In recent times, business articles and social media posts have propagated a range of terms to describe our rapidly changing economic landscape. You’ll know the ones. Uncertainty, disruption, complexity. Perhaps that’s why the term “VUCA” is growing in usage. But what does living in a VUCA world really mean? And how can organisations understand, navigate and adapt to these challenges?
VUCA Definition
Put simply, VUCA stands for Volatility, Uncertainty, Complexity, and Ambiguity. It may seem like a managerial buzzword, but it’s a useful umbrella to encapsulate the four key pillars of our increasingly complex business landscape. Of course, any time organisations face difficult circumstances, it’s always tough to determine a way forward. However, it’s worth noting, VUCA shouldn’t be cause for throwing our hands up, or justifying reasons to avoid strategic action, planning and decision making. In reality, it's possible for resilient organisations to prepare for a VUCA world.
According to a report by Deloitte, a risk-savvy company is one that proactive embraces VUCA – it is a risk survivor and also a risk overcomer. At the epicentre of its governance DNA is a smart, risk-based, decision-making process embedded across different levels of the organisation. Let’s consider each VUCA category as risks, to help you identify, prepare for, and make smart decisions in the face of such events.
Volatility – the pace of change
Many of us can appreciate the pace of change in industries, markets, and around the world. Volatility can include fluctuations in demand, instability, and quick shifts in the market. The greater level of volatility in the world, the quicker and more frequent changes occur. At the same time, volatility can also present opportunities.
Strategies that manage volatility: focus on mitigating (or harnessing) the impacts sudden, rapid changes can have on your organisation.
Uncertainty – predicting the unpredictable
As a business leader, are you responsible for predicting the future? Not exactly. Perhaps a better question is, how can you mitigate the subjective and objective elements of uncertainty?
For individuals, uncertainty can stem from a lack of understanding; often influenced by personal bias and past experiences. On the other hand, real situations can be objectively unpredictable; they can be measured and analysed, separate from people’s personal opinions. EY recommends using scenario planning to face uncertainty – removing subjective insights that can cloud decision making – to objectively substantiate business strategy.
Strategies that manage uncertainty: focus on preparing for a range of potential outcomes by creating flexible structures and processes.
Complexity – managing multiple factors in decision making
In every situation business leaders have to navigate, there is always a range of diverse, interconnected factors that enter the decision-making process. The more complex a situation, the more challenging it can be for you to fully comprehend it, and make the best decisions.
Strategies that manage complexity: focus on creating simplification, collaboration, experimentation, and adaptation.
Ambiguity – managing circumstances that are unclear
No doubt, any time you receive insufficient, conflicting or inaccurate information, it’s tough to interpret the situation clearly – and even tougher to define a path forward. Harvard Business Review describes this as “the unknown unknowns”, a situation where no precedents exist, and offers a useful model for conceptualising this. For example, imagine your company is exploring emerging markets, or is launching new products outside your core offering.
Strategies that manage ambiguity: focus on experimentation – underpinned with strong communication, such as by clarifying requirements, establishing expectations, and seeking diverse perspectives.
The best way to manage in a VUCA world…
At the core of each strategy to deal with these challenges, one capability seems to stand out. According to McKinsey researchers, adaptability is the cornerstone for thriving in the VUCA world of today’s global economy. If you’re looking to strengthen your organisation's ability to adapt, this research recommends a people-first approach.
Facilitate training and development: cultivate the habits of lifelong learners by encouraging team members to approach activities through the lens of experimentation, exploration, and growth. Make learning and development scalable and targeted.
Nurture relationships: between your team members, suppliers, and other key stakeholders. You can do so by improving communication, creating psychologically safe work environments (that facilitate innovation), and supporting activities that promote employees’ mental and physical well-being.
To return to the recommendations in Deloitte’s report, it's useful for leaders to supplement these activities with smart risk management.
Using risk hindsight, insight and foresight: examining your past and current risk landscape to understand the potential risks ahead. Leveraging big data, technology and human capabilities can lay at the heart of this endeavour.
Doing the right thing, and doing what you can: business leaders can be better positioned to mitigate risks by understanding their organisation’s risk appetite, exercising due diligence, and offering greater transparency through communication.
Meeting the challenges of VUCA requires a concerted effort from everyone in an organisation. For managers to ensure everyone is on the page, success will hinge on their ability to provide clear direction, resources, and incentives for team members to tackle VUCA challenges.
Author of 'The 6 Enablers of Business Agility: How to Thrive in an Uncertain World,' Karim Habott, summarises this neatly.
'Operating in a VUCA world demands organisational agility. Organisations need innovation, empiricism, and adaptability to thrive in this environment. Finding new ways of working is one of the critical enablers of organisational agility.'
One of the best strategies for organisations to thrive in a VUCA world is by fostering a culture of adaptability and agility. At the core of this focus: your people. By investing in training and development programs, empowering employees to make decisions, encouraging collaboration and innovation, and promoting a growth mindset your organisation will be better positioned to deal with any change that comes your way. Paired with risk management and preparation strategies, it's a sure pathway for strengthening organisational resilience and achieving successful outcomes.
