Sun Tzu and the London Stock Exchange

I read Sun Tzu’s The Art of War more than 10 years ago, and there is one bit of advice that I still use daily in my business dealings. It can be paraphrased as “when attacking an entrenched competitor, you need four times the force. Ten times the force is better.” Thus, when Red Hat was building its enterprise business, I made sure that our sales people were focused on customers who could immediately measure 2x the performance at 1/2 the cost (yielding a 4x performance/cost advantage), although 10x performance/cost was more advantageous. It seems that Sun Tzu’s math has been understood by the London Stock Exchange, who are seeing a more than 6x improvement in the all-important measure of latency, whilst gaining an impressive 2x cost advantage. No wonder they are switching from a proprietary platform to one based on open source software!

The actual tactical advice from Sun Tzu is (quoting from the Project Gutenburg text of The Art of War):

It is the rule in war, if our forces are ten to the enemy’s one, to surround him; if five to one, to attack him; [Straightway, without waiting for any further advantage.]

if twice as numerous, to divide our army into two.

If equally matched, we can offer battle;

if slightly inferior in numbers, we can avoid the enemy;

if quite unequal in every way, we can flee from him.

More details on the London Stock Exchange about-face in IT policy can be found here, but here are the two paragraphs most salient to those seeking advantage by means of a proper open source, in-house, and partnering strategy:

Compared to the bill of $65 million for TradElect, MillenniumIT, a Sri Lankan developer, is a bargain at $30 million. LSE gains a 100 per cent shareholding in the company, an offshore development centre (located near Colombo) with 451 specialists (around 300 in the software division) and the technology, which boasts high productivity, flexibility, robustness and considerably lower costs than TradElect. LSE predicts annual cost savings of at least £10 million ($14.7 million) from 2011/12. ‘The new technology is a lot lighter, nimbler and easier to install,’ says David Lester, director of information and technology at LSE. It will also enable faster releases, he adds. The current wait is three to six months. [n.b.Sun Tzu also mentions elsewhere that speed is even more vital to success in battle than strength alone.]

This acquisition represents a major shift in LSE’s strategy regarding its technology – from outsourcing as much as possible (over 95 per cent, says Lester) to bringing it all back in-house. ‘The world has changed a lot since TradElect’s design in 2003 [the system was deployed in 2007], and it continues to change. We need to invest in R&D and control our destiny in terms of software development,’ he explains. And with the stated aim of becoming one of the top three global exchanges by market capitalisation in the next few years (although Lester admits that at the moment LSE is far off) the pressure is ever-mounting.

Which side of the 10x advantage would you prefer to be on?