In competitive environments, we operate with incomplete information as a matter of course. We cannot know everything that all our potential opponents know. No one personal can know the sum of everyone else's knowledge. Everyone is missing pieces. The question that Sun Tzu asks is a profound one. How can a competitor take advantage of this general environment of incomplete information?
Knowing what we don't know
No battle in history would ever have been fought if people had perfect information about their relative strengths. Both sides would know before the battle who would win. Battles are fought only because both sides think they can win. Someone is wrong. At the most, only one side can be right. Both sides are often wrong when we consider the cost and value of most battles.
But no one knows who will win in competition. The information any group has is an insignificant portion of the total information in the environment. Getting all the information you need to bake a cake in a controlled environment is relatively easy. Getting all the information you need to sell cakes in the competitive market is much more difficult. There are always too many variables. There are always too many unknowns. Who can know how many people will decide they want to buy a cake today? Many who buy cakes in the afternoon didn't even have that information themselves in the morning.
The role of lies and stupidity
Competitive environments are also filled with misinformation. Competitors try to mislead each other regarding not only their future plans but their current circumstances. Individuals distort the truth for a variety of reasons. As in a game of poker, any advantage you have is linked to what you know that the other players don't know: your own hand. All disadvantages are linked to what you don't: exactly what others hold.
Of course, we are all victims of our own stupidity, thinking we know our true position in a situation. Statistically, we can know our current position is much better than the average position. However, we cannot know if it is better than a given opponent's position. Yes we beat the odds, but did we beat them? They could have been even luckier than we were.
The problems of scope and change
The volume of unknown information in the external market is always much more than the known information available to any single decision-maker. Internal resources are resources about which we have good information. We do not have good information about external resources, that is, the resources that others have. This makes finding the best product, the lowest-cost supplier, or a reliable service provider a challenge.
In larger, more complex, competitive environments, it is infinitely more difficult to keep up with increasingly fast-changing information. In controlled environments, everyone is relatively well informed about what is changing.
Where is the advantage in incomplete information?
Only in knowing that people over-estimate what they know. Every bit of certainty that they depend upon is wrong. The past does not predict the future in competitive environments. Neither does planning. Conditions are fluid. New alternatives are constantly being offered.
So how will people behave? Everyone will be continuously reacting to the "unexpected" changes around them. Everyone predicts success, but actual results are unpredictable. When people are successful, they think their planning worked, even when their success fell outside their plans. When they fail, they blame their environment, not their plans.
The surprising truth is that both competitive success and failure are found only outside of the plan. They are found in the outside environment. Those that are mentally prepared for their own suprising success and surprising failures are always more successful over time. People can succeed no matter what happens to their plans.