Business strategy through a Machiavellian lens

Just as the prince has to deal with nobles, advisors, soldiers and the populace, so the business leader has to manage investors, advisors, staff, and customers (The Prince, 2018). Niccolo Machiavelli’s advice on how to acquire and maintain power translates beyond the political realm and applies to international business strategy with his principles on leadership, human nature, Virtù and Fortuna, the role of appearances, and how to “not be good” when it is necessary. An organized entity that primarily focuses on producing or selling goods and services to satisfy customer needs for profit must follow strategic principles to gain a competitive advantage in foreign markets. Competitive advantage is a position in which a firm can outperform rivals, often by establishing a difference it can preserve (Porter, 1996). Most people prefer being liked, and yet that is not the most helpful trait for a CEO or business manager, because respect comes from being “either a true friend or a downright enemy” (Machiavelli, 2018).

Niccolo Machiavelli, born in 1469 in Florence, was a famous diplomat who undertook roles in France, Spain, and the Papal Court in Rome. Living in an Italy shaped by competitive city-states, he experienced political intrigues at first hand, which influenced his various writings, most notably The Prince, a treatise on how to acquire and maintain principalities or political power.

Machiavelli deviates from standard moral behavior and calls for an approach that corresponds to classical realist theory: states are driven by an inherent desire for power, prioritizing national security in an anarchic world (Machiavelli, 2018). He assumes a world with no central authority and constant power struggles, while Michael Porter describes a competitive environment where firms must defend themselves through analyzing the five forces framework (Porter, 1979). In competitive markets, businesses constantly topple each other in an endless fight for the main force: competitive advantage. A manager must consider the threat to entry when deciding whether to expand assets abroad, which includes costs, time, specialist knowledge, economies of scale (fixed costs spread over units), technology protection, and barriers faced when stepping into the market in a host country (ibid). On the other hand, they must take into account the number of competitors, quality differences (aura that the client perceives from the product), switching costs, and customer loyalty (ibid). Next up are the two forces that emphasize power between suppliers and buyers (Porter, 1979). This means observing the number and size of suppliers, the uniqueness of service, the ability to substitute between them, and the cost of changing (ibid). The other also deals with the number and size of customers, differences between competitors, prices, ability to substitute, and the cost of change (ibid). Lastly, examining the threat of substitution, which refers to switching performance and cost of change (Porter, 1979).

How does the classical realist pessimistic view on human nature limit trust in markets? People are “cowardly, ungrateful, and fickle” (Machiavelli, 2018). Therefore, a CEO has to use careful calculations in markets and choose to fake credibility in alliances. This means leveraging internal knowledge and excluding partners, because there is always a risk of them imitating your core capabilities. This can be achieved through legal protection (patents, trademarks), internal control (restricted access to information), or proprietary technology (Willcocks, 2021a). Machiavelli instructs leaders not to depend on foreign mercenaries and to build or use one’s own army (Machiavelli, 2018). There are also different alliances a company can implement: joint ventures (two firms create a new company together), strategic partnerships (firms collaborate, but stay separate), licensing agreements (shared business model), or outsourcing agreements (external firms handle certain operations) (Willcocks, 2021a). So Machiavelli would likely argue that other business managers are self-interested, opportunistic, and likely to betray when it benefits them. He would advocate for strategic partnerships and short-term agreements with limited knowledge sharing to reduce the risk of betrayal and to consolidate power.

Acquisition of competitive advantage requires a combination of virtù (skill, ability, strength) and fortuna (luck, opportunity). Keep in mind that this is not the conventional virtue: “the highest form of good”. For a firm, it means managing what it controls, and uncertainty or external events, because like a raging river, “fortune shows her power where valour has not prepared to resist her” (Machiavelli, 2018). Warren Buffett argues that a firm can create an “economic moat”, a long-term advantage that protects its profits from competitors, like a castle surrounded by a protective moat. While Musk argues that a company’s ability to maintain a high rate of innovation is its true competitive advantage, because “moats are lame”. This debate between the reducing risk strategy and the innovation-driven approach illustrates Machiavelli’s concept of fortuna, by minimizing uncertainty or exploiting it. Amazon leverages retail (firms become suppliers to their platform), AWS/ cloud technology, and logistics as virtù, while Coca-Cola uses strong brand management, global consistency, and control over distribution as its skill. A leader must be a fierce lion and a cunning fox to use force without falling into traps (Machiavelli, 2018). This indicated that a firm must expand aggressively, using pricing power to control supply chains and to dominate market share. In other words: to become a monopoly. Secondly, it must position itself smartly through negotiations and subtle moves while deceiving competitors. A firm must choose a strategic position (different from rivals), variety-based positioning (product or service varieties instead of customer segments), or finally needs-based positioning (targeting a segment of customers) (Porter, 1996). Amazon combines all three with a unique ecosystem, delivering a huge range of products and customer data analytics. Their ecosystem is hard for rivalries to imitate.

A wise leader should be feared and loved by their subjects, but if they cannot be both, it is better to be the former (Machiavelli, 2018). Authority and respect is more important than being admired, so avoid being hated, but do not rely on affection (ibid). An empirical case of this sort of “Machiavellian” could be Jack Welch, a business executive who served as the CEO of General Electric. He became a legend for his policy to cut underperforming divisions and dismissing 10% of bottom performing employees, but later on, this approach disappeared after his departure because of its unpopularity. Furthermore, “It is necessary for a prince, if he wants to maintain his position, to develop the ability to be not good, and use or not use this ability as necessity dictates” (Machiavelli, 2018), and so decision-making driven by necessity can strengthen a firm’s competitive advantage. This can place a CEO in the problem of “dirty hands”, a situation where usually a particular act of government is the right thing to do in utilitarian terms yet leaves the factory guilty of being morally wrong (Walzer, 1973). This implies that a leader or a manager cannot govern innocently: they must learn how to “not be good” because they struggle among so many “who are not good” (ibid). How would you manage your business in a corrupt environment? In these areas, firms may face pressure to engage in bribery in order to secure contracts or gain market entry. These actions are ethically questionable, but refusing to participate can lead to exclusion in the marketplace. A CEO must justify that behavior as necessary for prioritising the firm’s competitive position over moral considerations. Likewise, a political leader may use excuses to intervene in amoral actions for reasons of state (Machiavelli, 2018). Nevertheless, the corporate executive has “social responsibility” in their capacity as a business person, and that means that they have to act in some way that is not in the interests of their employees (Friedman, 1970). For example, they are to refrain from increasing the price of a product in order to contribute to the social objective of preventing inflation, even if the price increase would benefit the corporation.

Cesare Borgia used cruel and strategic actions to secure and stabilize his rule, appointing d’Orco as a governor to pacify the Romagna region, and once his methods were widely hated, Cesare had him executed to be the “hero” of this story of the people (Machiavelli, 2018). Managers may delegate unpopular tasks to intermediaries for “dirty work”. This execution of handing over difficult decisions to others allows them to avoid direct blame, while these intermediaries may face losing their work position if they accept those offers. On the contrary, a business will thrive if it encourages creativity and endeavor, without fears of undue taxation, like the successful innovators: Apple or Google, that allow employees to explore ideas without hindrances (The Prince, 2018). A prince also makes the most of his principality by encouraging people to “practice callings peaceably.” (Machiavelli, 2018). Someone who is not known for their benevolence is known for protecting their regime in times of need (ibid), so too must a leader increase resources with industry that are available in times of need (The Prince, 2018). Bill Gates, the Microsoft founder, is not likely to run out of money any time soon due to the recognition of the Machiavellian trap (ibid). His Bill and Melinda Gates Foundation, which invests undistributed assets to gain as high a return as possible (The Prince, 2018).

In conclusion, the principles outlined by The Prince remain highly applicable to modern business strategy, particularly in competitive and uncertain environments. Firms must pursue both virtù and fortuna, while embodying a fierce lion and a cunning fox that outsmarts traps laid by future competitors. Lastly, effective leadership involves balancing fear and love, making difficult decisions driven by necessity rather than popularity.

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