Understanding the VUCA Business Environment

The VUCA business environment has made traditional approaches to strategic planning, analysis, goal-setting and decision making seem out of step with a dynamic as well as unpredictable world. For many businesses, the operating environment has become ever more volatile, uncertain, complex and ambiguous (VUCA). As a result putting those four conditions together, the VUCA environment creates a perfect storm of challenges.

The difficulties that organisations face in a VUCA business environment become apparent when one thinks about companies such as BP and Tesco, both of which have hit the headlines in recent times for all the wrong reasons. Both face massive uncertainty as they strive to recover from highly publicised reputational damage, facing volatile markets, the risk of off-the-cuff comments coming back to bite, for past events to take on new significance, and the potential for unknown challenges from hungry competitors. Yet, at the same time, they need to keep large workforces engaged in order to repair the damage and develop new organisational capabilities to ready themselves for an unknown future. Now let’s look at what it really means when people say it’s a VUCA environment.

Volatility

In a more volatile world, periods of stability can seem like a thing of the past. Instead we have more instability, wilder fluctuations and often very rapid as well as unexpected change. In this situation change is seen as the only constant. Things change continuously as a result what is true today isn’t true tomorrow. Even the nature and dynamics of change changes. Products that are an absolute success today can be worthless in less than a years’ time. 10 years ago, Blackberry knew an exponential growth with its smartphone. Competing touchscreen smartphones couldn’t spoil the party, until the launch of the iPhone. Because of iPhone the sales of Blackberries collapsed in two years’ time

Uncertainty

With so much volatility, not only is the future unlikely to be much like the past, but the present is often very different too. Information is incomplete because it is changing and also there is too much going on to know it all. That increase in uncertainty makes it much harder to figure out what’s happening today, let alone trying to understand what organisational form and capabilities might be important in the future. More than ever, the world now lacks predictability and it’s a prospect for surprise. It is impossible to predict how markets will evolve for example Vinyl records, believed to have died a long time ago, can have a sudden revival. Fixed values in the economy and stock exchange can collapse overnight. And because of globalization a relatively small cause can have huge worldwide consequences.

Complexity

Uncertainty is amplified still further by complexity. The technological ease of connecting with people far and wide has created more interdependencies and feedback loops than ever before. Within those intricate and multi-layered networks, actions can have unintended consequences which cannot be predicted. The risk for those designing organisations is: change one thing and you might as well change everything. Simple cause-and-effect chains have been replaced by complex interconnected forces and events. Interconnectedness makes all things increasingly complex. Taking the advertising world for example, in the past the advertiser bought advertising space in printed media, on radio or television and reached his targeted audience. Today’s programmatic advertising is a labyrinth of complex bidding systems to get the right advertisement on the right screen of the right person. The possibilities are endless, but the realization is highly complex.

Ambiguity

Unknown unknowns’ abound in complex, uncertain and volatile environments, and so ambiguity increases. Where no precedents exist, it becomes ever harder to reach clarity and agreement about the meaning and significance of events. In comes doubt and hesitancy, making it easy for inertia to take hold. Therefore, in a highly ambiguous environment, it can be difficult to reach decisions about organisational developmental strategies. It is easy to find convincing but totally contradictory information for any assertion. Old certainties have disappeared in a mist of haziness and misunderstanding. And because of complexity and unpredictability, many leaders avoid taking positions. The ubiquitous availability of information has created a mist in which it becomes increasingly difficult to find clarity.

Conclusion

VUCA business environment is complex and challenging, but it is also an environment that can allow true leadership talents to emerge at all levels of the organisation. Indeed, one of the major lessons of the VUCA world is that leaders need to engage all employees at all levels to gain their trust and contribution in dealing with the great range of challenges that VUCA poses. Seen from this point of view VUCA becomes an opportunity for development and greater collaboration, rather than a risk to be mitigated. You can go ahead and check out surviving the VUCA environment to understand more about the VUCA environment.

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