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3.1.3 Conflict Cost

May 31, 2012
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"You must avoid disasters from armed conflict."
Sun Tzu's The Art of War 7:1:5

Description: 
Sun Tzu's six rules on the costly nature of resolving competitive comparisons by conflict.
Perspective: 
"We must work to resolve conflicts in a spirit of reconciliation and always keep in mind the interests of others. We cannot destroy our neighbors! We cannot ignore their interests! Doing so would ultimately cause us to suffer." Dalai Lama
Situation: 
Conflict defines wars of attrition. In such wars, the party that sustains the least damage is the technical winner. The problem is that, according to the economics of strategy, both parties in a conflict are much more likely to be losers in the long-term.  These Pyrrhic victories occur when winning the battle costs us our success over the longer term. These "victories" cost much more than any benefit that we can ever hope to win from them.
Opportunity: 
We avoid conflict not out of altruism but for the pragmatic reason that that success is much more likely without it. Strategy is the economics of advancing our position and in that economics, conflict is simply too costly (3.1 Strategic Economics). When competition is properly understood, we can advance our position while avoiding all the costs of competition. Competition is always a comparison (1.3.1 Competitive Comparison). We do not have to damage our opponents in order to come out on top in that comparison.  The ideal position is one that others do not want to attack and ideally want to join. Correctly understood competition embraces cooperation because allies support our position. Conflict, not competition, is the opposite of cooperation.
Sun Tzu's Rules: 
Our strategy is to meet a potential opponents under the right conditions so that we can win battles and even fights without conflict. This means that we can win the competition, i.e. comparison, without having to damage our opponents to demonstrate our superiority.
  1. Understand the difference between competition, battle, fighting, and conflict. These four terms are used interchangeably in casual conversation, but we require more precise definitions so we can understand what is necessary and what is not.
    • Competition is a comparison  of alternatives positions of opponents.
    • Battle is a meeting of potential opponents where positions are compared. 
    • F ighting is expending resources to overcome a challenge.
    • Conflict is the attempt to damage our opposition so we can take their position. Conflict is a meeting, i.e, battle, that requires resources, i.e, a fight, but it has the specific goal of hurting opponents enough so that they will surrender a position to us.
  2. All competition requires battles. Since all all competition is a comparison, such meetings are eventually necessary. By this definition, every buying decisions and sporting event is a battle, a situation where alternatives are compared. (1.3.1 Competitive Comparison)
  3. Both advancing and defending our position requires various types of fights. In other words, we must always use resources to overcome challenges.  Battles are just one type of fight. There are many types of fights such as overcoming barriers in moving to a new position. Facing challenges and the use of resources are equally unavoidable (3.1.1 Resource Limitations).
  4. All conflict is the result of a miscalculation. Conflict doesn't occur unless both parties think they can triumph. Opponent will always surrender or evade a battle rather than enter into costly conflict that they know that they will certainly lose. The problem is that, because of our limited information, we naturally over estimate our own advantages and underestimate those of our opponents. Conflict  (2.1.1 Information Limits).
  5. Conflict is always unnecessary. There are an infinite number of opportunities that exist as unfilled positions that others desire to be filled. Conflict results from the mistake of zero-sum thinking, that we can only advance our position by taking someone else's position away.  The environment is continually creating new opportunities as new needs (3.2 Opportunity Creation).
  6. Conflict always creates costs. The specific problem with our trying to damage opponents is that opponents must defend themselves. When two opponents fight each other, both are diminished by the effort, losing resources that could be better utilized by finding other ways to advance their position. Since both positions are damaged, creating opportunities for others outside of the battle. Since defending a position is always less expensive than attacking it, this is most costly way of trying to advance a position ( 1.1.2 Defending Positions).
Illustration: 
Let us look at these rules in terms of business conflict. In business, battling over customers is never profitable, even if we win them. Whenever two businesses get into, for example, a price war, we can predict that the most likely outcome is that both will end up losing profits. For decades a whole series of companies battled IBM for dominance in the mainframe computer industry. None of them were successful and their investors lost a staggering amount of money. Then a series of companies challenged Microsoft only to fail. Now the same thinking causes people to want to challenge Google directly in the search engine business.

Let us look at the specific battles of Microsoft and Apple over computers and MP3 players.

  1. Understand the difference between competition, battle, fighting, and conflict. All businesses compete because their products are compared with other alternative uses of money. Apple and Microsoft will always compete.
  2. All competition requires battles. A business battle occurs at every point of sale, when the customer makes a decisions to buy one product instead of another. The computer store is a battlefield.
  3. Both advancing and defending our position requires various types of fights. Businesses such as Microsoft and Apple fight by spending money on advertising, merchandising, product development, etc. These fights don't become conflict until one competitor starts attacking the other. 
  4. All conflict is the result of a miscalculation. Conflict only occurs when one company tries to take away another's customers by positioning their products as a direct replacement for the products of others. Recording artists compete with each other without conflict in selling their music, but Microsoft and Apple engage in conflict in their sales of computers and MP3 players. 
  5. Conflict is always unnecessary. Most customers of Microsoft and Apple but their different products for very different reasons, but rather than go after different customers, Microsoft and Apple choose to go after conflicting markets.
  6. Conflict always creates costs.  These battles have cost both companies but both are profitable that they think that they can afford the luxury.