The first one(s) about adaptive strategy
A tale of two halves
Friends,
I hope that all is well with you and yours, and that this e-mail finds you on a boat with shoddy connection, in the tropics, three months after I sent it.
Today, in a Strategy in Praxis filled to the proverbial brim, we begin our proper in-depth look at adaptive strategy with an introductory essay split into two parts, and start to provide context for the practical tools that will come later.
Also, as ever, a couple of personal notes (the reality of being sick with kids, a keynote, and a new social channel) and the market vitals (promising updates from the Chinese real estate sector, JaGUar for some reason, Walmart doing what James and I have been saying retail companies should do for ages, less-than-promising updates from VC land concerning AI investments, Trump’s M&A policies, diminishing returns for OpenAI, Anthropic, Google, and an Nvidia that just keeps on keeping on).
Now accepting keynotes for 25Q1-25Q3
Every year for the last decade or so, I have created three main presentation decks. For 2025, however, I have (for the first time) added a fourth due to popular demand. They are:
What to Do When You Don’t Know What to Do: How to turn change into a competitive advantage. (Based on the new book by the same name.)
Leadership in a Time of Change: How to steer an organization through a sea of uncertainty.
Resilient Retail: How to build a profitable retail business in the modern marketplace. (Based on the 2025 follow-up to the highly praised 2022 white paper The Gravity of e-Commerce.)
Artificial Intelligence Beyond the Fantasy: How to understand the narratives, risks, opportunities, and best uses of a new technology.
If you want to book me for your event, corporate speaking slot, or workshop, merely send me an email. To make sure I am available, please do so at your earliest convenience; my availability is limited and the schedule tends to fill up fast. More information may be found here.
A couple of updates before we go-go
A week on, and we are (it would appear) finally on the other side of what seems to have been a battle with RSV. The eldest was out of kindergarten for almost a week and a half; the wife had mild flu-like symptoms for about 48 hours; I was floored for three days, but still cough as if I were an 18th century coal miner. The youngest - thank fuck - seems entirely unaffected. She, like her mother, was vaccinated.
For those unaware, RSV (Respiratory Syncytial Virus) is common around late autumn/early winter and while it usually only leads to cold-like symptoms in older children and adults, it can be very dangerous for small children and people over 75. In fact, it is the leading cause of hospitalization of young infants in the US and beyond. Today, a vaccine that pregnant women may take is available; it provides around 80% protection for the child during its first six months.
I know what vaccines are, for some reason, controversial. I was raised by two immensely esteemed physicians. They are not in my household.
Last week, I did a keynote in front of a room full of CEOs from companies of all shapes and sizes. Interestingly, even though I deliberately provoked them a bit, all of the most experienced leaders recognized themselves in my points about strategic management in theory vs strategic management in reality. Feedback was, shall we say, excessively flattering.
Quite a few of them came up to chat after my presentation - all of which were lovely - but there was one conversation that stood out. In the talk, I discussed (among other things) the practical-but-often-unconsidered drawbacks of strategic planning, such as the negative impact that so-called alignment has on innovation. The executive said that their company had suffered from precisely this problem, but despite bringing in a number of consultants, none had been able to pinpoint the culprit. It was only during my talk that they had, at long last, realized what was wrong.
Given that Twitter/X appears to be going down the toilet faster than you can say Musk, I have set up another social account over at Bluesky. It is basically a Twitter replica without the less-than-savory aspects of the original platform. If you also happen to be there, do connect.
There will soon be a longer explanation of my 4E model of market dynamics available on my website. I did not know where else to publish it; it is too long for Substack or LinkedIn. Either way, it will be linked-to here first.
Watched snippets from the Tyson vs. Paul fight - it was all that I could muster. What an utter embarrassment for all involved.
Moving on to the market vitals and the latest AI news.
According to new research by Pantheon Macroeconomics, the Chinese real estate market appears to be picking up pace, albeit slowly. This could mean that the state’s recent efforts to kick-start the economy might be working.
As we have discussed before, these are data worth keeping an eye on for anyone in a senior strategic role. The Chinese economy has been struggling of late, and a significant contributing factor has been real estate. The sector is also immensely debt heavy, which carries major financial implications in a country where all money trails eventually end up in the government. In turn, this could carry worrying implications for Taiwan.
To repeat what we wrote this past summer, if the Chinese economy falters, the Taiwanese independence question shoots up the list of talking points fast. Taiwan is the largest player in semiconductor manufacturing by some distance (60% of total; 90% of advanced chips, 100% of the most advanced ones); everything from mobile phones to electric vehicles rely on their production. Beyond a potential war with the US, the impact on tech companies worldwide would be massive should China decide to make a move.
Formerly Jaguar, currently JaGUar, unveiled a large rebrand and, well, people were less than impressed. For good reason, I would argue. In the long list of pointless re-positions, re-designs, and re-insert-your-word-of-choice-here, this one was so hilariously awful it made you wonder whether it was not just a parody. But no, you can see it in all its glory on the company Youtube channel.
While I believe that there are more cases for rebrands than Byron Sharp does, JaGUar will undoubtedly receive criticism for their move (I would expect Mark Ritson to be feverishly tapping away at his keyboard as we speak).
I am also pretty certain we will see a lot of “told you sos” if the car manufacturer continues to struggle, even though it may be more strongly tied to a strategically questionable pivot to EVs in the midst of an EV demand slowdown. As bewildering as it apparently remains to some people, there are in reality more factors to company success than just comms.
Walmart’s Q3 was strong. The financial report contained a number of highlights, such as a raised forecasts for the fiscal year and higher earnings than expected, but also a number of interesting nuggets. In particular, retail media and eCom platform growth was notable, while store-fulfilled delivery increased by 50% (leading to a 40% decrease in net delivery cost per order). Once again, what James and I have been saying retail companies should do for over half a decade proves to work. Immensely well.
Artificial intelligence may be the shiniest new shiny thing in the history of new shiny things, but the returns are distinctively dim. In the last year alone - which by today’s standard appears a frugal forever ago - US VC firms dished out $60B more than they got back, a high (or low) the likes of which has never been observed since Pitchbook started collecting data 26 years ago. A rather large chunk of that rather large pile of cash has gone to AI startups, with very little to show for it.
Some investors are hoping for the Trump administration to take a looser approach to deal-making, which would spur M&A. To me, that appears a non-sequitur. While a number of deals recently have been (effectively) blocked (e.g., Adobe’s failed $20B acquisition of Figma), making them easier is not going to magically solve the underlying profitability issues. It merely shifts the industry slightly from exigent towards exposed in the 4E model of market dynamics.
While this might accelerate innovation over time as a result of pure numbers - more people get access to the technology and can tinker with it - the short-term pattern is one of diminishing returns. There have recently been a smattering of stories in The Information, Reuters, Bloomberg and others about how OpenAI, Anthropic and Google are getting less and less from scaling their generative AI models. It is perhaps not as surprising as media would have you believe (there is a difference between the absolute and the relative; initial progress against a low baseline appears larger than the same amount of progress against a high baseline), but it is nonetheless notable.
Nvidia, though, is still making bank. Revenue came in at $35B+ with a Q4 forecast above analyst expectations. Cloud computing providers contributed roughly 50% of its data center revenue, which was anything but surprising given what we learned from the likes of Alphabet, Amazon, and Microsoft a few weeks back.
Alas, not all was lilies and daffodils. Jensen Huang & Co. saw a decline in gross margin and YoY revenue growth slowed. The stock fell as a result.
Personally, I do not find the slightly tapered off growth overly worrying even thought it should be noted. The larger concern remains that people take Nvidia’s fortunes to be, somehow, directly correlated with the practical value of artificial intelligence. It is always worth remembering that what Nvidia does is the equivalent of selling mining equipment during a gold rush. It does not mean that everyone else will find fortune. Consider Amara’s law.
And now for something completely different.
This week, there will be two newsletters in one, together making up a longer introductory essay on adaptive strategy. Free subscribers will get the first part, as per the 3-1 setup, while premium subscribers can also enjoy the second further below.
Adaptive strategy
What really is the big deal?
Whenever I do person-to-person work, whether standard client work or keynotes, I inevitably find myself facing audiences that made a fundamental assumption the second I opened my mouth: adaptive strategy must be yet another school of thought to add to an already mile-long list.
They are both right and wrong.
In one sense, yes, it is “yet another” school of thought, at least so long as one defines one such as a “particular way of thinking” or “shared ideas about a matter”. It would appear impossible to argue otherwise. Yet there is also a crucial difference between adaptive strategy and almost everything that has come before it: it has an actual scientific foundation. It is, of course, this foundation that we have recently begun to summarize.
From experience, I know that some take this to be an odd or even provocative statement. But the uncomfortable truth is that the vast majority of strategic management frameworks used to this day have little evidence to support their underlying assumptions - including the one(s) that you, who are now reading this, are likely to currently use. Even those that purport to be based on serious research take conventional ideas for granted; they assume that their predecessors’ works are valid if for no other reason than that they must be given that they have been around for all this time.
Alas, even the best designed houses will inevitably wobble if they are built on an uneven and loose ground. And that is very much the case.
As we reveal in the new book, the issues go deep, far beyond what normal people have reason to suspect. To take but one illustration, analysis of historical documents reveal that many of the most basic economic suppositions are entirely unfounded. The notion of equilibrium, for example, stems from a mathematically illiterate man who simply lifted the concept straight out of a physics book and declared that the same ought to apply to markets. Nobel prize winning theories by people such as Paul Samuelson, Kenneth Arrow, and Gérard Debreu find their roots in it. For all their accolades, each is consequently quite easily disproven. Most simply do not try to; they instead assume that it must be true. It is conventional wisdom, after all.
The same applies to ideas central to strategic management. Taylor, it turns out, had practically no evidence of anything; his ideas were simply timely (they played an important part in the creation of the business school). Drucker, for all his genius, was more likely to say whatever managers wanted to hear than what was actually true. Porter’s emphasis on competition, from which we get strategic imperatives about winning in the marketplace and so forth, came out of his experience from college sports, not from corporate behaviors. In fact, in all my analysis of his various works, I have yet to find a single piece of proper substantiation. My favorite is the capstone in his work on firm competitiveness, 1985’s The Competitive Advantage, a book which despite its title does not even define what a competitive advantage is!
I digress.
The point is that there is a reason, as easy to spot if one bothers to look as to understand if one bothers to think, why most of the things we have been taught about strategy hold as much practical value as a chocolate teapot.
Adaptive strategy, by comparison, finds its roots in complexity science (with added details from other fields) and thus enables us to look at a plethora of corporate activities through a much more sophisticated lens. While it is not the first effort to apply complexity science to strategic management (other attempts are few and far between, but do exist), it is the first approach built entirely from the ground up based on the new knowledge. Adaptive strategy is thus not the opposite of conventional strategy, to the degree that such a theoretical construct would be possible, but unrelated to it other than in terms of the core challenge, i.e., how to make firms successful.