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The Center Game: How To Gain Unfair Advantage In Business

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Alex Christidis & Iniobong Uyah
October 11, 2024

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The game of Chess has been around for centuries, and whether you play it or not, it’s worth knowing that a common chess strategy can give you an unfair advantage in business. That strategy is known as the Center Game.

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The Center in the Game of Chess refers to the four inner and four outer squares on the center of the chess board.

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The Center holds a strategic advantage in the game. Just like in medieval battles where soldiers clash with each other, most of the action takes place in the center of the battlefield. Whoever controls the center has the upper hand or, you can say, an unfair advantage in the battle. The advantage of winning the center game, whether in chess or business, is control. As you will soon see from the example below, control is everything. And it is the reason why many companies form allies or integrate vertically. American businessman and industrialist John D. Rockefeller is one of the brightest business minds and one of the wealthiest people who walked the earth. His understanding and application of the Center Game played an important role in his success.

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Vertical integration is a strategy that involves growth through the acquisition of a producer, vendor, supplier, distributor, or other related company that the acquirer may already be doing business with.

In 1881, John D. Rockefeller combined Standard Oil and 39 allied companies to form the Standard Oil Trust. His aim was not monopoly. Linked by financial ties, the companies in the Trust already controlled close to 90% of the kerosene produced in the United States. Rockefeller’s goal was the cost advantages that could only be realized by placing the companies’ refining facilities under a single management.

Quickly, the Trust’s management concentrated close to one-quarter of the world’s production into three 6,000 barrel-a-day refineries. Thanks to economies of scale, the unit cost per gallon dropped from 2.5 cents in 1879 to 0.5 cents in 1884 and to 0.4 cents in 1885. With this fivefold reduction in costs, Standard Oil could undersell kerosene made from Russian oil in Europe and kerosene made from Southeast Asian oil in China and still generate profits that created at least three of the world’s largest industrial fortunes. Its successor, Exxon, remains the nation’s biggest oil company.

Once he had successfully formed the Trust, Rockefeller was able to get better control of all other aspects of his business. In his book “The Invisible Hand”, Alfred Chandler explained how forming the Trust gave Rockefeller an unfair advantage over the competition. According to the Author;

“He and his associates then decided to obtain the cooperation of its rivals by relying on the economic power provided by their high-volume, low-cost operation. They began by asking the Lake Shore Railroad to reduce its rates from $2 to $1.35 a barrel on Standard Oil shipments between Cleveland and New York City if Standard provided sixty carloads a day, every day. The road’s general manager quickly accepted, for assured traffic in such high volume meant he could schedule the use of his equipment much more efficiently and so lose nothing by the reduced rate. Indeed, the general manager, somewhat gratuitously, offered the same rates to any other oil refiner shipping the same volume.”

But Rockefeller was not the only one who understood and used this strategy. According to an HBR article titled “The Enduring Logic of Industrial Success”, the secret behind the success of the world’s oldest and largest chemical companies can be traced back to a similar strategy.

So you are a small business owner with no resources to buy up or down (integrate vertically) the supply chain, what do you do then? One thing you can do is form a strategic business alliance.

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Strategic alliances are mutually beneficial partnerships between two or more businesses that work together to achieve common goals

There are several benefits to having an ally in business, having more access and control are at the top of the list. There are also the added benefits of being able to lower costs and increase ROI, all while reducing risk. Here is a checklist of things to do if you are considering going into a strategic alliance.

  • identifying compatible partners,

  • Have clear value propositions

  • Set clear goals and expectations,

  • Communicate effectively,

  • Monitor your progress

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Best Regards.

Alex