VUCA! “It’s crazy out there…”

💡Concept

Topics: Business Environment, Complexity, Innovation, VUCA

Andrew

Keywords

Volatility -> The level of changes in the environment
Complexity -> The level of interconnectivity and interdependence of multiple components of the system
Ambiguity -> The level at which we understand the meaning of something
Uncertainty -> How much we know about the situation

Today’s business environment is becoming more and more unstable, unforeseeable, and unpredictable. Traditional management tools and practices are ill-suited for an environment of rapid change and uncertainty.

In the past, businesses usually produced goods and provided services for a defined customer segment for an extended period of time. Previously, products were developed much more slowly, and they stayed available for a much longer period of time.

However, in the age of disruption, we are no longer able to rely on the presumption of relative stability. Is there anyone who thinks that the world has become more stable in recent years?

A quick look at today’s survival statistics of companies illustrates the point. Fortune 500 companies today have a life expectancy of less than 15 years, compared to 60-70 years 50 years ago. McKinsey’s forecast paints an even grimmer picture of corporate survival.

Source

Mass marketing is a thing of the past. Customers expect variety, low prices, extreme reliability, convenience, and premium quality at the same time. They demand uniqueness, products that are perfectly suited to their particular needs or solve their problems perfectly. Nonetheless, businesses need to deliver it with a “speed of now” if they want to keep and grow their customer base.

In the age of social media, as social media contents go viral, customers’ taste can change extremely quickly. It doesn’t take long for today’s hottest items to become obsolete by tomorrow.

Business operations are becoming increasingly complex and interconnected. In parallel with complexity, volatility also increases. Increasingly ambiguous situations have made uncertainty a “normal” part of doing business.

As a result, businesses that relied on stability and predictability can no longer take these conditions for granted. Our expectations of how markets and customers “should” behave are often fundamentally violated. We say, “It doesn’t make any sense; It’s crazy out there…”. But there’s room for more specificity. Uncertainty and unpredictability aren’t chaos. Having the right tools and theories will help us better understand it.

Here is where the theory of VUCA can help. Our first step in preparing for adversity and managing for success is to better understand our current situation.

VUCA is an acronym for Volatility, Uncertainty, Complexity, and Ambiguity.

Credit: Nate Bennett and G. James Lemoine; HBR

Volatility

Dynamic changes with large fluctuations.
The environment is unstable. Big changes can happen at any time without any warning sign.
We cannot predict the nature and speed of change, so preparing for it is difficult.

“Black Swan” situations, described in Nassim Nicholas Taleb’s inspiring book, are clearly issues of volatility. We are experiencing more and more low-probability, high-impact situations in a complex, interconnected world; warn us Taleb.

Examples

Market crash and financial crisis of 2007-2008
In the cryptocurrency market, it is not uncommon for prices to rise or drop unexpectedly.
After the 9/11 terrorist attack, airline stock prices plummeted unexpectedly.

Here are two examples of positive volatility

Social media videos that go viral can reach hundreds of millions of views very quickly.
Billy Markus didn’t expect Dogecoin to become a billion-dollar asset when he launched it as a joke.

Uncetainty

Douglas W. Hubbard defines uncertainty as follows: “The lack of complete certainty, that is, the existence of more than one possibility. The “true” outcome/state/result/value is not known.”
Information is limited, the many parts of a complex system can interact with one another in an unpredictable way. Future events that are difficult to predict. In most cases, we just simply don’t know how the events will unfold.

Examples

Will it rain if you set your wedding date at 12th June next year?
What are the chances that a competitor will present a similar solution to ours?
Will customers buy this new feature if we launch it?

Complexity

The environment we are in is complex and has multiple parts, components, and variables that are interconnected and interdependent.
We usually have some information about the situation. However, in most cases, we are drowning in data and it is very difficult to make sense of the information we have.

Examples

An airplane crashed. What caused the accident?
There is a nuclear reactor that is heating up. What can we do to prevent a major catastrophe?
What is the reason for the doubled number of medication errors in our hospital over the past two months? What can we do to improve the situation?

Ambiguity

Although information may be available, its meaning remains unclear. Many interpretations can be made of it. It is possible to derive multiple, sometimes conflicting conclusions from the same dataset. As a result, making accurate predictions is very difficult.
The cause-and-effect relationship is unclear. Although we know they exist, we don’t know how the parts of a complex system interact with each other.

Example

Our main competitor publicly acknowledged that our product is superior to theirs. What is going to happen next? Are they intending to withdraw from the market? Or are they planning to develop an even better product?

Acknowledging the unpredictability of the environment is the first step to developing effective strategies for operating in a VUCA world. Dealing with volatility, uncertainty, complexity, and ambiguity has become part of doing business today. Being able to understand these concepts and develop strategies for dealing with them can be a source of competitive advantage.

In today’s business environment, being prepared for the unexpected is more important than ever. Companies that can adapt quickly to change are the ones that will thrive. In Charles Darwin” words, “It is not the strongest or the most intelligent who will survive, but those who can best manage change.” An organization that embraces unpredictability and adapts quickly to change is more likely to be successful in a VUCA world.

Resources

Shrinking Life Expectancy of Companies

hbr.org
cnbc.com
bbc.com
hbr.org
Molesky, Joanne, et al. Lean Enterprise. United States, O’Reilly Media, 2020.

On VUCA

hbr.org
hbr.org
Managing in a VUCA World. Germany, Springer International Publishing, 2015.
Leading in a VUCA World: Integrating Leadership, Discernment and Spirituality. Germany, Springer International Publishing, 2018.
Visionary Leadership in a Turbulent World: Thriving in the New VUCA Context. United Kingdom, Emerald Publishing Limited, 2017.
Flexible Strategies in VUCA Markets. Singapore, Springer Nature Singapore, 2019.
Deaton, Ann V.. VUCA Tools for a VUCA World: Developing Leaders and Teams for Sustainable Results. United States, DaVinci Resources, 2018.
Edmondson, Amy C. The fearless organization: Creating psychological safety in the workplace for learning, innovation, and growth. John Wiley & Sons, 2018.

VUCA! “It’s crazy out there…”

Andrew

Keywords

Volatility

Uncetainty

Complexity

Ambiguity

Resources

Further Reading