Theories & Practice
How to improve the odds of success
Friends,
I hope that all is well with you and yours.
Today, I want to begin with a thank you to all of you who requested access to the white paper on e-commerce that James Hankins and I co-penned. Even for a publisher such as WARC, demand turned out to be unprecedented. As a means of returning the favor, they decided to allow for one more week of free access. So, if you have yet to have a look, you can do so at no charge until Sunday.
I can also exclusively reveal – yes, this is literally the first time we announce it anywhere – that James and I have already begun work on the follow-up. Without getting ahead of ourselves, it should include a number of updated rules, a potentially ground-breaking new finding (we are still digging, so not making any promises just yet), and lots more. Should the moons, planets, and stars align, we might just give a preview at Cannes.
Moving on.
In the news
Instagram is sunsetting live shopping as the platform continues to move away from so-called social commerce. That Meta has struggled to maintain consumer interest came to a surprise to many, though I do not know why. Live shopping, as popular as it is in Asia, has never resonated in the US and Europe. When TikTok abandoned their attempts, the writing should have been in plain view on the wall ever for those who could not see it previously.
The biggest problem with the Metaverse is that nobody wants it: interest (as defined by Google trend data) has declined by 80% in the last year. The division that produces Meta’s own VR goggles made an operating loss of $13.7B in 2022, while Zuckerberg was recently forced to promise investors that it was no longer “the majority” of what they were doing.
Travel is taking off, taking global passenger counts close to pre-Covid levels. Companies like AirBnB, which recently posted its first profitable year, are not the only ones to profit; still-lingering production issues for Airbus and Boeing have limited the influx of new jets, boosting the fortunes of the aircraft-leasing industry that owns roughly half of the world’s airliners.
Item of the week
William H. Starbuck is, to me, one of the most under-appreciated academics in strategic management. Not only does he have a rare penchant for questioning traditional dogma, but also an uncommon irreverence for theory detached from the practical reality; it makes his work that much more interesting to read. For example, in Strategizing realistically in competitive environments, he argues that statistical evidence indicates that formal strategizing (i.e., planning) makes no more than an insignificant contribution to company profits - and details what one should do as a result.
Formal strategizing is a two-edged sword that is as likely to reduce profits as to raise them. One sees the beneficial edge when strategies reflect accurate forecasts of future events and accurate assessments of capabilities and everyone works together to achieve difficult, but possible, goals, while ignoring irrelevant distractions. This is the best of all worlds. But formal strategizing also can produce the worst of all worlds. One sees the harmful edge when strategies reflect inaccurate forecasts and assessments and everyone works intensely to achieve the wrong goals, while overlooking unexpected opportunities.
The Premise Behind Strategy in Praxis
Practice rules, but is at its best aided by theory
Inevitably, as subscriber numbers continue to increase (for which I am immensely grateful), so too does the number of you who merely get to see the most recent additions to our overall body of work. Before we move onto our next overarching theme, I thought that I would therefore attempt to explain the underlying reasoning behind the newsletter and the context in which we act. Unless I make a hash of it, what you are reading on a weekly basis should make a bit more sense.
For the longest time, most of what has been taught on economies, markets and businesses has rested on a handful of closely related grand theories. Though I will not go into all of them (there will be plenty more in the upcoming book), one example would be the central idea in capitalism: division of labor. In short, it can be defined as the separation of tasks in an economic system or organization to enable specialization and, ultimately, maximize profits (not least through increased efficiency).
What does this have to do with strategy? As it turns out, pretty much everything.
Not only does division of labor provide the justification for dividing, as Taylor did, workforces into thinkers and doers (and, by extension, the separation of strategy from execution), but from the theory also follows that the more specialized one is, the more money one should be able to make; mastery becomes the name of the financial game. From this, one can derive ideas such as niche strategies, differentiation, and modern strategic dogmas such as Galloway’s “find the one thing everyone else thinks is really difficult”.
The problem is that once one peers beneath the rug, one quickly realizes that economic value is not generated by specialization per se, but the creation of new adjacent possible economic niches. And since that is quite the mouthful, let me elaborate in more colloquial terms.
An adjacent possible is, as we have discussed many times before, what at any point in time can come to be. For example, once the telephone had been invented, a new adjacent possible opened up; suddenly (relatively speaking), one could make a living in telephone manufacturing, the laying of landlines, phone book sales, and so on. Without the preceding invention, none could come to be.
Division of labor, specialism and mastery did not cause the new industry - one could not specialize in telephones before one had been invented. Rather, it was able to capitalize once the new adjacent possible economic niche (telephone related business) had opened up.
To make matters worse, specialism inherently comes with a best before date. Over time, new adjacent possibles open up and the market moves ever so slowly on; this is how strategic drift happens. While admittedly less so a problem for employees than corporations (the former can move on, the latter is typically unable to), the robustness-centric approach thus practically guarantees eventual failure. Consequently, it stands to reason that any strategist worth their salt would ensure to balance the present with the future, what one can do well today with what else one could do.
And so, from more or less abstract theories such as the capitalistic division of labor and the adjacent possible, we have ended up with a very practical piece of strategic advice that runs counter to traditional wisdom: continue to draw from existing sources of revenue, but ensure to also run experiments at the edges to build resilience. Full focus on The One Thing is not in the long-term interest of the company nor its shareholders; it creates fragility and ensures demise.
In a nutshell, this is what praxis means: theory-informed practice in a perpetual learning cycle. We begin with the theory, apply it in a way that is relevant to our own context, then study the results and update our theory. Everything that the newsletter discusses should serve to that purpose - from the initial introduction of work within a theme, to what it translates to for strategists, and the wrapping up with a practitioner’s insight interview.
Crucially, we could not have reached our conclusions without first having the requisite understanding of the foundational premises. While the end-goal is and forever will be the “what” and “how” of strategy, establishing “why” is much more than an exercise in academic thinking.
It is our way of improving the odds of success, and I will keep at it until I can keep at it no more.
Next week on Strategy in Praxis
So, what is our next theme?
Well, over the course of my career, coming into strategy with a background in corporate finance and M&A, I have time and again seen strategists struggle with financial analysis; particularly those who come out of creative fields lack relevant training. It is, of course, not their fault, but information that could be crucial for strategic decision-making is habitually left unconsidered as a result. Over the next few weeks, we are going to attempt to change that.
Until then, have the loveliest of weekends.
Onwards and upwards,
JP
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