VUCA: Volatility, Uncertainty, Complexity & Ambiguity
VUCA is an acronym standing for Volatility, Uncertainty, Complexity and Ambiguity. It was first used by the American Military to describe extreme conditions in Afghanistan and Iraq. Beyond the simple acronym it is a body of knowledge that deals with learning models for VUCA preparedness, anticipation, evolution and intervention.
Volatility represents the nature and dynamics of change, and the nature and speed of change forces and change catalysts.
Volatility is characterized by frequent, rapid and significant change especially for the worse. For example in a volatile market, the prices of commodities can rise or fall drastically in a short span of time, and the trends may reverse suddenly. The decision we take to day after studying present situation may not be relevant for tomorrow in the changed scenario. Inter connectedness on global scale also breeds volatility. For business this financial volatility can affects things like supply chain of products and components bought from overseas priced in local currencies and the selling of products in internationally. As these changes impact the global markets, leaders need be agile and responsive, having strategies in place to manage risk.
Uncertainty comprises the partially non situation with the prospects of surprises i.e. component of situation, in which events and outcomes are unpredictable. We are unsure about how to proceed next. This is more proximate with the fog of war a military term.
An example of uncertainty in the business world would be a competitor launching a new product and not understanding how the markets and your customer base will respond, which could impact your own product sales. This is nothing new but the impact of technology which has been a huge disrupter in many industries has meant that competitors are much harder to spot. Disruptions observed in the taxi industry with the introduction of Uber, and Airbnb on hotel industry have impacted tremendously.
Complexity is multiplicity of forces, the confounding of issues, no cause & effect chain & confusion surrounding organization. In such situations we know the outcome of our actions. But many key decisions factors cloud our acumen to arrive at a judgment. Since the situation consists of many different and connected parts. If a business operates internationally, it will require working within many different cultures and unique environments with differing regulations, creating a complex situation with many different and connected parts. Working internationally requires adapting in different business environments operates. For example, a business may sell an unregulated product in one region, but in another region that product could be heavily regulated and taxed differently. To be prepared for leading in complex environments, leaders need to be able to see patterns in what’s happening with the bigger picture, as well as being able to understand the details while being agile enough to adapt to individual market needs.
Ambiguity is the haziness of reality, the potential for misreads, and the mixed meanings of conditions; cause-and-effect confusion. It is depicted in a lack of clarity and the difficulty of understanding the situation. It is low in knowledge of situation and predictability of outcome e.g. where we are introducing an entirely new business model to the market or launching a never-before tried combination of technologies. There are many contributing factors to ambiguity in the modern world, but one which stands out is the pace of change. An example of this is globalisation which has seen organisations enter new markets quicker than ever before, often expanding in regions or markets unexplored in relation to their products. Dealing with ambiguity in this instance requires leaders to have a clear understanding of hypothetical outcomes, test them, ask questions of stakes holders with different perspectives and not jump to conclusions too quickly.
Strategic Responses to VUCA
Visionary and tactical leadership
• During times of rapid change, it is important that the leadership team monitors the situation closely. The need for visionary leadership as well as tactical leadership increases.
• Such as in case of rise in commodity prices a great opportunity to introduce new, cost-effective, customer pleasing menu items exists
• In volatile times, are connectivity and good communication with employees is essential.
• Clear vision can be a weapon to guard against volatility.
• Relentless environmental scanning is necessary in a VUCA world. When one is clear about the desired outcome, a level of uncertainty is removed.
• The most successful companies in a VUCA environment practice relentless near and long-term trend scanning. The ability to spot weak signals is key to anticipating, adapting and acting on disruptive trends.
• Understanding of outside perspectives as well as market intelligence, scenario planning and storytelling in planning out multiple possible futures with uncertainty, and a rapidly changing technology landscape are helpful tools to combat the uncertainty.
• Simplify/clarify where possible. Unnecessary complexity is costly. Diametrically opposing thought patterns are necessary to reach a consensual clarity.
• Use social network analysis to understand how your organization actually works. Use inspiration, influence, expectations, reinforcements and rewards to shape the culture.
• Leaders in complex projects within complex systems must be able to hold thought patterns. There will be more on this in later posts, but for now, let’s look at two different kinds of thinking, both of which are required for success.
• Take an experimental approach, making small bets, gaining feedback and adjusting. Use prototypes to gather very early feedback. Don’t over invest in the prototype. The purpose of the prototype is to evoke a response.
• Keep moving forward, since it clears off the mist. It’s easier to steer a moving ship.
• Being passionate about doing the right thing for our customers, dealers, distributors and shareholders, one ventures in an ambiguous situation. Begin with the end-user in mind. Be clear on the needs of the end users and focus the efforts on providing solutions that meet their needs.
• Adaptability, clear focus and being fast as well as flexible are near panacea for ambiguity.
VUCA has come to stay and will only increase with the time. VUCA leaders operate in the face of imperfect data. Design thinking as well as systems thinking, an experimental mindset and gaining knowledge of disruptive change by environmental scanning and reading feature by scenario planning and storytelling becomes the key to unlock VUCA. The best way to predict the future is to create it.