Go to the Blue Sea, look along the shore
At all the old white bones forsaken –
New ghosts are wailing there now with the old,
Loudest in the dark sky of a stormy day.
– Du Fu
These are the closing words of a poem by one of China’s greatest poets. Du Fu had modest ambitions to be a provincial official, but it is not given to us to choose the time of our living and Du Fu’s life was blighted by one of China’s periodic periods of profound civil unrest. The golden age of the Tang dynasty was coming to an end and society was slowly slipping into anarchy as it disintegrated. Du Fu was an unwilling witness to this.
A central idea of this blog is that when organisations, like societies, die, it is not murder but suicide. There is one strong argument against this though: invaders. They look murderous. Here is Genghis Khan levelling the greatest city in the world to rubble, piling up human skulls in grotesque pyramids, having his brother rolled in a carpet and kicked to death to avoid spilling blood. Behold the dread figure of Cortez, reducing the mighty empire of the Inca to ash, claiming he had a sickness that could only be cured with gold. Here are the British, barely a hundred years ago, wiping Benin and the Ogba empire off the map almost in a fit of pique. That does rather look like murder.
In the commercial world, we see the mighty brought low by apparent attack as well, whether you call this creative destruction or plain old competition. The poster Mongol horde for this right now is Uber, who to my untrained eye look like a minicab company with an app, but is apparently the future of transport to VCs and journalists. (By the way, what kind of sweaty palmed Ayn Rand loving bullshit name is Uber? It’s a minicab company with a questionable record in the way it treats female journalists, not the Ubermensch striding from peak to peak, the tatters of morality falling from its awesome figure). People see Uber and they fall back on one of the most abused phrases in modern business jargon. Yes, it is time to talk about disruption. Genghis Khan: Uber for Empires.
Disruption though isn’t just a thing that disrupts business as usual. I’d like to illustrate this by looking at three pieces of Chinese history. As a brief introduction to Chinese history it is hard to beat Master Li in conversation with the Roman, Procopius:
“’O great and mighty Master Li, pray impart to me the Secret of Wisdom!’ he (Procopius) bawled.
‘Take a large bowl,’ I said. ‘Fill it with equal measures of fact, fantasy, history, mythology, science, superstition, logic, and lunacy. Darken the mixture with bitter tears, brighten it with howls of laughter, toss in three thousand years of civilization, bellow kan pei — which means “dry cup” — and drink to the dregs.’
Procopius stared at me. ‘And I will be wise?’ he asked.
‘Better,’ I said. ‘You will be Chinese.’”
– Barry Hughart, Bridge of Birds
China, in its long and quite extraordinary history has many times passed through phases of centralisation and empire building, only for that dynasty and it’s mechanism of government to collapse and be followed by a period of warring provinces, foreign invasion, rebellion, famine, barbarism and general unpleasantness. From this mess another dynasty (or indeed, party) arises and the cycle begins again. The reasons behind this are often the ones Toynbee identified: loss of suppleness in leadership, the rise of a class (however exalted) that felt deprived of rights, popular feeling that cut against increasingly repressive government, and sometimes invaders.
I’d like to look at three of these periods of collapse; the rebellions that marked the end of the Tang golden age, the Mongol invasions, and the opium wars, in which my own fair country indelibly stained its hands.
The country is broken, though hills and rivers remain,
In the city in spring, grass and trees are thick.
Spring Scene by Du Fu
The reign of the Tang dynasty was one of China’s many golden ages. It was known for its art and poetry, its cosmopolitan nature and outward looking worldview, its innovation in building, religion and governance. Under the Tang, their capital (present day Xi’an) became the largest city in the world.
But the golden age passed, as golden ages do. The Tang government, as it ossified and decayed became less and less interested in the lives of the people and more and more expensive to support. Local governors gained in power at the expense of the state and started to demand the right to appoint their own heirs, rather than relying on the state system of examination and progression. This set up a significant tension between the governors and generals, who felt they were being deprived of something they were entitled to, and the central Tang state. Anyone who has been involved in the struggles for power between the corporate HQ and local or regional power centres should recognise this.
Eventually something rather interesting happened. Some provincial governors, who felt that the government was not treating them appropriately rose in outright rebellion. Here again is our old friend, the internal proletariat. Remember, this group is not made up of the groaning masses yearning to be free, but is anyone of any class or wealth who feels that they have been deprived of a right. They grow to resent and then reject the authority that does the depriving, and in doing so reject everything: values, ideas, philosophies that the other side had in favour of their own perspective. At the time of the supreme crisis of the Tang, the rejection was started by some of the most powerful men in the Empire.
This uncorked a period of near anarchy in which various rebels, warbands and pirates vied for control. Rebellions flared and were quelled, but when the dust had settled the situation looked very different.
The ability of the state to protect its people had fallen back, so much cruder systems of government had taken its place. Often lead by a rebel or a war band leader, these little statelets were unable to approach the majesty of the Tang at their peak, but they were much, much cheaper. And many people liked that.
This process of a beautiful and complex state being ground down to uncomplicated gravel is one we see time and time again. Systems become too complex, too expensive and too remote. The state or organisation focuses on what it sees as its important stakeholders or customers and leaves others behind. Eventually, something breaks off the state or arrives from outside and does the job of the state – a cruder, simpler, less poetic job, but a job nonetheless – for less in a simpler way. Toynbee called these people the ‘external proletariat’. People who had been shaped by the culture of the state – or ambition to move in on its business – but were not of it. This external proletariat forms war bands, which start by raiding and them by ripping off parts of the state.
In business we give this a different name: disruption.
Disruptive innovation was an idea dreamed up by a Harvard Business School doctoral student called Clayton Christensen and he’s been dining out on it ever since. Simply put, the idea behind disruption is that businesses focus their innovation on doing more of what they already do, a process Christensen called sustaining innovation. This means they focus on their core customers and slowly but surely they start to ignore groups of potential customers (or citizens) who just want the simple cheap version, thanks. So eventually someone else comes along and does that simple cheap job for them. After a while, simple and cheap starts to beat complex and expensive with other customer groups too and the old incumbent is eaten up. There might be a technology that allows this to happen by making things simpler and cheaper, or there might just space; citizens ignored by the Tang but very useful to a local warlord for example.
Notice something really important about disruption: the disruptor doesn’t kick the doors of the palace in and shout ‘DISRUPTION BABY’ before leaping onto the throne. It is a slow process of colonisation of spaces that the incumbent leaves untended. In many cases the throne itself never changes hands; despite what Christensen says the old incumbents often linger on, diminished or just occupying other ground. This was what happened to the Tang; while their dynasty never reached its old heights again, they gave up managing the economy and lingered on for another 150 years, where once again brief dawns were followed by rebellion, instability, flood and disaster – challenges to which their disrupted government was unable to react.
There is one crucial point here which is often missed about disruption: it only happens after the incumbent has already started to fail. The disruptive war bands attack and occupy territory that a healthier organisation could defend. It is the rise of it’s own internal proletariat, its assets being spent on more and more infrastructure and an unwillingness or inability to steer a different course that allows them in.
(There is another crucial factor, which is how a state thinks about its border or a company about its core business, which we will look at soon. )
Back in China, eventually, even the pretence of central Tang authority fell and ushered in nearly a century of warring statlets before the Song dynasty put humpty dumpty together again in the late 10th century. Two hundred years later they would face a very different kind of challenge.
The Outside Context Problem
Conquering the world on horseback is easy; it is dismounting and governing that is hard.
The Song waxed and waned. Their waxing, like all Chinese rises was pretty awesome – first paper money, first standing navy in the world, first use of gunpowder, first use of a compass to discern true north. Kinda funky. They had a little local difficulty with another dynasty carving off part of the country, but everything seemed to be going ok. The mandate of heaven was secure. And then they ran face first into the kind of change that sure as hell is disruptive, but isn’t Disruption. The kind of thing that Iain M. Banks called an Outside Context Problem “‘which most civilisations tend to encounter the way a sentence encounters a full stop.”) The Mongols.
Time has taken the edge off the utter pant wetting, run gibbering to hills terror and shock the Mongols created when they first came thundering out of the wastes, stinking, living off horse blood and mares milk, staggeringly violent, cruel, merciless and utterly invincible. They turned Baghdad, the greatest city between India and the Atlantic into a pyre and threw so many priceless, irreplaceable books in the river that the Tigris ran black with ink. The cities and civilisations of the Silk Road, which were the greatest and proudest on earth, were turned into so much ash. Their horsemen couldn’t be fought in a pitched battle, they swarmed and regrouped – too mobile to charge against and too accurate with floods of arrows that darkened the sky to stand against. They took just enough technology from the cities they broke to constantly upgrade their own abilities of war and siege. They were utterly loyal, brilliantly led and unstoppable. In little under a generation they had carved out the largest land empire the world had ever seen and slap bang in its path was Song China.
The Song put up a hell of a fight. It took six decades for the Mongols to go from raiding to creating their own dynasty and Kublai Khan (grandson of Genghis) being crowned emperor of China, but the Mongols did it. China had never before been conquered by a foreign power.
This eruption of conquest and violence was one of the hinges of world history, but it is important to remember just how rare things like this are. In the Old World, perhaps you could say the Huns and Mongols formed OCPs for the unfortunate sods they ran into. But that’s about it. States and Empires fall all the time through suicide, outright murder is much, much rarer.
So where does this leave Uber? I would argue that Uber, the poster child of Disruption is not in fact disruptive at all. If they were the only cabs in a world of limousines, maybe, but they aren’t. What they are is Mongols. Their edge isn’t horsebacked archery but an infinite pot of VC funding. The Mongols didn’t fight by the rules of chivalry and neither do Uber; they exploit every single loophole in well meaning regulations that hamstring their competitors and leave them untouched. But again, this kind of full frontal assault is really, really rare – which is why Uber gets so much attention.
“The classic hustle is still famous, even today, for the cold purity of its execution: bring opium from India, introduce it into China. Howdy Fong, this here’s opium, opium, this is Fong—ah, so, me eatee!—no-ho-ho, Fong, you smokee, smokee, see? pretty soon Fong’s coming back for more and more, so you create an inelastic demand for that shit, get China to make it illegal, then sucker China into a couple-three disastrous wars over the right of your merchants to sell opium, which by now you are describing as sacred. You win, China loses. Fantastic.”
Thomas Pynchon “Gravity’s Rainbow”
There is one other incident of Chinese history that it might be worth looking at. In the nineteenth century the British, the pre-eminent power of the age, developed their signature taste for tea. Unfortunately for them, most tea came from China and the Chinese had no reason to trade. As they said in a letter to King George in 1793:
. . As your Ambassador can see for himself, we possess all things. I set no value on objects strange or ingenious, and have no use for your country’s manufactures. . . Our Celestial Empire possesses all things in prolific abundance and lacks no product within its own borders. There was therefore no need to import the manufactures of outside barbarians in exchange for our own produce. But as the tea, silk and porcelain which the Celestial Empire produces, are absolute necessities to European nations and to yourselves, we have permitted, as a signal mark of favour, that foreign hongs [merchant firms] should be established at Canton, so that your wants might be supplied and your country thus participate in our beneficence.
So the British could buy tea, but not sell anything in return. Soon enough a crippling balance of payments problem was in place, which the British set about solving in the most brutal way possible. They started to illegally sell China opium.
Opium was a curse to the Chinese. People lost their lives in pipe dreams and the state started to suffer. So they banned it, burning stocks in Chinese warehouses and throwing the rest into the sea. The British went apeshit, and attacked.
Over the course of the opium wars they brought the Chinese state to its knees, burning the summer palace in Beijing, shelling cities and destroying towns. Eventually the Chinese were forced to sign the most humiliating surrender, opium was legalised to cut a swathe through the country and China spiralled into anarchy and poverty, which it is only now climbing out from.
How did this happen? How did what had been the most powerful state in the world for most of its existence come to be humiliated by a little island? Part of the answer is in Chinese complacency and British technology. The Chinese, secure under heaven, saw no reason to copy the technology of this upstart, so when it was unleashed upon them they had no answer. This wasn’t an OCP, the Chinese just didn’t understand the context –the tech, the stakes, the ruthlessness of the British. The lesson is clear – you can’t afford to underestimate your enemy. Someone out there will take advantage.
So, where does this leave us? I think we can draw some key lessons from agonies of Chinese history.
- Disruption starts in the liminal spaces on the border. If you are an incumbent, where are these spaces? If you were running a war band, where would the weak point be for your raid?
- You’ll only be disrupted if you secceed the space. Too much time in the imperial capital and not enough at the border is never a good idea. (Conversely, just spending time at the border isn’t a great idea either, but we’ll talk about that later)
- Never, ever be complacent about a new entry into the market
- Someone taking a bite out of the bottom of your market is a warning sign of deeper problems in your own organisation. Attend to it.
- If you see a Mongol horde, fight dirty and prepare to run like hell.
Disruption and external proletariats are partly created and certainly enabled at the borders of an organisation. We’ll look at the more next time (hopefully in less than six months!)
Through The Rose Window 