For anyone who believed the world was a predictable place — where plans could be made and executed easily — the 2020s would have come as a shock. Yet anyone holding such a view could not have been paying attention to the events of our ‘short’ 21st century: planes ‘coming out of a clear blue sky’ sparking two decades of war; sub-prime loan defaults in the U.S. suburbs triggering a global financial crisis; and a tiny virus bringing the global economy to a standstill. Edward Lorenz was right1: small causes lead to large, unpredictable outcomes. This is why the future remains a stubbornly unpredictable place. To survive and thrive, we must become better at adapting to change.
Fig.5: The Adaptive Cycle
A powerful model for understanding how systems change is ‘The Adaptive Cycle’ by Holling and Gunderson (2002)2. This outlines four key stages:
Conserve (K): In natural ecosystems, including human systems, such as industries, a few apex predators or large players dominate. The rest of the system organises around them in complex predator-prey dynamics or tightly interconnected supply chains. As long as resources, such as food, talent and capital, remain abundant, the system retains high potential for growth. But its excessive interconnectedness creates rigidity, making the system fragile and vulnerable to shocks.
Release (Ω): When an external shock strikes, such as a natural disaster or an economic collapse, the system is thrown into chaos. Disruption spreads quickly through tightly woven interconnections, and its rigidity prevents it from adapting. Jack Welch, former Chairman and CEO of GE, once warned: “If the rate of change on the outside exceeds the rate of change on the inside, the end is near”. The system starts to disintegrate, releasing all its accumulated potential, such as resources and talent.
Re-organise (α): A period of great uncertainty follows. To survive, players must explore and experiment with new approaches. Those relying on the old ways of operating, which are quickly disappearing, become maladapted — unable to function in the changed conditions. This hastens their extinction (X), which eases the competition for resources, benefitting those who did adapt.
Exploit (r): Those who reorganised now start to thrive again, gradually becoming the new dominant players. The system starts to reorganise around them, and interconnectedness increases again, bringing the same benefits but also the same rigidities and vulnerabilities. Yet innovation keeps developing at the periphery — new ideas and approaches that will come into their own when future disruptions hit. It’s this “diversity retained in residual pockets preserved in a patchy landscape3” that ensures the system’s long-term resilience, allowing it to evolve not in spite of change, but because of it.
The classic example of the Adaptive Cycle in action is pre-historic Earth, which was once covered in lush mega-fauna, conditions the dinosaurs exploited (r) best. Often growing to enormous sizes and able to eat whatever, or whoever, they wanted, dinosaurs became the planet’s apex species. Their dominance was conserved (K) for millions of years, until an external shock hit. Sixty-six million years ago an asteroid struck Earth, wiping out 75% of all species. The tightly-coupled resources of the previous ecosystem, formed around the apex species, were released (Ω), forcing species to re-organise (ɑ). Exploiting new, ‘unoccupied ecological real estate’ was essential to survival, and none did this better than the early mammals.
Mammals first appeared 200 million years ago, around the same time as dinosaurs. But occupying a lower rung on the food chain, mammals had to rely on scarce, unpredictable food sources the dinosaurs could afford to ignore. This unfavourable positioning led to most mammals remaining small. Yet, in a rapidly-changing ecosystem, their small size and highly-evolved foraging skills became advantages. Needing less energy and eating less selectively enabled them to find sufficient food more easily as conditions changed. In contrast, dinosaurs at the top of the food chain, which had thrived on an abundance of highly-specialised foods in a lush ecosystem, struggled to fuel their massive frames as resources changed. Their gradual extinction4 made way for new apex species to arise — the mammals, and eventually us humans.
Yet, the Adaptive Cycle is ‘more than just a metaphor5’ for describing change in natural systems. It can also explain the rise and fall of industry giants. For example, on its November 2007 cover, Forbes posed the question: “One billion customers — can anyone catch the cell phone king?” At that time, Nokia dominated the mobile phone market, accounting for around half of all devices sold worldwide. But earlier that year, an ‘asteroid-like’ event had struck the Symbian system Nokia relied on — Apple’s launch of the iPhone.
Nokia were unable to adapt quickly enough to the new possibilities released by the launch of the iPhone — touchscreens, apps, and third-party integration — as their Symbian system was too rigid. They could only watch as these innovations ushered in a new world previously thought inconceivable — e.g. mobile retail and banking — which redefined customer expectations and re-shaped entire industries. These new possibilities attracted talent, those innovators eager to explore tomorrow’s world, rather than maintaining yesterday’s. They organised themselves in radically different ways, such as flexible working and agile teams, to exploit the opportunities more effectively. Financial capital, driven to maximise future returns, flowed into the new, reinforcing these emerging changes. Creative destruction had beenunleashed6.
At first, Nokia underestimated the magnitude of this shift happening at the edges of their world. With one billion customers, they were focused on conserving the dominance of the Symbian system and extending its reach. These were the early years of the great Chinese economic boom, and Nokia’s executives were targeting their next billion customers. Yet, China’s new aspirational migrant class7 were embracing the new ways of shopping, banking and living. Nokia only belatedly recognised that a massive shift had occurred.
Trying to go ‘all-in’ on the new, Nokia found the talent and finance needed were now in short supply — already taken by smaller, faster early movers. Being late to the biggest game dealt a fatal blow to Nokia’s reputation as a market leader. Within just seven years, the market share of the ‘cell phone king’ fell to almost zero. Unable to re-organise or exploit the potential in the new ecosystem, Nokia went the way of the dinosaurs — only much faster.
Fig.7: The Precipitous Fall of the “Cell Phone King”
When future historians write the history of the 2020s, they may see a series of asteroid-level shocks that impacted every industry in our tightly-coupled global economic system. They will see how dominant players tried to conserve the status quo, but also recognise that — as the one-way arrows on the Adaptive Cycle show — success comes from harnessing new ideas and methods, ones previously dismissed. Once the potential has been released and pioneering talent re-organises itself to exploit emerging opportunities, there’s no going back. The ecosystem evolves, and everyone is left with a choice: adapt or die!
We embrace change and develop, or we resist evolution and go the way of the dinosaurs and the ‘cell phone king’. “The single most important factor for any company in this time [therefore] will be the imagination and willingness of executives to adapt to change8”. What kind of executive you are, or what kind of executive you work for, is going to matter greatly moving forward.