Sun Tzu’s text The Art of War has long been regarded as a classic military text. However, its versatility has made it required reading in business school’s across the country. The text advises you in matters ranging from employing people to battling over resources. I wanted to look at the real world applicability of this text so I chose to compare it to the history of one of my favorite companies in the world, Atari. Surprisingly, or not, its success under its founder Nolan Bushnell and its failures under Ray Kassar and Jack Trammel could be predicted by this text.
“Bestow rewards, impose exceptional orders. Compel them with prospects of profits, but do not inform them of the potential harm.” – Chapter 11
Bushnell was well known for enticing programmers with the prospects of profits, and more than just money. He lured some of the industry’s best designers with a corner office, a photo of the corporate hot tub and an attractive secretary who just might join the programmer in the hot-tub at one of Atari’s legendary parties. But sharing success was easy once the company was famous. In the beginning Bushnell lured Pong creator Al Alcorn away from his 9 to 5 by claiming he had a contract lined up and enough money to pay him for a few months, both were a lie. Nor did he share his fear when Sears Roebuck placed an order for 6 times Atari’s production capability. The harm is the general’s to manage, and Bushnell managed it.
“It is the nature of the army to stress speed; to take advantage of the enemy’s absence.” –Chapter 6
By 1976 it was on its way to developing a home system, later to be named the 2600. This system is known by everyone. However, this systems dominance was threatened by Fairchild Semi-conductor’s attempt to release a similar home system, the “Channel F”, about the same time. This led Bushnell to sell Atari to Warner Bros., who pumped millions into R&D, speeding the 2600 into production the following year. In effect, Atari was the first real “Game Maker” to develop a home console, giving them control over the market.
“It is essential for a general to be tranquil and obscure… he shifts his position and traverses indirect routes to keep people from anticipating him.” – Chapter 11
Bushnell knew that following Fairchild and Atari, many imitators would try to put out their own cartridge based system. So he did something unorthodox to retain his hold on the market. The 2600 required a trick technology that was only made by five companies in the world. He struck exclusivity arrangements with all of the production houses to develop the next generation chip for Atari. In doing so he was able to constantly influence and change the design of the chips so that other companies were unable to design a board around them. Bushnell estimates doing this cost Atari between $50k and $100k, but he gained a monopoly on a billion dollar industry.
“One who does not know the plans of the lords cannot forge alliances…One who does not employ local guides cannot gain advantages of terrain.” -Chapter 7
Disputes between Bushnell and Warner Bros. led to Bushnell‘s resignation in November 1978; Warner appointed Ray Kassar, the straight laced V.P. of Burlington Industries, to take over. Kassar immediately began fighting with the designers who had been treated like demigods. This meant no more smoking weed, coming in at noon or hot tub parties. Atari was at its most profitable following this, but Kassar was sowing seeds of dissention. When Kassar refused to give developers a commission, or even to simply take credit for their work all the best developers left and founded companies like Activision.
More than just ignoring the wants and plans of the “lords” of the gaming world, Kassar failed to learn from them the terrain of the gaming market. Unlike the socks and towels he made at his previous firm, the wares of Atari could not be judged for quality by physical criteria, Kassar had no idea what made a game, leading Atari to develop and release the most disastrous products in the history of video games. Under Kassar Atari released an unfinished prototype of Pac-man, the 5200 and its insufferable controller and the infamous E.T. video game. Kassar’s failures directly brought about the crash of 1984.
“Anger can revert to happiness, annoyance can revert to joy, but a vanquished state cannot be revived.” – Chapter 12
Ray Kassar cost Atari more we could possibly know with a fit of rage. In 1983 Nintendo attempted to enter the home market with its Famicom (NES) system. It wanted to debut the system in the U.S. at the same time that it released it in Japan. However, Nintendo was not the name brand then that it is today and they felt they needed additional support so they approached Ray Kassar wanting to introduce it as an Atari product. Imagine how different things would be if it were the Atari Entertainment System. In turn Atari was to gain certain production rights to Donkey Kong, Nintendo and Miyamoto’s break-out hit. The deal soured after Atari caught rival Coleco with their own Donkey Kong product at CES. Kassar believed that Nintendo was double-dealing and he became so enraged he stopped talks with Nintendo. Talks were revived later, as Kassar was fired over allegations of insider trading, but soon the Famicom would be a smash hit in Japan and Nintendo was able to go it alone. A year later Atari filed for bankruptcy.
“The greatest harm that can befall the army is doubt” – Wu Tzu, 3
This ardent summation of Sun Tzu’s concept of “wasteful tarrying” identifies the chief problem of Atari under Jack Trammiel. After bankruptcy Atari was broken up and sold to Jack Trammiel who had made the Commodore 64 a success. When Trammiel took over Atari he tried to position it directly opposed to his former company in the PC market. In doing so he shelved the Atari 7800 already in production and released in southern California. Atari did well in its fight, but when Nintendo landed in America in ‘85 and ’86 it buried them both and showed Trammiel what he lost in campaigning against Commodore. In response Trammiel tried to re-release the 7800 more than 3 years after its initial debut with its original titles, but Ms. Pacman and Pole Position II could not compete against Zelda and Mario. This was truly Atari’s last chance, as its later XEGS and logic defying Jaguar mostly passed unnoticed.
It would be foolish to think that there is a foolproof text, new or old that will flawlessly guide you through every confrontation, every battle and every struggle. There is no one-size-fits-all in an ever changing world. But it is even more foolish to think that we can go it alone and ignore the counsel of those who came before and forged a path in the dark and the wild. When Sun Tzu wrote the Art of War he wrote little about strategic positioning, but extensively on governance and leadership because in the early days these principles were born through the chaos of the battlefield. Today’s leaders fight not with a sword and shield, but market share and profit margins. Though the weapons have changed the governance is largely the same. Atari’s successes are tied to these writings and its failure tied to their ignorance of them.
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