I’ve written a lot about rate of learning and adaptation as operating capabilities.

You can find this all through my Moats and Marathons books. Especially a discussion about rate of learning types 1, 2 and 3.

In these articles, I’ve also written about how learning can create cost savings in manufacturing. Such learning curves have been studied for a hundred years.

And were later expanded by BCGs Bruce Henderson in the 1970s to the “experience effect”. You can find articles on that here.

More recently, Martin Reeves of the Boston Consulting Group wrote an interesting book called the Adaptive Advantage: Winning Strategies for Uncertain Times. He is pretty much the best thinker on this subject. Some of the thinking from this article is from that book.

So, Rate of Learning and Adaptation is a pretty old and well-established business strategy topic.

And then machine learning appeared. And this topic became a lot more important.

Suddenly businesses could use AI to learn and make automatic changes in operations in milli-seconds. People started saying “speed is the new scale.” And Boston Consulting Group started talking about “self-tuning” operations that automatically change pricing and other operating factors in real-time.

And now this topic is getting even more important.

The emergence of Generative AI means that Rate of Learning and Adaptation is expanding to include native intelligence within businesses. It’s not just that the organization and operations can learn. It’s that they have their own intelligence, independent of humans. We are now starting to talk about AI Agents and foundation models with deep industry intelligence.

It’s a big and important topic.

So, in these two articles, I want to lay out a framework for how to think about this. But I’m going to just focus on rate of learning and adaption, where there is more established thinking. I will leave the emergence of business intelligence for another time. That’s pretty speculative anyways.

Rate of Learning / Adaptation in my Frameworks

In my frameworks, learning is increasingly part of both Tactics and Digital Operating Basics. I don’t list it separately but it’s definitely in DOB2 (customer improvements) and DOB3 (digital core).

And sometimes it can be an operating advantage. I have it listed as the L in SMILE digital marathons.

I’ve also mentioned that it can be considered a type of platform (learning platform). And it might start showing up as a competitive advantage (Learning and Process Costs). I’m still thinking about these points though. See below.

Why This Matters: The Growing Speed and Uncertainty Problems

Michael Porter’s 6 forces framework is great for stable, predictable businesses. Like Coca-Cola and chocolate. Your strategy is to find an attractive position in the value chain (i.e., has good returns) and then build scale there. This is referred to as classical strategy. And assumes a more static view of business.

But classical strategy has problems with businesses with more uncertainty. Where consumer behavior changes. And regulations. Or that are under significant and/or continued technological change.

And unfortunately, that’s pretty much most businesses these days.

Across the board, digital change is making business much faster and also more uncertain. Classical strategy (position and scale) is losing its potency. Dominant companies aren’t lasting as long as they used to. And competitive advantages and market share are falling much faster.

What is causing this?

Well, everything.

Most all of the big trends are creating more dynamism and uncertainty in the business world. Such as:

• Globalization
• Regulatory changes
• Connectivity
• Digitization
• Technological disruption

Business is much more uncertain. And things are happening much faster.

The biggest result of all this is that the distribution of winners and losers is becoming more extreme. Winners are winning bigger. Losers are losing bigger.

And it is now easier than ever to fall out of the middle and top tiers. Staying in the middle of the pack as just a regular business is not the stable place it used to be.

McKinsey has great graphics for this. These two graphics (my versions of McKinsey’s graphics) are pretty how I view the business world.

I show these graphics a lot. And my basic message is you need to be fighting to get into the top tier all the time. If nothing else, it will stop you from falling into the bottom tier. Business is now a game of extreme winning vs losing.

And rate of learning and adaptation is becoming a big part of this.

BCG’s 4 Terrains Are a Good Way to Decide on Your Strategy

Boston Consulting Group wrote a book titled “Your Strategy Needs a Strategy”. Where they argued that there are 4 different business terrains – and you need a different strategy for each one.

They segment terrains based on their malleability and predictability. Which gets you a 2×2.

This graphic is my reproduction of BCG’s thinking. The companies listed are my opinion.

Here’s a brief explanation:

Classical Strategy

In this quadrant, I listed Coca-Cola, KFC and mature Apple Computer. These businesses are predictable and non-malleable (i.e., a company mostly cannot change the game).

Businesses in this quadrant are mostly at the mercy of their environment and its external forces. Think industries shaped by oil prices, weather patterns, big-fixed costs, stable industry structures and fixed customer behavior.

This is a terrain well suited for classical strategy (i.e., Michael Porter), where it is mostly about identifying the right position in the industry and then going for scale.

This is Warren Buffett’s world. He invests with a 5–10-year timeframe and likes a lack of change in his businesses. He really wants long-term predictability (where economic value growth is predictable). So, he buys companies like Mars Candy and Coca Cola.

Adaptive Strategy

In this quadrant, I listed fashion, Zara and Ruhnn / KOLs. These businesses are much more unpredictable. The fashion apparel that sold last season will likely not sell this coming season. And it’s unpredictable what fashion trends will emerge season by season. So, you try to adapt as quickly as possible. Fast fashion businesses like Zara have business models based on being able to respond fast to changing fashion trends. Shein is a new version of this. And is referred to as ultra-fast fashion.

These businesses are mostly non-malleable. Most fashion businesses can’t change or shape the course or structure of the industry.

The best strategy is to be really fast on your feet. Be adaptive. Constantly be testing, experimenting and adapting.

Shaping Strategy

In this quadrant, I listed early Spotify and early Netflix. These businesses are unpredictable but malleable. This is where most tech companies live. Think ecommerce, communications and media. Yes, things are changing fast and are unpredictable. But Silicon Valley and China tech companies are pretty great at creating new products and services that reshape their industries.

The industry is malleable, but it is also pretty hard to see into the future. We really don’t know how people are going to be consuming media in 10 years. Nobody really saw TikTok and short video coming.

This quadrant is actually a good summary of modern China. It is both more malleable and more unpredictable than the West. It’s why the competition is so intense.

Visionary Strategy

In this quadrant, I listed Elon Musk, FedEx and later Netflix. These businesses are much more predictable in the long-term. And they are malleable.

This is Elon Musk land. Twenty years ago, he set off on a long journey to build rockets and electric cars. He set out to completely reshape both industries and to move them toward a future he could sort of see. He could see what electric cars would likely one day look like.

However, industries with a lot of production (like cars) tend to be low in uncertainty and in malleability. Its high fixed costs have historically made things harder to change. Manufacturing moves much slower than other sectors, like media and marketing. Marketing is more unpredictable and malleable. But it has low fixed costs and things are changing all the time.

Within these quadrants, you want to keep in mind the life cycle of the industry and business. You’ll see I’ve listed early Netflix as a Shaping category but later Netflix as Visionary. Things change when you go from a start up to a mature sector.

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So, does Coca Cola need to invest a lot in rate of learning and adaptation?

Did FedEx?

Not really. Those are pretty predictable businesses. It’s an important operating activity but learning is unlikely to become a competitive advantage.

But what do we mean by learning and adapting?

Are we just changing our marketing strategy? Our pricing?

Or are we adding new services? New features?

Are we changing our entire business model?

I break learning and adaptation into 6 levels:

1. Tactics: Such as marketing, inventory and assortment, store layout, pricing, churn
2. Customer retention, customer segmentation and other more complicated questions.
3. Adapting current products and services. Such as personalization.
4. New products and services. And technologies.
5. Internal processes.
6. Business models.

For Shaping and Visionary Strategies, I am thinking of sweeping change. New products and services. New technologies. New business models. And maybe even new industry barriers.

For Adaptive Strategy, I think about a fairly stable industry structure but with changing products, consumer behavior and tactics. The business model doesn’t change. The services can change. The marketing and product portfolio can be constantly changing.

For Classical Strategy, I think mostly about a static industry with set industry barriers and business models. And even products / services are stable. But the tactics need to adapt. And things are just moving faster than in the past.

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Ok. That’s a lot of theory for Part 1. It’s the general argument for learning. But it’s pretty high level.

In Part 2, I’ll go into specific steps for putting this into a business. Less theory and more useable tools.

Cheers, Jeff

• BCG’s 4 Capabilities for Rate of Learning and Adaptation (2 of 2) (Tech Strategy)

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Related articles:

• AutoGPT and Other Tech I Am Super Excited About (Tech Strategy – Podcast 162)
• The Winners and Losers in ChatGPT (Tech Strategy – Daily Article)
• Why ChatGPT and Generative AI Are a Mortal Threat to Disney, Netflix and Most Hollywood Studios (Tech Strategy – Podcast 150)

From the Concept Library, concepts for this article are:

• Rate of Learning and Adaptation
• 6 Levels of Rate of Learning and Adaptation
• 4 Terrains and Strategies
• DOB2: Never Ending Improvements
• DOB3: Digital Core
• SMILE: Rate of Learning and Adaptation
• Learning Curve and Experience Effect

From the Company Library, companies for this article are:

• n/a

Photo by Tim Mossholder on Unsplash

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I write, speak and consult about how to win (and not lose) in digital strategy and transformation.

I am the founder of TechMoat Consulting, a boutique consulting firm that helps retailers, brands, and technology companies exploit digital change to grow faster, innovate better and build digital moats. Get in touch here.

My book series Moats and Marathons is one-of-a-kind framework for building and measuring competitive advantages in digital businesses.

This content (articles, podcasts, website info) is not investment, legal or tax advice. The information and opinions from me and any guests may be incorrect. The numbers and information may be wrong. The views expressed may no longer be relevant or accurate. This is not investment advice. Investing is risky. Do your own research.