Lessons from the Art of War as building blocks for Business Strategy

LESSONS FROM THE STRATEGIES OF WAR FROM ANCIENT INDIA AS

BUILDING BLOCKS FOR ORGANISATIONS AND THEIR

STRATEGIES

by

Rahul Mirchandani

INDIAN MANAGEMENT THOUGHT

Doctoral Programme in Management (Ph.D.)

Narsee Monjee Institute of Management Studies

INDIAN MANAGEMENT THOUGHT 1

ABSTRACT

Kautilya’s Arthashastra was perhaps the first authoritative treatise that gave structure in

the Indian context to subjects including administration, law and order, justice, taxation,

revenue and expenditure, foreign policy, defence and war.

This paper looks at Warfare strategies put forth in the Arthashastra and their relevance to

building organizations, instilling efficiency within the organization structure and

developing corporate strategies.

Upon discussing the process of creating an efficient organizational framework, the paper

attempts to understand certain tactical options that may be used by corporations in the

business battleground. The Arthashastra outlines several key methods like strategic

deception (trickery and deceit), guerilla warfare, psychological warfare (Katayuddha),

diplomacy (Mantrayuddha), clandestine warfare (Gadayuddha) and open warfare

(Prakasayuddha). This paper constructs the broad framework for use of these tactics.

More importantly, wars create chaos. “It is at the edge of chaos that interesting things

happen”. Upon analyzing the rules of engagement and related operational tactics, the

paper concludes with strategies for creating order after the conflict subsides.


LESSONS FROM THE STRATEGIES OF WAR FROM ANCIENT INDIA

AS BUILDING BLOCKS FOR ORGANISATIONS & THEIR STRATEGIES

Rahul Mirchandani

The business battleground has a terrain that is tricky and difficult to understand. The wars

are totally intellectual wars with a battleground that no one has ever seen. It can only be

imagined. Reconnaissance is thus, extraordinarily difficult. There is no one best way to

fight such wars. And knowing which type of warfare to use during a fight is the first and

most important decision a business needs to make.

War evolves as an Organized Enterprise

In the western world, by the end of the 4th Century BC, the mighty armies of Persians

(Darius) and Greeks (Alexander) had come and gone. The new model armies of the

Romans had already created an empire. Hannibal’s campaign over the Alps with

elephants had been conducted in 216 BC. Warfare had become an organized

enterprise in all its aspects, viz., financing, organizing, recruiting, tactics,

generalship, logistics and training.

In India, prior to the 5th Century BC, warfare had remained ritualistic, either based on

unorganized masses crashing into each other, or of feudal knights battling individually

according to the rules of personal combat, e.g., the probity of Prakasha yudha. Chivalry

and the warrior’s code took precedence over results. King Porus’ regal answer to

Alexander on how a defeated king be treated is indicative of the attitudes that guided

warfare.


Kautilya’s Arthashastra was perhaps the first authoritative treatise that gave structure in

the Indian context to subjects including administration, law and order, justice, taxation,

revenue and expenditure, foreign policy, defence and war. We would be looking at

warfare strategies put forth in the Arthashastra and their relevance to building

organizations and developing their corporate strategies today.

Kautilya on War

Kautilya’s India looked at war as a feature of the state’s life, something to be lived with,

almost as if one puts up with a chronic illness with the help of palliatives. The army was

just one of seven elements that constituted the state (king, ministers, land and people,

towns and cities, treasury, forces, allies).

War in the Arthashastra was more an ongoing effort instead of a climactic, decisive

act to shatter the present and shape the future. The perils of indecisive and therefore

protracted wars from which no country ever benefits, as advised in Sunzi Bingfa (The

Chinese philosophy), were never quite understood in Indian strategic thought.

Even in recent times Mao Zedong emphasized protracted war as the people’s means to

defeat the stronger tortes of a state. Arthashastra does not mention protracted war at all.

Perhaps living in a protracted state of conflict had made the rulers and peoples inured to it.

The Arthashastra focused on preservation of the state through alliances, and the

elaborate and almost esoteric “Mandalas” by which to determine inter-state relations. It

thus emphasized balance of power.


India had by then absorbed numerous military and civilisational invasions. A

culturally accommodative state had emerged which is reflected in the Arthashastra’s

emphasis on alliances and spheres of influence.

Kautilya’s Arthashastra viewed good counsel and correct judgement as the

constituents of power and as more useful than military might. One also wonders in the

light of the history of the time, if Kautilya was not more concerned with the intellectual

and moral qualities of Indian leadership of his time than their personal valour!

Along with power the relative importance given to decisive action is another area of

divergent outlook. Sunzi Bingfa places a high premium on decisive, even deterrent action.

There is a clear preference for action directed towards decisive results. The story of the

author of the Chinese classic, actually beheading a few concubines of the King of Wu

while teaching them drill, to show how obedience is to be obtained may be apocryphal,

but is indicative of the ruthless emphasis on decisive results. The Arthashastra is almost

managerial in its outlook on managing the affairs of the state. Hence, its immense

relevance to creating strategies for business.

From Ideal Army to Ideal Organisations

The Arthashastra’s verses on War begin with defining an ideal army. Kautilya insists that

it should be well paid (fair, adequate remuneration), honoured (motivation, incentives,

performance appraisals with corresponding rewards) and kept up to strength (re-trained,

work-life balance, reinforced with fresh talent pools). It should not have any traitors or

dissention with its ranks (employee loyalty and involvement). It should not be scattered

but kept together (networked organizations). In war, it should never be left abandoned,


left leaderless (leadership imperatives) or totally merged into someone else’s army

(identity crisis). It should always have adequate reinforcements (backup teams, support

staff). It should not be allowed to become too tired by long marches (task allocation and

work day planning). The terrain most suited to the type of force should be chosen for the

battle (experience, task-skill set balance). Modern theorists have very similar views on

building organizations. There is no successful organization that has been built without

using this framework.

IDEAL FOUNDATIONS FOR ORGANISATIONAL STRUCTURES

PEOPLE

Experience

Appraisals & Rewards

Task-Skill Set Balance

Work-life balance

Appraisals & Rewards

Involvement & Loyalty

Clear Identity

Visible, strong Leader

Support & Backup

Task allocation

Interpersonal Network

Training & Reinforcement


Creating and Instilling Efficiency within the Organizational Structure

The importance of vision and mission was captured in the Arthashastra. Kautilya advised

his King (Swamy) to rule through Vision (Prabhu Shakti) and Mission (Mantra Shakti)

and Motivation (Utsah Shakti).

Anything that weakens a constituent of a State is called a ‘calamity’ in the Arthashastra.

It is essential to identify and keep a check on these calamities that adversely affect the

Army’s (or organization’s) functioning.

Kautilya was a strong believer in the power of motivating and inspiring the human beings

within his troops to do extraordinary things. This belief is most evident when he

enumerates the factors that can adversely affect the efficiency (performance) of an Army.

He believed, as do managements today, in the need for motivation (Utsah Shakti). An

army not given due honours (recognition & rewards), not paid, tired, low in morale,

angry, disunited, dispersed, demobilized, encircled (cornered by competition), obstructed,

or abandoned by its commander (leader) cannot perform efficiently. Moreover, the need

for adequate and necessary resources is also crucial. Kautilya stressed the need for

adequate supplies and reinforcements to ensure that efficiency is sustained.

A significant opinion of Kautilya on salaries is noteworthy. He says the princely salaries

paid to the top officials and Chiefs were “to prevent them from succumbing to the

temptation of the enemy or rising up in revolt.” The pay of the middle rung was fixed at

levels that were enough to get them to “carry their men with them”. This is perhaps a

pointer to look at fixing remuneration as a strategic rather than an operational decision.


Suitability of terrain and season while launching the assault is also a major factor that

determines success. This is in congruence with the principles of diversification that stress

on the imminent dangers of unrelated diversification whereby corporations enter

uncharted territories, alien to their own work cultures. Timing the onslaught is also

crucial and the effect of the element of surprise can never be underestimated.

Kautilya talks in vivid detail about concepts like division of labour, departmentation,

specialization, unity of command, delegation and scope of control.

The Arthashastra shows the armed forces being headed by the Chief of Defence and

clearly structured into four divisions, each having distinctly defined functions and

specialized in their own activity. Each of these divisions was headed by a Chief

Commander and the forces also had an independent Chief of Ordnance. This independent

position avoided multiplicity of ordnance positions within each division. Similar cross-

divisional positions are put in place in organizations to improve co-ordination and

capitalize on economies of scale. Under the Chief Commanders were the Divisional

Commanders and other officers like Camp Superintendents who were given specific

functions during the march to battle. Every ten units (each with its own chariot, horses

and men) was placed under a company commander (patika). For every ten patikas, there

was a battalion commander (senapati) and for every ten senapatis there was a divisional

commander (nayaka). Once represented on a chart, the structure is almost identical to

organizational hierarchies today. Moreover, it identifies the standard scope of control as

ten. Modern theorists have also looked at this concept of the ideal scope of control to

prescribe the number of subordinates that a manager can effectively manage.


Kautilya has given a lot of thought to human resource development. Verses in the

Arthashastra are very clear on the qualifications and responsibilities of each position

within the Army’s structure. He writes about these qualities as qualifying standards for

appointment. These qualities are: Drudhachitta (power of concentration), Shilavan

(character), Pragna (analytical skills, thinking capability), Vangmi (communication skills)

and Daksha (observation / vigilance). In addition, he highlights the competencies that a

leader must possess. These competencies are the same as the competencies advocated by

the management gurus of the present times, namely, Knowledge, Skills and Attitude.

Ample evidence is provided on the fact that Kautilya instituted frameworks that had

Unity of command. No multiple leaders and clear responsibility-authority structures were

also in place. These are recognized today as essential in any effective corporate structure.

The essence of leadership, Kautilya stresses, lies in its acceptance by the subjects

(followership). He therefore, advises the King never to forget the two pillars of the art of

governance: Nyay (justice) and Dharma (ethics). He also decries autocratic behavior as a

leader. He advises the King to introspect, identify his atma doshas (deficiencies, areas of

self- improvement) and develop himself. The King is constantly advised that Mantris

could be incompetent, Senapati could be over ambitious, Purohit may not consider the

present day practices or traditions while enacting laws or justice, which might lead to

injustice.

Another crucial element to be considered while building Organizations is succession

planning. Kautilya advises specific training to prepare for the eventual succession. He

states that the successor should be trained in three specific areas: Arthashastra (economic


administration), Nitishastra (foreign affairs) and Dandaniti (political science). From a

business perspective, these can be identified as the crucial areas of economics/treasury

management, public/external relations and liaison/networking and administration.

Identity was also considered crucial. Every division or formation had its own

distinguishing trumpet sound, flags and banners. Companies today work very hard on

creating corporate identities. Even within organizations, building and nurturing corporate

cultures are given strategic importance today. A distinct identity instills a sense of pride

and belonging within divisions and also nurtures a healthy competitive spirit across

divisions.

BUILDING EFFICIENT ORGANISATIONS

VISION

MISSION

MOTIVATION

Pay Rewards Recognition

Leadership Morale Unity

CHOICE OF SUITABLE ENVIRONMENTS

DIVISIONALISATION BY OBJECTIVES & COMPETENCIES

Unity of command

Scope of Control

Dele-gation

RECRUITMENT & SELECTION

Character Communication

Analytical & Observation Skills

Attitude Knowledge Justice &

Ethics

RESOURCE MOBILIZATIONSuccession Planning

Training, Development & Improvement

IDENTITY

PERFORMANCE GOALS


From Base Camp to Corporate Headquarters

Kautilya gave clear directions on the location of and methods to set up an army’s base

camp. From a corporate view point, a base camp is akin to the company’s headquarters.

The Arthashastra suggests division of the headquarters in concentric circles. From the

centre (top management) outwards, each succeeding sector was occupied by less

important officials and less trustworthy troops. In the innermost sector were the King (the

head of the organization), the treasury, the communications centre and the core team.

Entry and exit should be controlled and recorded. Discipline must never be compromised

to preserve the integrity of the structure.

To protect business interests and information, organizations should follow similar

practices while deciding organizational designs.

From Objectives of the King to Objectives of the CEO

Kautilya's concept of the objectives of the King seem to be virtually adopted by Peter

Drucker in his book, Managing For Results. Drucker proposed Economic Performance as

the corporate objective and highlighted the constituents of Economic Performance to

include making the present business effective, identifying its potential and realizing it and

making it a different business for a different future.

Kautilya lays down the King’s objectives to include: Acquire power and consolidate what

has been acquired (making present business effective), expand what has been acquired

(identify potential and realize it) and enjoy what has been acquired (making it a different

business for a different future)


FROM KAUTIYA TO DRUCKER

Acquire Power

Consolidate what has been acquired

Expand what has been acquired

Enjoy what has been acquired

The Rules of Engagement

The Arthashastra outlines several tactical options, each of which has the potential to serve

as building blocks for business strategy. Some key methods are strategic deception

(trickery and deceit), guerilla warfare, concealed warfare (Katayuddha), diplomacy

(Mantrayuddha), clandestine warfare (Gadayuddha) and open warfare (Prakasayuddha).

However, War was treated as any other state enterprise and not considered Vital.

Open Battles

Kautilya believed that open battles should be engaged only when the army is superior,

instigations (in the enemy camp) have been successful, all precautions against dangers

have been taken and the terrain is suitable. Putting this in an organizational perspective,

deciding to engage in open warfare is a strategic choice that must be made only if the

competition is known or perceived to be superior.

Kautilya (in the Arthashastra) Objectives of the King

Drucker (in “Managing for Results”)Objectives of the CEO

Make present business effective

Identify potential and realize it

Make it a different business for a different future


The most talked about instance of corporations engaging in open warfare is perhaps the

Coke-Pepsi Cola War which began with the Pepsi Challenge. When initiated, Pepsi was

battling a known, superior and established competitor. However, before the battle began,

Pepsi executives had carried out innumerable blind taste tests to ensure that the

consumers had perceived their Cola as better than the competition. Such precautions are

essential before engaging in open warfare. The Cola Wars continue unabated even today.

However, with every new campaign and every new promotion initiative, a new chapter in

the War is written.

The Arthashastra prescribes that in order to be strictly in accordance with dharma, the

place and time of battle must be specified beforehand. However, this is a dictum that a

business in a competitive market environment rarely follows. The element of surprise has

several benefits that are impossible to forego.

Deceptive Battles

Businesses are known to use Strategic Deception in situations identical to when Kautilya

advocated its use by Armies. These include times when the competing forces are

suffering from a calamity (attack when the competitor when it is at its weakest, facing a

crisis or is engulfed in entropy), they are unprotected (lack of leadership, poor structure,

open secrets) or on less suitable terrain compared to the attacker (unfamiliar markets or

new environments, unfavourable cost structures).

Deception could also involve luring the competition into unsuitable terrain. An example

of this could be the feeding of information to the press or deliberate ‘tangential’


statements being put into the public domain with the express intention of ensuring that

the competition acts on such information. To ensure success of this, complete

confidentiality needs to be maintained and least number of ‘reliable’ spokespersons

enlisted. Most importantly, statements made should not lend themselves to legal

shenanigans. After luring the competition into an unfamiliar corner, a forceful attack

needs to be made to break their structure and create chaos and disarray.

Guerilla tactics may also be employed on two flanks. This involves identifying two

areas, product lines or markets and attacking the competitor simultaneously, with equal

force, on both fronts. Coupled with an element of surprise, the competition may be

unable to protect itself on both flanks and the possibility of losing at least one position is

well within the bounds of possibility.

For example, if a company is launching a new product and it is perceived that the launch

would be in a particular territory where a competing brand is relatively weak or where

there is adequate unfulfilled demand, the competition would have deployed adequate

resources to combat the entry. It may be possible to perhaps take the competition by

surprise and enter a completely different segment of the market, unexpectedly. As their

forces are quickly redeployed to combat your onslaught, a short period may become

available when either their sales force is temporarily alarmed, in disarray or confused

about what move to make next. It is during this short time window that a second launch

in the other territory can be initiated. Coordination is crucial while making such tactical

maneuvers. Timing and force are of the essence.


The general Kautilyan principle is: “If frontal attack is unfavourable, the attack shall be

from the rear and vice versa. Similarly, if the attack on one flank is unfavourable, it shall

be made from the other.”

Psychological Warfare

Before laying siege (paryupasana), it is possible that the aggressor may wage a

psychological war (upajapa) with the aim of frightening the competing forces and

boosting the morale of his own troops. Corporations have been known to wage

psychological warfare by demonstrating pervasive knowledge. This involves letting the

Chiefs of Divisions know that the secret activities or future moves of the competition

have become known, unmasking traitors (persons passing on information to the

competition) and revealing knowledge obtained from external intelligence sources.

Unleashing propaganda is a very effective form of psychological warfare. Companies

observe the competition and identify small incidents that can be blown out of proportion

and get the organization on the defensive. For instance, a person who resigns from the

competing firm may be allegedly purported to the beginning of an organisation’s

downsizing or of inability to keep key personnel happy, signaling an imminent exodus in

the not so distant future. Kautilya’s armies engaged in similar activities proclaiming

events like the appearance of a meteor, cawing of crows, bird calls, animal noises, etc. as

omens of the imminent defeat of the enemy.


The use of propaganda to put the enemy lines on the defensive or to create confusion and

sow the seeds of dissention or distrust is an effective strategic tactic that can be used by

corporations looking at grabbing mindshare of potential consumers.

Clandestine Warfare

This is the use of covert methods to achieve objectives without actually waging a battle,

like assassinating the enemy. In the context of business, this could involve ‘poaching’ the

developer of a new product from the competition, thus scuttling their launch plans. In

waging clandestine battles, not only does a company use its own people, but also uses

allies and supporters. A group of companies, for instance, could use joint forces to

strategize ways to keep out a foreign company from entering the domestic market.

Chanellizing energy towards influencing policy of the government towards opening up

the market could be a tactic to keep the foreign competition at bay, without waging an

actual battle in the marketplace.

The Power of Alliances

Kautilya’s choice of Mitra (allies) as one of the essential constituents of the State is

interesting. Networks of allies fortify the kingdom. Mitra, in the business context, would

be a Company which would come to support when under attack. It will also be the duty

of the Company to extend all help if the Mitra is under attack. In today's world of

globalization, the same concept is applied when corporates form alliances to fortify their

territories from external dangers such as cheap imports and the entry of strong

competitors.


Kautilya did not believe that war was always necessary or that wars had to be fought

alone. The most notable contribution of the Arthashastra is this theory of alliances called

the Mandala theory. Briefly, the Mandala, or a Circle, consists of an aggregate of Kings,

friendly, hostile, and neutral, around the figure of a central King very significantly called

vijigishu. The dictionary meaning of the Sanskrit term is ‘desirous of victory or conquest’,

‘wishing to overcome or surpass’; Indologists like Shamasastry and Ghoshal have

translated it ‘the Aggressor’. Perhaps, ‘hegemonist’ will be the more appropriate

rendering keeping in view the dictionary meaning and the general context of the

Arthashastra.

Professor Ghoshal further elaborates the idea of Mandala and its Vijigishu and states, "It

contemplates a system of States bound by hostile, friendly or neutral relations with an

ambitious potentate --- an Indian Louis XIV or Napoleon --- as its central figure."

Corporations often form groups, associations, alliances and the like, despite being

competitors. Industry groups with firms servicing similar markets are examples of this.

One company from within may be seen to be the “voice” of the association – but they

work towards some common objectives. Lobbying with the government is perhaps the

most common objective of such alliances. Certain other, more diverse organizations also

join groups like the Confederation of Indian Industry. Kautilya had conceptualized the

power of such alliances centuries ago.

Professor Ghoshal states while summing up this Kautilyan concept of alliances that "it

uses the weapons of diplomacy and force with such a strong preference for the

former in all its forms as to make the State administration essentially a work of art


requiring the exercise of the highest qualities of intellect and character on the part

of the ruler".

Developing a Comprehensive Organizational Framework

Wars create chaos. “It is at the edge of chaos that interesting things happen”. Having

looked at building effective organizations and analyzing the need for engagement and

related operational tactics, it is now apt to draw learnings from the strategies for creating

order after the conflict subsides.

Kautilya's advice begins with setting a goal of creating a framework to run a diversified

economy actively, efficiently, profitably and prudently. In the context of a Corporation,

this points to the setting up of a well integrated network of businesses, effectively

spreading risk across sectors or markets and ensuring the efficient running and

profitability of each such business Unit.

Efficient management ensures setting up of realistic targets and meeting these targets

without using over zealous methods.

Wealth lies in economic activities. Proper direction and guidance from the King will

ensure current prosperity and future gains. Inattention to the economic aspects will bring

the kingdom close to destruction. The King must bear in his mind that a king with a

depleted treasury is a weak king and the easiest target for a take over. The importance of

the Finance Function within Corporations cannot be over emphasized. Kautilya’s dictum

stressed on the strategic importance of managing money, which must remain the

prerogative of the Promoters and Top Management


ORGANISATIONAL STRATEGY FRAMEWORK

It is the responsibility of the King to ensure the enactment of prudent policies. Prudence

should be based on Justice (nyaya) and Ethics (dharma) that will ensure equal

opportunity for all to earn a decent living. This clearly looks at concepts akin to

Corporate Governance.

Kautilya’s philosophy says that Profitability should not only mean surplus over costs. It

should also mean provision of investment for future growth. It also goes on to say that an

ideal King is the one who has the highest qualities of leadership, intellect, energy and

personal attributes.

Kautilya warns against centralization of power in the hands of the King by stating "one

wheel alone does not move a chariot". Managers can run a corporation only with the

Diversify & Create a well integrated network of businesses

Spread Risk

Ensure profitable operations of each Unit

Set Realistic Targets and manageable Action Plans

Top Management must retain control on Treasury

Enact just and ethical policies – Corporate Governance

Avoid over-centralization of operations

Invest surpluses for future growth

Seek advice from no more than four trusted advisors


help of others. The Arthashastra says that there should be no more than four advisors who

should be very carefully appointed. The leader should have clarity in terms of the

qualities an advisor should possess. Most important being practical experience, thinking

prowess, sound judgement and ability to differ while keeping total devotion to the CEO.

Conclusion

Kautilya has indeed made several thought-provoking assertions in the Arthashastra.

These Pearls of Wisdom given to the King, which range from the principles of

organizational design, employee selection, empowerment and development as well as the

strategic tactics to win battles of the mind and the market, have immense practical

relevance to running corporations today.


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ABOUT THE AUTHOR

Rahul Mirchandani is a Doctoral Student at the Narsee Monjee Institute of Management

Studies, Mumbai, a Deemed University. He is a Chartered Financial Analyst (CFA) and

has a Masters Degree in Business Administration (MBA) from the University of

Canberra, Australia. He has been a lecturer in Marketing and Organisational Behaviour in

Australia and is currently teaching Rural Marketing at the R.A. Podar College of

Commerce and Economics, Mumbai. He has written articles for the Hindu Survey of

Indian Agriculture, RuralScan, Chemical Weekly, Meat International (Netherlands),

Agriculture Online (USA) and has been invited for guest sessions in Rural Marketing and

Concept Selling at several Management Institutes in India. He currently works as

Executive Director, Aries Agro-Vet Industries Limited, Mumbai. His research for the

Ph.D. programme focuses on the identifying the factors influencing demand for specialty

plant nutrition solutions in India’s rural markets, aiming at formulating a demand

forecasting model for the Industry.

Documents

Lessons from the Art of War as building blocks for Business Strategy