A British Military Theory Finds Favor Among Japan’s Businesses
by Dr. Nigel Campbell, Manchester School of Business UK
with permission of the Financial Times Newspaper England.
The connection between F. W. Lanchester, who designed one of the first British cars, Admiral Lord Nelson, the famous British hero, and a modern Japanese marketing consultant is not one that immediately springs to mind. And yet to the Japanese business community this eccentric link is becoming increasingly familiar as managers learn of the military strategy used by all three to great effect.
Dr. Nobuo Taoka
The consultant in question is Nobuo Taoka, who, since its foundation in 1976 has turned his firm, Lanchester Systems KK, into one of Japan’s leading marketing consultancies. His company bases its advice entirely on Lanchester strategy, a strategy of military confrontation developed by the British engineer and mathematician F. W. Lanchester (1868 – 1946) which adds considerable weight and precision to the well-known American principles of market segmentation and “niche strategy.” Since its emergence from the shadows of history in the early 1970s, Lanchester strategy has reinforced the Japanese tendency to adopt a “laser beam” approach to market penetration into one precise segment after another, until the onslaught becomes a veritable “cascade” into the market as a whole.
Discovery of Lanchester’s laws
It became quite by chance that Taoka came across a cursory reference to Lanchester Strategy 30 years ago in a Japanese government document. He was intrigued to discover that it had been used by the U.S. Navy against the Japanese during the war in the Pacific. Along with a colleague, Taikohboh Onoda, he began seriously to research Lanchester’s military principles and to develop ways of applying those principles to business competition.
Over the past 13 years, Taoka’s ideas have become well known and widely accepted in Japan. Tokyo bookshops have shelves full of his works, including such titles as “Lanchester: An Introduction to the Strategy (published in 1972), and more recently, “Practical Applications of the Lanchester Strategy” (1982). Total sales of his books have reached over 1.5 million copies and on top of that, over 1,000 copies of his video tape have also been sold.
Taoka’s following among the Japanese business community is such that two lanchester Clubs have been founded, in Tokyo and Osaka, at which practical applications of Lanchester Strategy are regularly discussed by senior executives from large organizations such as Matsushita, Sumitomo and Kanebo cosmetics, as well as from smaller enterprises.
F. W. Lanchester
A latterday Leonardo da Vinci, F. W. Lanchester was responsible for far more than the construction in 1985 of the first in a line of pioneering British cars. He filed more than 400 patents and wrote on such diverse subjects as music, poetry and aerodynamics. It was during the great war that he published his work on the theory of conflict. [Aircraft in Warfare, the Dawn of the Fourth Arm – ed]
He developed two laws to govern military combat. The first applies to ancient warfare where the battle is a series of man-to-man duels. In this case the fighting strength of an army is proportional to the efficiency of its weapons times the number of troops. The second law applies to modern warfare. Here, the fighting strength of an army is proportional to the efficiency of its weapons times the square number of troops. The square function arises because in a modern battlefield concentration of fire power is possible and the larger army is able to wipe out the smaller army at a much greater rate than might casually be supposed.
Based on Lanchester’s work, Taoka has built a quantitative framework for the analysis and formulation of market share strategy. It gives particular strategic significance to certain market share targets, to the degree of market share differences between competitors, and to the overall market share “patterns” that these create.
Concentration and the Battle of Trafalgar (1805)
The over-riding message from Lanchester’s second law is the importance of concentration. Although Lanchester was the first to show the effects mathematically, the importance of concentration has been known to military and naval strategists for some time. For example, Admiral Lord Nelson , had fewer ships at Trafalgar than the combined French and Spanish fleets. If he did battle in the conventional manner, he would be defeated. He therefore planned to sail his ships through the middle of the enemy fleet. Having boldly cut the enemy in half, he then planned to concentrate his ships on encircling and attacking one half of the opposing fleet. With the square law in his favour, he would achieve such a crushing victory over one half of the enemy fleet that he would still have enough ships to take on the second half with some hope of success.
Concentration strategy in business today
For today’s business strategist, intent on entering a new market, the concept of concentration by splitting the enemy force, and attacking one part at a time, is one of the most important to be derived from Lanchester Strategy. Another is the principle of aiming for dominance, which follows from the extra stability gained from a high market share. The third is the principle of target separation. Strategy must distinguish between smaller competitors which can be attacked, and larger competitors against which the company must protect itself.
Combine the principles of domination and concentration, it becomes eminently clear that market penetration depends on building a series of strong positions in different segments of the market. Whenever possible, Taoka recommends dividing the market geographically, as well as by product and consumer category.
The Canon – Xerox copier battle
This was part of Canon’s strategy against Rank Xerox in the UK in the late 197s and early 1980s. First its resources were concentrated on Scotland. Having captured about 40 percent of the market, Canon began to attack selected and tightly defined regions in England, before making a determined push in London with a numerically larger salesforce.
Having penetrated the market by achieving dominant positions in a series of geographic markets the newcomer is then ready to invest more heavily in product development in order to broaden its range of product markets and consolidate its position in the marketplace. Following these strategies – they have national coverage and distribution, and concentrate particularly hard on product development and differentiation.
The Pedigree Petfoods – Unilever battle
Thus Pedigree Petfoods has used its comprehensive product range and regular launch of new products to hinder attempts by Unilever which possesses low-cost raw materials and considerable marketing strengths, to penetrate the British petfoods market.
These strategies can be further refined by considering the most appropriate course of action for companies, with various rankings within different market share patterns. Take the strategy for market leaders. At one end of the scale – a “premium” market where it has over 42 percent and fulfils other conditions – it can rely mainly on innovation and product development to defend its various market segments. But at the other extreme, where no company has over 26 percent of the market, the market leader must take all sorts of action to achieve a more stable position. This may include trying to acquire competitors and taking advantage of newly emerging parts of the market to make a pre-emptive strike.
The strategies for companies ranked number two, three or four are roughly similar to each other in all of the market share patterns. Like newcomers, they must look for segments of the market which they can dominate, and which wherever possible are insulated from attack of stronger companies. This may involve attacking other “followers” in order to build a stronger position for the final attack on the market leader.
Of course, business strategy is more than just market share atrategy. But given the emphasis which the Japanese place on this aspect of corporate strategy it is unfortunate that lanchester’s followers in the West are largely confined to the narrow worlds of mathematics and operations research.
This article originally appeared in the Financial Times in 1986 and is reproduced with permission of the Financial Times of London England