A Military Take On Competitive Stategy

 

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from OODA loop Wikipedia Article

There have been multiple military thinkers through the ages who have greatly influenced modern thought on strategy in warfare. In this entry we do not discuss the competitive nature of the firm in industry as if it is war; however, we, instead, turn towards some of the greatest thinkers of military strategy to try to learn some useful lessons for how we compete and form strategy as a business or new startup business in the modern day.  Our investment team has found these ideas particularly useful as we evaluate the ability with which a firm can compete amidst the uncertainty of changing markets.

 

One of the most classic military thinkers is von Clausewitz, who eventually became a Prussian General.  Prior to becoming a general he wrote a classic treatise named On War. Von Clausewitz clearly described several things that deviate significantly from thinkers prior his time.  Many thinkers prior to von Clausewitz had espoused more of a technical, almost proscribed approach to war-fighting.  Von Clausewitz, among other things, introduced many important tenants of war-fighting that have made it to the modern day.  One thing that was very different is what von Clausewitz did not do:  he did not seek to make a cook book for how to fight successfully.  Rather, he described over-arching philosophic and process-type issues that allowed for effective war-fighting.  Perhaps von Clausewitz’s most often-cited ideas include war as a continuation of politics, and the idea that it is (in general) easier to defend a position than to attack one.

 

From von Clausewitz, we take several important lessons:  first, it is challenging to adopt a new position.  Once a team has a position in a market, however, it is easier to defend than to “attack” a new one.  This does NOT mean a firm should never change its position, yet indicates it should evolve carefully when it feels it is time.  (We feel first should be looking for innovative changes that give long-term returns.) Please realize, however, that easy does not always equate with successful or desirable.

 

Also, von Clausewitz helps remind us that healthcare startups, and others, must have a good reason to be bothered starting up.  Going for a new position in a market will be challenging, and the effort to do so must always be subservient to some plan just as the horrors of war serve the end of politics.  In any event, von Clausewitz helps us remember that the “getting there” is challenging and must serve some higher purpose.  Once a team gets there, it will be easier to defend territory, although again we caution against complacency.

 

Now, let’s transition toward more modern war-fighting theory such as that described by John Boyd.  John Boyd was a United States Air Force pilot who helped contribute to a manner of approach in dog fighting and other conflicts that lead to a great amount of success with the F series of fighters.  In short, per my rudimentary understanding, the F series of fighters was, in many ways, felt to be technically inferior to the Russian MiG owing to certain characteristics of the F series itself.  However, with Boyd’s direction this concept of being able to ‘turn under power’ had been designed into the F series and became key in the United States Air Force designs and implementation.  Although the F series may have lagged in classic measurements of fighters, its ability to maintain thrust and TURN to adopt the best attack angle made it highly effective in combat.

 

This idea of turning under power directly affects our thoughts on firms and industry.  A firm must continue going forward and yet be nimble enough to take the best angle of attack.  A team must be able to pivot.  This is key in startups:  turning while remaining moving forward, or turning under power, is a key characteristic.

 

John Boyd, however, went one step further and described what has been called the OODA loop. The OODA loop describes a light, flexible pattern of war-fighting in which first a participant must Observe a situation obtaining observations accurately.  Then, these must be passed through filters including education, cultural background, and the different elements that compose that person’s background as the person or entity Orients to the situation.  That means they must understand where and how they fit into a given the situation as individuals.  Next, they must appropriately and quickly come to an effective Decision.  It is not enough to come to a decision quickly; the decision must also be as accurate as possible given the background of the situation.  Last, the person must be able to implement this decision in a rapid tempo fashion so as to effect the other participant in the struggle, conflict or market.  In short that person must Act.  Results of the action and the updated situation then feedback to the beginning of the loop.

 

In our angel investment practice, we found that using the OODA loop as a shared mental model for certain aspects of competition to be very key.  We talked in an early blog entry about Blue Ocean strategy.  Here, however, we describe the importance that is to be allotted to this concept of a decision cycle.  The Boyd loop tells us several important things.

 

First, the Boyd loop is a useful mental model to describe the importance of the decision cycle as a means of competitive advantage.  When another firm, an enemy, or another participant makes decisions more slowly than our team this can be a source of advantage for our team.  That is, when we ‘operate inside the decision loop’ of the other side we find this is very effective in competitive strategy.

 

Making decisions more quickly is not the only source of competitive advantage. However,  it can be done to great effect as the opposite side or sides feel like we are the tempo setter for an industry and that they are rushing to catch up.  Eventually they may feel like they are following in our wake no matter which direction they turn as we operate inside their loop.

 

Besides simply decision time we also focus on accuracy in decisions.  It is not enough to make a poor decision quickly.  Instead, we focus on making the best decision we can amidst uncertainty.  This uncertainty is a key feature of the process and has been described by military thinkers such as Marine General AM Gray in Warfighting as the ‘fog of war’.  The fog of war is a useful term that describes uncertainty in fluid, unique situations that arise as part of competitive strategy.

 

Beyond the fog of war we focus on the concept of friction.  Friction, here, refers to those small impediments that, when summed, make it more challenging for us to impose our will on a situation.  The minimization of friction, coupled with effective decision making in uncertainty, is a hallmark of high-performing teams in our estimation.  In fact, we found that teams that actually need to communicate verbally or in a written manner to be less than the most effective.  Communication based on the team’s intent, or so-called implicate communication is a hallmark, in our opinion, of high functioning teams.  Each team member knows what plans can be executed in different situations because they know the team’s intent.  Rather than over-communicate about each small item, only large items are communicated and even those are minimized.  Everyone knows which way to row and doesn’t have to make decision cycle time longer by stopping to ask questions about each ripple in the water.  Given that, team members need to say very little to be very effective because they share the same mental model and are on the same team.

 

In short, we have much to learn from some of the classic military thinkers regarding competitive strategy in our market.  We have chosen several distinct elements from some of the great military thinkers that describe modern war-fighting, decision cycle, and friction amidst uncertainty.  One of the most important things on which we focused in our practice is this concept of decision making amidst uncertainty.  The ability to make high quality decisions in a rapid, effective manner, despite red herrings and other fog of war is key for success with your new business model whether that be in surgery, healthcare, or another field.

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