This is a draft from a forthcoming book ‘Out-Think, Out-Move: Real-Time Strategy & Execution in an Uncertain World’. Feedback and comments are welcome (marcus@powermaps.net). Earlier sections can be found here:

  1. Forget Strategic Plans!

2020 would have come as a nasty shock to anyone who thought the world was a predictable place. Yet anyone who thought the world was a predicable place hadn’t been paying attention. In the very short 21st century alone planes have appeared out of a clear blue sky and sparked a series of wars globally; defaults on loans on the west coast of America have triggered a global financial crisis; and a tiny virus has turned the global economy upside down, while killing millions. In fact, the only thing that’s predictable is the inevitability of change. Change is something we need to learn to deal with better.

The ‘Adaptive Cycle’ (Holling and Gunderson, 2002) is a model that attempts to describe the constant state of change in the natural world. It presents life as a movement through four distinct phases:

  1. (r) — actors in an habitat, ecosystem, or economy exploit value in new niches
  2. (K) — the most successful actors organise to conserve their dominance
  3. (Ω) — a shock hits and collapses the system, releasing previously trapped potential
  4. (ɑ) — actors have to re-organise in order to adapt to new conditions and survive.

For example, the planet’s pre-historic conditions — lush in mega-fauna — were EXPLOITED (r) best by dinosaurs who grew to enormous size and ate whatever, or whoever, they wanted. Dinosaurs were able to CONSERVE (K) their status as the planet’s dominant species for millennia. Then a shock hit. A large comet struck Earth, we believe, sixty-six million years ago, triggering a collapse in the planet’s ecosystem, wiping out 75% of all species, including the dinosaurs, which had evolved to prosper in ecosystems that no longer existed. Yet new, empty niches — ‘unoccupied ecological real estate’ — were also RELEASED (Ω) that could sustain life for those species able to RE-ORGANISE (ɑ) and adapt to the new conditions. None adapted better than the early mammals who eventually gave rise to the new dominant species: humans.

Early mammals emerged 200 million years ago, around the same time as dinosaurs but, as a non-dominant species had to rely on whatever food they could find, so they remained small. Their lack of choice about what they could eat also meant they had to accept whatever they could find. Yet these two limitations in the time of the dinosaurs — being small and having no reliable food source — became competitive advantages when conditions changed. Being small meant mammals were more energy efficient so they could survive on less. And, having had to develop diverse diets, meant they were better able to adapt when previous sources of food disappeared due to climate change. While the dinosaurs (with the notable exception of the avians, who evolved into birds) died out over the next 10 million years, the mammals would rise. Our dominance has now been conserved for millennia. But the ‘Adaptive Cycle’ suggests change will come for us too one day.

The Adaptive Cycle originally described just the constant state of change in the natural world, but it’s ‘more than just a metaphor’ for change in business and economic ecosystems. It can describe how dominant business actors get blind-sided by change. For example, in January 2007 Forbes magazine ran a front cover that posed, what seemed at the time, an impossible question to answer: With “one billion customers [could] anyone can catch the cell phone king?” — Nokia.

Yet within just seven years Nokia’s dominant market share fell to zero. Smartphones were the comet-like event for the world of Symbian phones, of which Nokia was the dominant player. Unable to adapt they suffered the fate of all dinosaurs.

Following a shock — a comet, a radical new idea or technology, or an event such as a pandemic — change starts slowly. Industry innovators start to explore the new niches — experimenting with novel technologies or working practices. Innovators pave the way for the early adopters, who start to take advantage of the new benefits this changed world offers, getting things done at greater speed and less cost. This early success starts to attract talent — people who want to explore tomorrow’s world today (rather than trying to maintain yesterday’s world). Yet the industry’s dominant actors ignore these small changes being scratched out around the periphery. They, like Nokia did, have big data sets of past buying patterns telling them how much customers prefer their products and dismissing the new as a fad.

However, the smart money, which seeks out the higher margins in activities associated with future value, starts to invest in the new and the pace of change starts to accelerate. More capital means more investment, which attracts more talent. Talent starts to improve the early products and refine the early working practices, which attracts more customers. This in turn starts to attract more capital. The industry is now starting to re-organise around the new. The dominant actors notice the the trickle of customers leaving becoming a flood and realise they can no longer ignore the threat. They try to respond but the fresh capital and talent they need is in short supply now and too expensive for those giants with shiny new offices and big executive salaries they’re also paying for.

As their revenues and profitability start to feel the pinch yesterday’s dominant players start to cut costs in order to preserve their margins, but they cut the wrong things. They optimise for a dying world, getting rid of under-performers — people who didn’t previously fit but might have the untapped skills needed for the new world. This untapped talent is snapped up by the new players cheaply, improving their margins and deepening their talent pool. The industry has entered the phase of ‘creative destruction’ (Schumpeter), with the slow destruction of the old feeding the rapid rise of the new. Soon the mammals will rise and dominate the industry, while yesterday’s dominant actors, the dinosaurs, die out.

CoVid-19 may become a comet-level event for almost every industry in every economy of the world at the same time. It’s already destroying old practices that many industries are built on (office work, physical events, business travel etc). Yet many of today’s dominant actors call the on-going shift to remote working, digital events, and video-conferencing a temporary blip. They want to ‘build back better’ but the emphasis is firmly on ‘back’ to a world they knew, understood and dominated. Yet the arrows on the loops of the ‘Adaptive Cycle’ show that time only runs in one direction. New practices have already been unleashed and some of the most talented people are already meeting new, emerging needs of people (to balance work and life, stay safe and protect the planet) better. This will attract fresh capital, which will attract the best talent, who will make breakthroughs that satisfy more needs of more people more effectively, which attracts yet more capital — creating an unstoppable cycle. Those who fail to adapt will go the way of the dinosaurs.

“The single most important factor for any company in this time will be the imagination and willingness of executives to adapt to the change”

— Simon Wardley

Their choice is simple: adapt, or die.

Govern the state by being straight-forward; wage war by being crafty. — Laozi