Managing in a VUCA world

While the term VUCA has gained currency today, it is important to look at each component - volatility, uncertainty, complexity and ambiguity - as these differ in meaning and characteristics. Hence, the strategies that can be used to address doing business in the VUCA environment will reflect the specific characteristics of each term.

Volatility

We are currently in a very volatile business environment. The characteristics are those of unexpected challenges and unstable environments. Any changes that take place are also likely to be of unknown duration. The aspects of doing business in such environments are not necessarily difficult to understand and information needed to manage the situation can be available but preparedness for the events may not be in place.Examples of volatility might include natural disasters, unexpected geo-political shocks such as war/invasion, and the introduction of unexpected trade tariffs. Prices and costs can vary substantially with an unexpected event. Suppliers may no longer be able to supply goods and services or can only do so at substantially increased cost. Some countries may no longer be able to offer opportunities to do business.Strategies to address volatility need to balance risk against reward. Achieving greater preparedness to address volatility in supply and demand can, for instance, mean increasing stockpiles or ensuring key personnel are in place ahead of any potential change. It might also mean withdrawing from potential markets. These are expensive decisions and so any investments must be carefully considered to determine if the risk involved is worth the action being taken.However, not all actions need be costly. Planning ahead for disasters, such as putting in place emergency evacuation plans, is a practical step that can be taken. While the specifics of the event will not be known, the plan can ensure staff have allocated roles and are trained appropriately.

Uncertainty

Our current business climate also displays many characteristics of uncertainty. Although the basics of cause and effect are known, change may or may not take place. So, for example, we might not know when interest rates are going to increase or reduce, even though the underlying factors that drive interest rate changes are known. Similarly when governments need to raise revenue and that situation is well-known, the fiscal methods that will be adopted to do so cannot necessarily be predicted in advance.Organisations may also be unable to predict when competitors will launch new products or services, nor the exact nature of these, and hence the impact on the industry, the organisation itself and the market is uncertain.Strategies to address uncertainty involve gaining information from as many relevant sources as possible and engaging in networking and information sharing with appropriate stakeholders. Scenario planning can be a helpful tool to predict potential outcomes in a range of situations. In this way, plans can be made to respond to events or to take proactive steps ahead of forthcoming change, depending on its likelihood.

Complexity

Our world today is also incredibly complex. The characteristics of complexity are that there are many variables and these can be inter-connected, but that it is difficult to understand these connections and the likely effects of one (or several) variable(s) on others. This makes predicting outcomes extremely difficult.In addition, the volume of information available today can prove to be overwhelming. This means that even when outcomes can potentially be predicted, it becomes very time consuming to process the information needed to determine the likely result.For example, in the arena of global mobility, the various jurisdictions in which organisations operate means having an understanding of compliance issues (tax, social security, employment law, pensions and so on) across a wide range of countries. All have unique regulatory environments and so moving people from one to another involves navigating a matrix of different laws.Strategies for managing complexity can include building up resource capability such as by employing a range of specialists or ensuring specialist advice is bought in from third parties. It might prove beneficial to engage in restructuring to best position the resources available to manage complexity. With the development of AI, information processing from multiple sources should become more efficient.

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Ambiguity

Ambiguity is particularly difficult to manage. Here the causal relationships are not at all clear and there are often no precedents for managing the situation. Business faces the unknown and has little if any knowledge or understanding of how to manage within this. For example, when organisations decide to launch in new markets, particularly in emerging markets where there are no precedents, they face an ambiguous set of circumstances both societally and in business dealings.Societal culture provides an excellent example of this. Organisations sending assignees to the new location to operate the business have no cultural understanding of what is the correct way to behave in order to get things done effectively.Strategies to address ambiguity involve testing hypotheses in order to gain and understanding of cause and effect; to see what works and what does not. Of course, making mistakes through testing in this way can damage business relationships and cause assignees to fail in their mission. It is therefore important to engage in strategies that encourage learning and the sharing of knowledge so that the likelihood of making mistakes is reduced.Returning to the example of cultural understanding, while knowledge of a specific culture may not be known to the business wishing to operate in a new country, general cultural principles can be applied so that an understanding the new culture can be gained more effectively and speedily.

Unintended consequences

Organisations need to think carefully and to be honest about how much they actually know about the situation they are dealing with. They also need to consider whether they can make predictions about the consequences of their actions.All strategic actions have consequences; ideally these will be intended. However, it is important to try to understand potential unintended consequences that can result from uncertainty and to be prepared and ready to take steps to mitigate any unwanted outcomes.

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