirable. It couldn't sustain a government, a police force let alone an army to say nothing of a productive workforce or its population. People would leave, die of starvation or be too weak to work well and regularly. Satisfying the prosperity goal requires producing enough familiar and new goods and services at affordable prices and distributing them equitably. Failure to reach this goal raises unpleasant possibilities. Social collapse is one. Another is the displacement of firms by other institutions, that is, revocation of businesses' "licenses" to operate and even to exist.
A still more realistic perspective deals with changes over time, that is, a dynamic long-term economic viewpoint. A dynamic outlook leads to the additional conclusion that the economy has to create enough meaningful new jobs to keep a growing labor force productively employed. Token jobs or make-work once so common in communist countries won't do. One soviet worker aptly characterized that sort of "employment" as: "they pretend to pay us so we pretend to work." Unless all workers, including executives, have meaningful or challenging tasks, they become dissatisfied. Then they either leave or "soldier on the job."
Are the recommended social aims feasible and desirable when individualism is highly prized? Unlikely but absolutely feasible and desirable for all but the lazy and/or pampered. Emphasizing other goals greatly limits the amount of individualism and therefore progress. It's tough to be different, a true individual, in a subsidence economy. Consider the current famine in Darfur as a hopefully brief case in point. Similarly, it's impractical to be an independent individual without meaningful work or savings amassed from prior meaningful work, even if those savings were passed on to you by inheritance.
Chapter 1 of The Art of War 3: The Canons of Commerce recommended new goals. Those new goals were prosperity or social - that is, public and private - wealth creation and creating meaningful jobs. Appendix 2 of The Canons presented a practical way to achieve those goals. That technique was endorsed by a Nobel laureate. Those state-of-the-art goals and means overcome the fatal flaws of a profit maximizing goal found by the three Nobel laureates mentioned above. Conversely, can a society flourish when its firms claim to operate according to obsolete, erroneous and impossible to implement ideas, such as maximize profits, while vying with rival societies whose sophisticated business leaders know better?
Is individualism really highly prized? It's very doubtful that individualism really is highly prized, save perhaps by the individual whose survival is in question at the moment. Individualism may be given a lot of lip service in some cultures but even there it's little tolerated in practice, let alone encouraged. Most of us conform to social pressures most of the time. In fact most of us strive to conform all of the time. Society rarely tolerates those who think profoundly or flaunt its rules. Those who do so consistently or, even worse, also encourage others to do so soon run into trouble.
Granted some of those individuals are the source of innovation, the basis of all social and economic progress. But, invite historians or the ghosts of Pharaoh Iknahton, Socrates, Jesus, Galileo, Joan of Arc, Martin Luther, Dr. Semmelweiss, Darwin, Susan B. Anthony, Keynes, Dr. Martin Luther King and so forth to tell you how much those notable individuals were tolerated or rewarded in their lifetimes. Societies and large institutions, even academe, invariably choose conformity over individualism despite frequent speeches to the contrary praising individualism. Doesn't this remind you of the adage, do as I say, not as I do? If not, consider the more caustic saying which Sun Tzu probably observed, eagles don't flock, but turkeys do.
Sonshi.com: In Appendix One, you make an argument that a company's stock price does not represent its true economic value. Is the stock market's obsession with public companies meeting quarterly numbers negatively affecting their values in the long-run? What should executives do?
Goldenberg: Your question misstates my position. I repeated a long-known and well-proven fact, a company's stock price only approximates that firm's liquidation value at the moment. Although an economic value, liquidation value isn't the relevant economic value to guide the majority of businesses. Liquidation values may be a suitable cost guide for junkyards but I doubt if any of them are publicly traded. The relevant economic value is usefulness as a going concern to the owner(s). The discrepancy between liquidation and use values goes all the way back to Aristotle. Appendix 1 contains independent and irrefutable proofs that a firm's stock price has nothing to do with its value as a going economic concern. The well informed exploit this harsh truth, often at expense of those unable or unwilling to face facts.
Executive subjecting themselves and their employers to the tyranny of the stock market's quarterly guesses are ruining their firms, especially those who cook the books or "manage earnings." There are separate fundamental reasons why any business large enough to be publicly traded commits to a usually slow and inexorable form of suicide by trying to beat securities analysts' quarterly forecasts of its stock price. The proofs of this are in Appendix 1. They boil down to this.
On the one hand, there aren't enough securities analysts, by at least an order of magnitude, to accurately forecast liquidation prices, let alone going concern values. Even if there were enough skilled analysts, the data isn't there. Some essential data simply doesn't exist. The rest is either unreliable or not legally obtainable. On the other hand, companies cannot react fast enough to stock prices without increasingly disrupting their operations and long-term viability. Firms trying to so invariably are misled because the prices of interest not only are incorrect but respond to forces beyond any firm's ability to control or predict.
Executives instead should first stop submitting to the tyranny of the securities market. They also should stop pandering to securities analysts. This doesn't mean a communications blackout. It just means no longer taking analysts' and investment bankers self-serving advice. Stockholders don't need executives who neither know what to do nor act in their employer's long-term interests.
Executives next should determine what's in their firm's long-term best interests, develop plans to reach those goals and implement those plans wholeheartedly. In other words, install and stick to operating according to a viable modern strategic management process. Those wishing to do so should study the capsule restatement of "A Director's Guide to Strategic Planning" in The Canon's Foreword. Finally, the board of directors should insist on a compensation program that rewards economically sensible and productive results and penalizes inappropriate behavior such as direct measures to drive up the price of the firm's stock(s).
[See the discussion of the Least-cost Rule in The Canons for the details about the only such process known.] Do this and your firm's stock price will outperform those of rivals who defer to the stock market. Don't do this and your stock's will crash.
Sonshi.com: Regarding Appendix Three, what are the main things companies can do to become invulnerable?
Goldenberg: Appendix 3, like all the other appendices, fleshed out a tantalizing key point raised by Sun Tzu but not further discussed by him. Appendix 1 provides a practical demonstration of a commercial application of Sun Tzu's dictum that supreme excellence in the art of war consists of defeating the enemy's plans. Appendix 1 debunks a presently popular planning system. Appendix 2 takes readers through a generally applicable strategic planning system. Appendix 3 spells out the basic steps to implement Sun Tzu's recommendation to make oneself invulnerable before setting out to prove oneself invincible.
Four of the seven appendices originally written for The Canons were not published. Some simply were too valuable to give away. Others were too technical for all but a few professional strategists. Besides, including those missing appendices would have about doubled the book's length and bored most readers.
Anyone wanting to make their company invulnerable should begin by requiring all executives, from the board of directors down to supervisors, to study that Appendix 3. Fire those who either don't do that or don't act as recommended. Employees are a firm's greatest source of vulnerability as well as its most vital source of growth / development possibilities.
Most of Appendix 3's recommendations deal with not hiring, promoting or keeping bad apples. Others deal with restraining common but undesirable behavior. Make sure you replace your dysfunctional compensation system with a suitable one. A suitable compensation system rewards proper behavior and deters improper behavior; all popular executive compensation systems reward improper behavior and punish economically desirable results.
Sonshi.com: Is it a War out there in the modern global business environment? -- or is it a Blue Ocean, Win-Win, Co-opetition world of commerce? Which outlook would allow a company to compete most effectively?
Goldenberg: Neither. War is a popular but unwise, even terrible choice of a metaphor to guide business. The Foreword to The Canons explains why.
Most business neither operate globally nor are competitive according to a rigorous economic definition of that term. Most business is done locally or regionally and inevitably will remain that way.
Readers require a solid grasp of the economic concepts of competition and cooperation to effectively deal with such questions. Loose definitions and sloppy but popular jargon, such as "co-opetition," "intrapreneurship" or "shareholder value" put amateurs on a one-way path to disaster.
Economic competition refers to money prices in a free-enterprise regime. That introductory teaching device is impossible to achieve and would be intolerable in practice. If firms were price competitive, then, among other things, they always would: 1) operate entirely independently of all others - in other words, as uncooperative individuals, and 2) raise their individual outputs until prices fell to and hovered at the lowest average-variable cost of the most efficient firm in each industry, that is, their shutdown points. This bare bones description of economists' beloved model of perfect competition or so-called free enterprise is a chimera. That delusion can only exist in a classroom or the mind of a fanatic.
Although the simplest economic model, the complete free-enterprise model is so complex that few executives or strategists know all its details, limitations and implications, let alone fully understand them. Real firms restrict output and vary employment to support prices. Some also resort to crude and limited tactics to differentiate themselves from rivals. Economic rivalry is the relevant concept here, not competition. Rivalry covers the full spectrum of business behavior. It runs the entire gamut of pricing and differentiation strategies, including both strategic planning/management, innovating and cooperating.
Adam Smith was the earliest to report the merits of specialization and cooperation some 230 years ago. He compared the output of a Scottish farmer devoting a rainy day working alone to make pins for his wife with a French pin factory's daily production. The factory employed experienced specialists, equipped them with the latest tools and organized them to work cooperatively to produce pins. The factory turned out hundreds of times more pins per specialist per day than the farmer working alone. Moreover, the factory-made pins surpassed the farmer's pins in terms of quality and consistency. Specialization / cooperation pay handsomely.
However, as Smith further indicated, specialization and hence cooperation are limited by the size of the market. In other words, specialization and cooperation are prerequisites for the existence and efficient operation of large markets. Meaningful individualism can only thrive in small markets or analogous non-market conditions. Only a very small firm can exist without internal cooperation. Even a small firm can't last unless it cooperates with its suppliers, customers and rivals.
If you want your firm to flourish, emphasize the rivalrous practices of innovation and strategic management. Forget about "competition," "co-opetition" and all the other popular but ill-defined and much abused buzzwords. Master the basics, including the professional terminology. Then the answers to queries of the sort you raised and effective solutions to real-world problems not only become obvious and often come almost effortlessly.
[End of interview]
The Art of War 3 goes straight for the jugular and leaves very little room for a wandering mind. You will not see pointless and prolonged anecdotes that plague many business books. Just 65 pages make up the main 13 chapters; three appendices make up the other half. David Goldenberg's style is certainly reminiscent of Sun Tzu's. In short, The Art of War 3 is an extraordinary book that all Sun Tzu readers should have on their shelves.
Dr. Goldenberg is a professor and corporate executive with over 40 years of business experience, which includes 10 years at Monsanto Corporation and 25 years as founder and chairman of Systematic Forecasting, Inc., a consultancy specializing in applied strategy and business economics. For 25 years, he was Adjunct Professor of economics at Fairleigh Dickinson University, and is currently Adjunct Professor of economics at Lynn University in beautiful Boca Raton, Florida!
He is a graduate of Rutgers University (BA), Columbia University (MBA), and The New School for Social Research (MA and Ph.D. in Economics).
Below is our interview with Dr. David Goldenberg. Enjoy!
Sonshi.com: How did you first come across Sun Tzu's Art of War? What was it about the book that interested you?
Goldenberg: Sun Tzu's Art of War was known to me since childhood. My paternal grandfather - a retired Canadian businessman and a censor of Chinese theater in Toronto - read it to me when I was a child and gave me my first copy. [Family tradition has it that grandpa got his copy from a friend and distant relative, Morris (two-gun) Cohen. Mr. Cohen was a bodyguard of Sun Yat Sen, the first President of China, and later an intermediary both Chiang Kai Shek and Mao Tse Tung trusted.]
My first exposure to the Ping Fa was boring although some of the examples were interesting. A few years later a martial arts instructor recommended studying Sun Tzu's Art of War. But, after rereading it, it still didn't interest me. True appreciation of Sun Tzu's Art of War only came when I began to study and do strategic planning in the mid '60s. Then I was hooked.
Two aspects of Sun Tzu's Ping Fa began to fascinate me. This well-written, coherent, practical and, of course, seminal treatment of a difficult subject by an experienced but remarkably young practitioner posed many provocative ideas for consideration and possible application. Studying the Ping Fa gradually surfaced subtle gaps, obsolete notions and problems in adapting its advice to the commercial world. The latter insights were especially stimulating and commercially useful.
Sonshi.com: Since you wrote a relatively new Sun Tzu book, we think our readers may want to learn more about its author. Would you expand on your background?
Goldenberg: Most of my knowledge of the theory and practice of strategic and functional planning came from sources other than Sun Tzu. About half of my expertise, the basics, was imparted by my parents, particularly my father. Dad was a renowned orthopedic surgeon. My parents taught me by precept and example the crucial importance of not only planning for all foreseeable contingencies but thoroughly preparing to implement those plans.
Two incidents from my father's medical practice drove their lesson home. In 1948, dad had a massive heart attack while operating. He and the patient survived because he had foreseen that contingency and trained his surgical team to deal with it. Dad knew this had happened to other surgeons and so was foreseeable. In the early 1950s a patient's heart unexpectedly failed during surgery. Dad saved him by performing the first successful open-heart massage in New Jersey. That emergency procedure worked, in part, because he insisted that his surgical team take the time to learn the technique from its developers within weeks of its announced availability and thereafter to practice it regularly.
A mentor, Dr. Oliver G. Seidman, enhanced my knowledge by another 10% or so by example and coaching. He formerly was a career army officer specializing in logistics and later a leading business economist specializing in finance and taxation. Ollie not only persuaded me to go back to school at night but found the school with the best faculty for an aspiring strategist.
Two of my dissertation supervisors, Dr. David Schwartzman and Dr. Thomas Vietorisz, were noted authorities on planning. They increased my expertise by roughly another 15%. Dr. Schwartzman had supervised Sydney Schoeffler's dissertation. That thesis was implemented as GE's famous strategic planning system which many consultancies later "adapted." Besides teaching planning, Dr. Vietorisz consulted in planning, mostly using linear programming, to the United Nations, various governments and a number of international firms.
Employers and clients also contributed to my education as a strategist. Those employers sometimes talked about planning. Occasionally they even dabbled with it. But they never made the necessary sustained commitment to doing it. Unfortunately for them, key rivals obtained outstanding results with ongoing strategic planning processes. Fortunately, my clients regarded planning as crucial to their success. They constantly sought to improve their planning processes.
Sonshi.com: We understand The Art of War 3 started due to a challenge from Takashi Aizawa, president of the Asahi Kasei Corporation's North American division. Would you tell our readers what happened and how the idea for the book came about (e.g., the book's title)? Why should a Fortune 500 company follow concepts from a 2500 year old book?
Goldenberg: Mr. Aizawa and I were walking to a restaurant one day when I made an offhand remark about Sun Tzu. He responded that executives at his firm, and many other Japanese organizations, were required to read a different version or translation of the Ping Fa each year and to discuss it with their subordinates and superiors.
Mr. Aizawa paused for a moment and then said that he had some qualms about this process. His concerns were: a military perspective really couldn't be the best guide for modern business as war and business are quite different, surely there are some new developments in business strategy since Sun Tzu wrote and, based on years of reading and rereading, The Art of War seemed to have deliberate gaps or omissions, not just blank spots resulting from missing bamboo strips or poor early translations.
On the way back to his office after lunch, Mr. Aizawa challenged me to rewrite Sun Tzu's Ping Fa. He thought a suitably revised edition would sell well if it: switched the metaphor from war to commerce, was updated with the best modern business concepts, corrected obvious errors and, as much as possible, filled in the apparent gaps. He even volunteered to edit that version. What strategist could turn down such an offer?
The Canons of Commerce, the original working title, was a pun on cannons denoting a military background and canons denoting principles or revealed word. But a friend, Dr. Alexandra Lajoux, a MAD [mergers and acquisitions and divestitures] authority and a successful business author, urged me to explicitly link the title to Sun Tzu and his The Art of War to promote sales. So the working title became the subtitle and Sun Tzu was credited as the lead author.
There were three distinct reasons for inserting a "3" in the title. It signaled that there was more than one Art of War. Western military historians traditionally entitled books on military strategy as The Art of War of ... The "3" also paid homage to Sun Tzu's lineal descendent, Sun Bin. Sun Bin wrote the second book entitled The Art of War about a century after Sun Tzu. Finally, "3" implied that The Canons was the latest book in a series.
No company should slavishly follow the concepts of any book, let alone one 2,500 years old. However, The Canons isn't just any book. Nor is it 2,500 years old. The Canons puts the best and most practical business thinking developed over the last 2500 years, starting with Sun Tzu's Ping Fa, into a readable and coherent format.
Businesses should seek out and carefully adapt sound advice. Sound advice comes from true experts. Real experts gain their knowledge and skills from experience, as Sun Tzu pointed out, and thoughtful study of seminal works and commentary on such works. Some adepts even take the time to write a worthwhile article or book. There may be a few dozen such books and a few hundred such articles published but not many more as yet.
Put another way, there's a lot of BS lurking around to mislead the gullible and desperate. The Canons aimed to ease this reading burden and process for busy executives by offering an updated, thoughtful study of the seminal work on strategy with the metaphor already converted accurately from war to commerce.
Colleagues who successfully switched from military to commercial careers repeatedly pointed out that most executives and/or writers about Sun Tzu's Art of War fail to correctly adapt his military perspective to commerce. On one occasion such a failure was quite embarrassing. The publisher of a new business strategy book invited a number of former military officers who now were mid- to high-level executives at various firms to a luncheon presentation by the author. Those executives walked out en masse in protest when early on the speaker removed all doubt that he had bungled the transformation of a military metaphor into an appropriate commercial one.
Sonshi.com: What are your thoughts about the economic future of China, the origin of The Art of War? Should American companies be concerned?
Goldenberg: History reveals that Sun Tzu's Art of War undergoes periods of popularity and disinterest. It's fashionable reading at the moment, not just in China but worldwide.
My thoughts about China's economic future are tentative. National economic development theory and practice are not my area of interest or expertise. Given that qualifying remark, my thoughts follow.
All non-Chinese companies certainly should be concerned about China's economic future. China has the potential to become an economic powerhouse or, occasionally or temporarily, an economic disaster. China obviously is becoming a major supplier to and perhaps a vast market for many foreign businesses, at least for a while. China also could become a powerful and lasting threat. The People's Republic of China [PRC] presently is developing rapidly under the direction of its government. The exact aims of the PRC's development plans and their soundness remain vague, not only for the PRC's government and most of its population but most overseas businesses and governments dealing with the PRC as well. Vague goals and plans breed uncertainty which, in turn, slows growth/development. The PRC's development planners are struggling with problems facing all governmentally directed planning. Capitalists operating in or dealing with the PRC as buyers, sellers or investors incur significant related problems too. Another problem facing the PRC's economy is making the transition from a not too successful, centrally and regionally planned economy to one attempting to integrate governmental development plans with ever more autonomous entrepreneurial actions. Those plans are set at national and regional levels with varying degrees of expertise, commitment, and coordination.
Another problem is that the PRC's immature economy necessarily is developing unevenly. Upgrading its infrastructure is an urgent need. The transportation system, particularly the road net, and widespread availability of reliable electric power are but two prerequisites for future development. A third problem is that the PRC's planners face a dearth of sound theories to guide their efforts and a shortage of reliable historic data to test the validity of any new theories. This by no means exhausts the list of difficulties. Most are not unique to the PRC. None are obscure or uncommon. But these problems take decades to resolve once acknowledged and actively addressed. As a professional strategist, I'd say that the PRC seeks to exploit the famous vonNeumann turnpike growth theorem but is experiencing familiar difficulties in building its necessarily unique turnpike. In sum, the PRC's economic development will continue. But it certainly won't be a smooth or accurately predictable process. Confusion within and about the operation of an economy assures business cycles. Cyclical behavior in an economy of the size and potential of the PRC calls for careful monitoring and handling by executives, whether they live and work inside or outside the PRC. Doesn't this bring to mind Sun Tzu's famous statement about knowing the enemy and yourself or getting slaughtered?
Sonshi.com: In your book you mentioned fostering social prosperity and creating meaningful jobs. Do they have a place where individualism is so highly prized?
Goldenberg: The answers to the issues you raised are obvious to professional economists but difficult to explain convincingly to those insufficiently trained in that arcane discipline, such as MBAs and most executives. Let me start with a salient and trenchant two-part modern military adage which Sun Tzu surely would have loved. What you don't know can kill you; so too can what you do know that isn't so.
Your initial query raises the issue of what's the proper goal(s) for any business. Introductory economics posits profit maximization as THE SOLE GOAL of business. That's popular with economists because it's easy to teach and lets us build models yielding unique answers. Despite its convenience, however, that classical economic PREMISE implies two important questions. Is profit maximization feasible? And, if so, are firms really committed to achieving that aim? In other words, is it a valid assumption or just a convenient one? It's definitely invalid. At least three economists with substantial but different business experiences won Nobel prizes for directly invalidating that assumption in disparate ways.
Herbert Simon won a Nobel for, among other things, proving that it's impossible to maximize anything, even profits, in the real world for various reasons. Harry Markowitz won a Nobel for portfolio theory. Portfolio theory proved that firms have to invest by simultaneously trading off two markedly different goals, rates of return on investments and the variability or riskiness of those returns, instead of simply attempting to maximize profits. Markowitz's portfolio theory revealed how to make such trade-offs but only for purely financial assets. As Markowitz pointed out, his technique is entirely inappropriate for investing in non-financial assets as firms. [Non-financial assets include capital equipment, raw materials, people, intellectual properties, etc. See Appendix 2 of The Canons for the details and a viable technique for investing wisely in non-financial assets.]
Franco Modigliani won a Nobel for showing that firms should act to maximize wealth rather than profits. Wealth, according to Modigliani, consists of a person's, a firm's or a country's stock of assets plus the inflow or outflow from profits earned on or losses incurred by holding those assets. Those interested will find more details about these objections to profit maximization and additional strong lines of attack in Appendix 1 of The Canons.
If profit maximization isn't business' ultimate goal, what is? I reasoned as follows. Business exists at the sufferance of society / government. Other institutions have and could perform all business functions, albeit at possible costs in efficiency and/or variety. Therefore one should ask, what economic goal(s) matter most to society / government in the long run? A long-term economic perspective certainly implies doing better than just surviving. Promoting general social prosperity or welfare clearly is a key aim. Ideally everyone wants a rising standard of living, that is, increasing prosperity.
Conversely, a society unable to survive at all or stuck in abject poverty isn't desirable. It couldn't sustain a government, a police force let alone an army to say nothing of a productive workforce or its population. People would leave, die of starvation or be too weak to work well and regularly. Satisfying the prosperity goal requires producing enough familiar and new goods and services at affordable prices and distributing them equitably. Failure to reach this goal raises unpleasant possibilities. Social collapse is one. Another is the displacement of firms by other institutions, that is, revocation of businesses' "licenses" to operate and even to exist.
A still more realistic perspective deals with changes over time, that is, a dynamic long-term economic viewpoint. A dynamic outlook leads to the additional conclusion that the economy has to create enough meaningful new jobs to keep a growing labor force productively employed. Token jobs or make-work once so common in communist countries won't do. One soviet worker aptly characterized that sort of "employment" as: "they pretend to pay us so we pretend to work." Unless all workers, including executives, have meaningful or challenging tasks, they become dissatisfied. Then they either leave or "soldier on the job."
Are the recommended social aims feasible and desirable when individualism is highly prized? Unlikely but absolutely feasible and desirable for all but the lazy and/or pampered. Emphasizing other goals greatly limits the amount of individualism and therefore progress. It's tough to be different, a true individual, in a subsidence economy. Consider the current famine in Darfur as a hopefully brief case in point. Similarly, it's impractical to be an independent individual without meaningful work or savings amassed from prior meaningful work, even if those savings were passed on to you by inheritance.
Chapter 1 of The Art of War 3: The Canons of Commerce recommended new goals. Those new goals were prosperity or social - that is, public and private - wealth creation and creating meaningful jobs. Appendix 2 of The Canons presented a practical way to achieve those goals. That technique was endorsed by a Nobel laureate. Those state-of-the-art goals and means overcome the fatal flaws of a profit maximizing goal found by the three Nobel laureates mentioned above. Conversely, can a society flourish when its firms claim to operate according to obsolete, erroneous and impossible to implement ideas, such as maximize profits, while vying with rival societies whose sophisticated business leaders know better?
Is individualism really highly prized? It's very doubtful that individualism really is highly prized, save perhaps by the individual whose survival is in question at the moment. Individualism may be given a lot of lip service in some cultures but even there it's little tolerated in practice, let alone encouraged. Most of us conform to social pressures most of the time. In fact most of us strive to conform all of the time. Society rarely tolerates those who think profoundly or flaunt its rules. Those who do so consistently or, even worse, also encourage others to do so soon run into trouble.
Granted some of those individuals are the source of innovation, the basis of all social and economic progress. But, invite historians or the ghosts of Pharaoh Iknahton, Socrates, Jesus, Galileo, Joan of Arc, Martin Luther, Dr. Semmelweiss, Darwin, Susan B. Anthony, Keynes, Dr. Martin Luther King and so forth to tell you how much those notable individuals were tolerated or rewarded in their lifetimes. Societies and large institutions, even academe, invariably choose conformity over individualism despite frequent speeches to the contrary praising individualism. Doesn't this remind you of the adage, do as I say, not as I do? If not, consider the more caustic saying which Sun Tzu probably observed, eagles don't flock, but turkeys do.
Sonshi.com: In Appendix One, you make an argument that a company's stock price does not represent its true economic value. Is the stock market's obsession with public companies meeting quarterly numbers negatively affecting their values in the long-run? What should executives do?
Goldenberg: Your question misstates my position. I repeated a long-known and well-proven fact, a company's stock price only approximates that firm's liquidation value at the moment. Although an economic value, liquidation value isn't the relevant economic value to guide the majority of businesses. Liquidation values may be a suitable cost guide for junkyards but I doubt if any of them are publicly traded. The relevant economic value is usefulness as a going concern to the owner(s). The discrepancy between liquidation and use values goes all the way back to Aristotle. Appendix 1 contains independent and irrefutable proofs that a firm's stock price has nothing to do with its value as a going economic concern. The well informed exploit this harsh truth, often at expense of those unable or unwilling to face facts.
Executive subjecting themselves and their employers to the tyranny of the stock market's quarterly guesses are ruining their firms, especially those who cook the books or "manage earnings." There are separate fundamental reasons why any business large enough to be publicly traded commits to a usually slow and inexorable form of suicide by trying to beat securities analysts' quarterly forecasts of its stock price. The proofs of this are in Appendix 1. They boil down to this.
On the one hand, there aren't enough securities analysts, by at least an order of magnitude, to accurately forecast liquidation prices, let alone going concern values. Even if there were enough skilled analysts, the data isn't there. Some essential data simply doesn't exist. The rest is either unreliable or not legally obtainable. On the other hand, companies cannot react fast enough to stock prices without increasingly disrupting their operations and long-term viability. Firms trying to so invariably are misled because the prices of interest not only are incorrect but respond to forces beyond any firm's ability to control or predict.
Executives instead should first stop submitting to the tyranny of the securities market. They also should stop pandering to securities analysts. This doesn't mean a communications blackout. It just means no longer taking analysts' and investment bankers self-serving advice. Stockholders don't need executives who neither know what to do nor act in their employer's long-term interests.
Executives next should determine what's in their firm's long-term best interests, develop plans to reach those goals and implement those plans wholeheartedly. In other words, install and stick to operating according to a viable modern strategic management process. Those wishing to do so should study the capsule restatement of "A Director's Guide to Strategic Planning" in The Canon's Foreword. Finally, the board of directors should insist on a compensation program that rewards economically sensible and productive results and penalizes inappropriate behavior such as direct measures to drive up the price of the firm's stock(s).
[See the discussion of the Least-cost Rule in The Canons for the details about the only such process known.] Do this and your firm's stock price will outperform those of rivals who defer to the stock market. Don't do this and your stock's will crash.
Sonshi.com: Regarding Appendix Three, what are the main things companies can do to become invulnerable?
Goldenberg: Appendix 3, like all the other appendices, fleshed out a tantalizing key point raised by Sun Tzu but not further discussed by him. Appendix 1 provides a practical demonstration of a commercial application of Sun Tzu's dictum that supreme excellence in the art of war consists of defeating the enemy's plans. Appendix 1 debunks a presently popular planning system. Appendix 2 takes readers through a generally applicable strategic planning system. Appendix 3 spells out the basic steps to implement Sun Tzu's recommendation to make oneself invulnerable before setting out to prove oneself invincible.
Four of the seven appendices originally written for The Canons were not published. Some simply were too valuable to give away. Others were too technical for all but a few professional strategists. Besides, including those missing appendices would have about doubled the book's length and bored most readers.
Anyone wanting to make their company invulnerable should begin by requiring all executives, from the board of directors down to supervisors, to study that Appendix 3. Fire those who either don't do that or don't act as recommended. Employees are a firm's greatest source of vulnerability as well as its most vital source of growth / development possibilities.
Most of Appendix 3's recommendations deal with not hiring, promoting or keeping bad apples. Others deal with restraining common but undesirable behavior. Make sure you replace your dysfunctional compensation system with a suitable one. A suitable compensation system rewards proper behavior and deters improper behavior; all popular executive compensation systems reward improper behavior and punish economically desirable results.
Sonshi.com: Is it a War out there in the modern global business environment? -- or is it a Blue Ocean, Win-Win, Co-opetition world of commerce? Which outlook would allow a company to compete most effectively?
Goldenberg: Neither. War is a popular but unwise, even terrible choice of a metaphor to guide business. The Foreword to The Canons explains why.
Most business neither operate globally nor are competitive according to a rigorous economic definition of that term. Most business is done locally or regionally and inevitably will remain that way.
Readers require a solid grasp of the economic concepts of competition and cooperation to effectively deal with such questions. Loose definitions and sloppy but popular jargon, such as "co-opetition," "intrapreneurship" or "shareholder value" put amateurs on a one-way path to disaster.
Economic competition refers to money prices in a free-enterprise regime. That introductory teaching device is impossible to achieve and would be intolerable in practice. If firms were price competitive, then, among other things, they always would: 1) operate entirely independently of all others - in other words, as uncooperative individuals, and 2) raise their individual outputs until prices fell to and hovered at the lowest average-variable cost of the most efficient firm in each industry, that is, their shutdown points. This bare bones description of economists' beloved model of perfect competition or so-called free enterprise is a chimera. That delusion can only exist in a classroom or the mind of a fanatic.
Although the simplest economic model, the complete free-enterprise model is so complex that few executives or strategists know all its details, limitations and implications, let alone fully understand them. Real firms restrict output and vary employment to support prices. Some also resort to crude and limited tactics to differentiate themselves from rivals. Economic rivalry is the relevant concept here, not competition. Rivalry covers the full spectrum of business behavior. It runs the entire gamut of pricing and differentiation strategies, including both strategic planning/management, innovating and cooperating.
Adam Smith was the earliest to report the merits of specialization and cooperation some 230 years ago. He compared the output of a Scottish farmer devoting a rainy day working alone to make pins for his wife with a French pin factory's daily production. The factory employed experienced specialists, equipped them with the latest tools and organized them to work cooperatively to produce pins. The factory turned out hundreds of times more pins per specialist per day than the farmer working alone. Moreover, the factory-made pins surpassed the farmer's pins in terms of quality and consistency. Specialization / cooperation pay handsomely.
However, as Smith further indicated, specialization and hence cooperation are limited by the size of the market. In other words, specialization and cooperation are prerequisites for the existence and efficient operation of large markets. Meaningful individualism can only thrive in small markets or analogous non-market conditions. Only a very small firm can exist without internal cooperation. Even a small firm can't last unless it cooperates with its suppliers, customers and rivals.
If you want your firm to flourish, emphasize the rivalrous practices of innovation and strategic management. Forget about "competition," "co-opetition" and all the other popular but ill-defined and much abused buzzwords. Master the basics, including the professional terminology. Then the answers to queries of the sort you raised and effective solutions to real-world problems not only become obvious and often come almost effortlessly.
[End of interview]