The one about strategy
What does it mean?
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, we attempt to answer one of the most pivotal yet seldom asked questions in business: what really is strategy? The answer, as the most clichéd of headlines go, may surprise you.
Also, as ever, the market vitals including JaGUar and the modern car purchase, CrowdStrike, the orange man’s promised tariffs and their likely effect on consumer demand, luxury brands suffering, AI and oil companies in an unholy marriage, and China’s efforts to poach top-tier talent from the West.
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
Another week on, and it seems I may have been hasty to declare victory over RSV. While the rest of the family are back to normal, I am still coughing like an Oliver Twist movie extra. Getting a bit fed up with it, to be honest.
Yesterday was Thanksgiving. While I obviously have a lot of be thankful for, I want to particularly highlight those who choose to pay for this newsletter. You mean the world; without your coin, this newsletter would quite simply not exist.
If you enjoy what you are reading, do please consider upgrading to become a premium subscriber. You get three times more content, access to an e-book, and my eternal gratitude.
An update on what will be in store for H1 2025, beyond this newsletter and keynotes:
James and I will be publishing another paper for WARC and, as usual, we will also be presenting our findings in Cannes.
There will be an extended article on the popular 4E model of market dynamics up on my website, complete with theoretical underpinnings and practical use cases. The reason why I will put it there is simply that it will be far too long for any outlet in which I normally feature.
Steve and I will, beyond the book, publish a case study of adaptive strategy in investment banking.
The JaGUar rebrand commentary is proving to be precisely as predictable as, uh, predicted. People who work in advertising only see the advertising aspects, people who work in brand strategy only see the potential consequences for the brand, people who work in design only see the colors, and so forth. All the while, people who work in normal jobs do not see any of it.
Buying a car today is a much more complex decision than in the past, which is why all hot takes need to be taken with a rather hefty amount of salt. To illustrate, we have been looking at a new SUV for the growing family:
EVs are supposedly the future, but while they are great for short trips, they are also expensive to buy, depreciate like crazy, cost an arm and a leg to insure, and are useless for going to the cottage in the middle of winter.
Hybrids solve some problems, but also create others. For instance, one will soon (Jan 1) not be allowed to drive one into central Stockholm. Service costs are also bonkers, and there is no knowing what the resale value will be given recent announcements by the EU.
This leaves us with diesels and petrols, both of which are on the way out, will also not be allowed into the city center, are despised by politicians, and depend on the quirks and whims of oligarchs for running costs.
Moving on to admittedly a rather dull week in markets.
Remember CrowdStrike, the IT firm that inadvertently caused one of the biggest computer outages in history? Well, despite everyone saying the end was nigh and the company posting a quarterly loss, it nonetheless increased its revenue expectations for the year. As I wrote at the time, systems like CrowdStrike’s are difficult to replace when entire infrastructures have been built around them.
Donald Trump’s proposed tariffs are proving to carry precisely the kind of implications any economically semi-literate person would expect.
A 25% day one add-on to imports from close neighbors Canada and Mexico, plus another 10% on goods from China (in addition to the previously “promised” 60% over time) would have immediate effects on world trade and the US consumer alike.
Yale’s Budget Lab has calculated that the day one tariffs, including retaliatory tariffs from the countries in question, would raise US domestic prices by 0.75% next year (0.65% if consumers substitute purchases with domestically produced or lower-tariff imported options). That is the equivalent of more than $1000 in lost purchasing power per household, in 2023 dollars.
If the tariffs against Chinese goods were layered on top of the aforementioned 60%, the estimated inflationary effect would be even higher.
A higher inflation would, of course, inevitably lead to the Fed cutting interest rates less than the market has been expecting, meaning that credit card debts and other loans would be kept high. Overall demand would obviously be affected.
Beneath the surface of the global economy, a lot of behavioral shifts are happening. Luxury brands, for example, are currently losing customers at a rate never seen before in history.
Particularly over the last few years, brands have managed to increase penetration by attracting new category buyers, growing the segment by roughly 300%. Recent price increases have, however, reversed the trend. Today, many brands are not only selling to far fewer people, but also selling far fewer products.
Somewhere, Byron Sharp is going “I told you so”.
Oil companies are, if the big business media outlets are to be believed, on a relentless quest to produce more at lower costs. And increasingly, apparently, they are turning to artificial intelligence to do so.
It is perhaps not entirely surprising. Over the last decade or so, the US has managed to pump out 60% more oil a day with 40% fewer workers (make of that what you will); the productivity gains are even greater than those in e-commerce. For companies drilling in Permian Basin, the break-even price has fallen by over 50%. Given that it would appear inevitable that the progress would taper off, inserting AI into the mix (along with modern equipment that may be operated by it) seems a natural next step.
Having said that, one might also note that oil companies obviously have an incentive to declare that they are using AI more than they actually are, so as to not be perceived as laggards. Upon closer inspection, oil-and-gas companies are on track to spend $3.1B on the new technology this year, which is peanuts compared to other industries - and only 5% of the overall industry capex.
Speaking of AI, China’s most recent attempt to circumvent the bans on certain kinds of related hardware is to simply recruit the best talent. This has triggered investigations from Western intelligence agencies, but stopping people from taking a higher paid job on grounds of national security will not be as easy as some think. Certainly, getting companies to stipulate that employees must stay in certain markets is easy enough on paper (they have an obvious incentive to insert constraints into their contracts), but a legal minefield in practice.
And now for something completely different.
Strategy beyond the etymology
What does the term actually mean in practice?
Over the past month or so, we have recapped some of the most fundamental insights provided by complexity science. The exercise is, however, anything but theoretical; the practical value is as clear as it is immense. Not only does the new body of knowledge explain why the conventional models, tools, and techniques fail, but it also enables a look at strategic activities through a much more advanced lens.
Granted, I am hardly the first to point this out. Efforts to apply complexity science to strategic management may be relatively few and far between, but they do exist. Unfortunately, while some attempts have been more admirable than others, most ultimately end up trying to fit the new into the old. For reasons described previously, this cannot be done. The question is consequently not whether insights into firms as complex systems are helpful to the current ways of doing things, but whether the current ways of doing things are helpful once we view firms as complex systems. In order to answer it, we have to restart from the beginning – and build a new school of thought upon the foundation that complexity science provides: adaptive strategy.
Before delving into what the approach translates to in everyday practice, though, we first need to establish the terminology. After all, there is no lack of confusion about what a strategy is (or is not) in practice - and a closer look reveals a number of uncomfortable truths that are very rarely considered.