«Corporations compete and cooperate for power and turf like countries»

Interview by Jorge Nascimento Rodrigues, September 2004

The Art of War in business is an old management practice. But American professor Richard D'Aveni just "pulled" this strategic competence to the forefront of management trends in the XXI st Century. His recent "The Balance of Power", an essay published at Sloan Management Review online, calls for the attention of executives and business schools to trivial concepts from geopolitics like "spheres of influence".

D'Aveni talked with Jorge Nascimento Rodrigues, editor of Gurusonline, this Summer, and pointed out: "Business schools are run by economists for the most part, so they focus on economic models rather than political models of the world. But I hope my book and my recent MIT Sloan Management Review articles on Corporate Spheres of Influence and The Balance of Power will help make this point more apparent".

Richard D'Aveni is professor of strategic management at the Tuck School of Business, Dartmouth College, and author of various books, like Strategic Supremacy (2002), Hypercompetitive Rivalries (1995), considered by Fortune as "a modern day analogue to The Art of War", and Hypercompetition (1994).

Read «The Balance of Power»

Strategic supremacy in business requires 'warfare' knowledge?

Strategic Supremacy is as much about diplomacy as it is about business war. The goal is to create a more favorable world order. Fighting a business war is just one tool. Alliances, tacit cooperation, and limited, targeted or guerilla wars are also tools in creating and maintaining the balance of power among major rivals in an industry.

Geostrategy and realpolitik concepts are useful - and unavoidable - for managers and entrepreneurs?

Yes. Corporations compete and cooperate for power and turf just like countries do. So managers must be cognizant of this and manage the process.

What you mean when you talk of a gap between "grand strategy" at top management level and poor operational tactics at the business level?

Many firms explicitly or implicitly set a grand strategy-let's say to contain the growing power of a specific rival and to dominate a part of the global competitive space in which a second rival has no interest-then the divisions or country-based subsidiaries frequently fail to contain the targeted rival and inadvertently trigger a competitive battle with the second rival by entering that rival's territory. The firm unintentionally, due to the lack of understanding of its divisions about the corporation's grand strategy, ends up fighting the wrong battle.

Do you think business schools are aware of this new learning imperative?

No. They are not. Business schools are run by economists for the most part, so they focus on economic models rather than political models of the world. But I hope my book and my recent MIT Sloan Management Review articles on Corporate Spheres of Influence and The Balance of Power will help make this point more apparent.

From the corporate examples you studied what case impressed you more and why?

I think the changes in the global brewing industry are very interesting right now. Anheuser Busch has a strong sphere in the USA, but the global maneuvering of Interbrew/AmBev (in Europe and Latin America) and SAB/Miller (in South Africa, the USA and China) are changing the balance of power in the industry. So we are watching the spheres of influence change before our eyes and the balance of power is also shifting.

Adjacent diversification and conglomeration don't recognize that firms must dominate a core market and use buffer zones to defend the core against rivals, as well as use forward positions to attack rivals and change the balance of power in their industries.

Do you think language and cultural links are decisive for geographic spheres of influence?

I think in practice they are, but the best global firms will overcome these problems.

People discuss a lot about adjacent diversification and conglomeration (usually based on unrelated diversification) as strategic tools to prevent surprises in a turbulent business world. What's the relationship with your approach?

Adjacent diversification and conglomeration don't recognize that firms must dominate a core market and use buffer zones to defend the core against rivals, as well as use forward positions to attack rivals and change the balance of power in their industries. Adjacent diversification theory focuses on creating and exploiting synergies (which is the role of vital interests in the sphere of influence framework) and conglomeration theory focuses on diversifying risks. However, neither approach considers the impact that portfolios have on competitors-they act as if competitors are irrelevant in making portfolio decisions. And the conglomeration approach ignores the risks created by getting spread too thin.

What are the main symptoms of a sphere of influence's decline?

The biggest problem with most companies that have spheres of influence is that they keep growing until they become overstretched. That is, they don't have the resources to do a good job in all parts of the sphere and the firms becomes a lightening rod attracting strikes from so many competitors that the sphere becomes like the Roman Empire in its later stages.

E-mail contact: Richard.A.D'Aveni@Dartmouth.edu

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