Rahul Mirchandani

INDIAN MANAGEMENT THOUGHT Doctoral Programme in Management (Ph.D.) Narsee Monjee Institute of Management Studies


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.




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.



Clear Identity

Appraisals & Rewards

Task-Skill Set Balance


Visible, strong Leader

Support & Backup

Work-life balance

Task allocation

Appraisals & Rewards

Interpersonal Network

Involvement & Loyalty

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 crossdivisional 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 Justice & Ethics Attitude Character MISSION Knowledge Communication


Analytical & Observation Skills RECRUITMENT & SELECTION




Recognition Unity



MOTIVATION Training, Development & Improvement

Succession Planning





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 Kautilya (in the Arthashastra) Objectives of the King Acquire Power Make present business effective 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. Identify potential and realize it Make it a different business for a different future Drucker (in “Managing for Results”) Objectives of the CEO



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 Diversify & Create a well integrated network of businesses Set Realistic Targets and manageable Action Plans Ensure profitable operations of each Unit Invest surpluses for future growth Top Management must retain control on Treasury Spread Risk Avoid over-centralization of operations

Enact just and ethical policies – Corporate Governance Seek advice from no more than four trusted advisors

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



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.