The business environment in Tanzania has undergone significant transformation, characterised by evolving structural constraints and adaptive strategies. Existing analyses often lack a longitudinal perspective that integrates institutional, economic, and firm-level behavioural factors. This paper aims to analyse the interplay between persistent structural constraints and the strategic adaptation mechanisms employed by firms. It seeks to identify the dominant behavioural patterns and decision-making heuristics that have emerged in response to these environmental pressures. The study employs a mixed-methods approach, combining longitudinal policy analysis with thematic analysis of in-depth executive interviews and a review of firm case studies. This triangulation allows for a robust examination of behavioural and strategic trends. A dominant theme identified is the strategic prioritisation of relational capital over formal institutional compliance, with interview data suggesting this is a central heuristic for approximately 70% of firms when navigating bureaucratic hurdles. This adaptation has fostered resilience but also perpetuated informality. The analysis reveals a complex, path-dependent business ecosystem where strategic adaptation to structural constraints often reinforces the very informality that impedes broader institutional development. Firm behaviour is fundamentally shaped by a calculus of relational versus formal risk. Policymakers should focus on reducing the perceived and actual costs of formal compliance. Firms are advised to develop hybrid strategies that leverage relational networks while incrementally aligning with formal structures to build sustainable legitimacy. behavioural strategy, institutional voids, strategic adaptation, business environment, East Africa, firm behaviour This paper provides a novel, integrated behavioural framework for understanding strategic firm adaptation in evolving institutional contexts, moving beyond purely economic or institutional analyses to incorporate decision-making psychology.