How often have you wondered what’s going on in the (business) world lately? Trends, markets and customers are shifting faster and faster, technologies are developing at a break-neck pace, and in general decision making is becoming more and more complicated due to the sheer amount of information to take into account.
VUCA (volatility, uncertainty, complexity and ambiguity) is here to stay – it’s the way the world is right now, and it doesn’t look like things will slow down or stabilize in the future either. The question is how to deal with it and how to make decisions in a dynamic environment.
You can master the VUCA world that we live in by looking at each element of VUCA one at a time. Each has its own specific challenges, but the methods for dealing with them are not new… they just need to be used in a different context. Here’s how to respond to the VUCA challenge.
|Volatility||High rate of dynamics and change||Vision – Understand changes; define & take action|
|Uncertainty||Unpredictable; unclear about the present situation||Understanding – Analyze different perspectives|
|Complexity||Multiple key decision factors and influences||Clarity – Focus on goals and key change aspects|
|Ambiguity||Lack of clarity about the meaning of an event||Action – Continuous decisions and innovation|
Let’s look at the four areas and how to handle them in detail one by one.
1. Reducing Volatility with Vision
Volatility means being subjected to frequent, rapid, unpredictable change. In highly dynamic situations with changes happening very rapidly, the most important thing is to not lose perspective of what is going on, and to understand what it means for your organization.
To orient yourself a clear vision is necessary. Remember, a vision is a brief statement about the main long-term goal that the organization wants to achieve, and is intended to provide direction to the organization and motivation to its employees. Your companies vision is a picture of your organization, showing the target state that you wish to achieve with your corporation, and why you believe that this is a worthwhile goal.
It is important to have a vision to put the changes taking place in the world around you into perspective. What does the change mean for the world? what does it mean for my organization? How does it affect my vision? Can I still achieve it? Do I need to change what I am doing, or how am I going to achieve my vision?
By putting the changes in the context of your vision, you can understand their implications, and assess whether or not you need to react to the changes.
To be able to (re)act in volatile situations, drill down and understand the changes and the real impact that they have on your organization and the industry as a whole.
- Why? – understand why the change is affecting your organization
- How? – analyze how (and how much) the change is impacting your organization
- When? – decide how urgently you need to react to the change
- What? – determine what actions to take to react to the change
2. Countering Uncertainty with Understanding
Failing to plan is planning to fail, as the old saying goes, but sometimes even the most detailed planning won’t be able to solve an issue or help you to make a decision correctly. Decision making under uncertain circumstances is difficult, no question about it. When things are not clear and a decision is needed, how can you make the best decision possible?
When you cannot be certain of a situation, scenario planning is a great method to handle decision making. Scenario planning requires you to define various scenarios as to how the market and the world could develop and affect you, and all planning decisions are then evaluated against these scenarios. This takes subjective opinions out of the planning process and forces you to reflect objectively on what might come to pass and how it can affect your organization. Oil and gas companies, for example, have “Green World” scenarios where they presume a drastic rise of renewables to evaluate the risk of their future plans against this key scenario.
Essentially, scenario planning works as follows:
- figure out what the key external drivers and influences on your organization are
- identify likely and extreme scenarios for the key areas that can influence your business and where uncertainty plays a role
- make these scenarios public within your organization and refine them
- adapt your strategic planning and project approval process to force projects to be evaluated against these scenarios
- make scenario planning a key part of your strategic process.
The more uncertainty you are facing, the more this method will help you. There are many resources (books, articles, …) on scenario planning to help you along. “Scenarios: The Art of Strategic Conversation” by Kees van der Heijden is one of the classics to get started.
3. Turning Complexity into Clarity
When something is too complex, plans will fail to provide direction as they are not able to cope with all the factors that need to be considered. So how do you make the right decisions in a complex situation?
The first question to ask yourself is whether the situation is complicated or complex. The two words may initially seem to have a similar meaning, but in reality they are very different.
Complex vs. complicated
Something complicated is not simple, but is intricate. Take a formula one car for example. Is it something that you personally could assemble? Initially you might not think so, but given some knowledge, the right tools, enough time and a detailed enough plan, you would probably be able to do it. This is a complicated issue, that can be solved with enough resources and planning.
Something complex is an entirely different thing altogether. Something complex has many interrelated parts. In an organizational context, for example, complexity can be thought of as a network of goals, organizational units, processes and other parts of a corporation that work along side each other and continually influence each other in a dynamic environment. Basically, lots of things happening all at once in an environment that is also changing.
This complexity cannot be managed simply with resources and planning. A different toolkit and mindset is required to address complexity.
Solving complexity with goals & roles
The problem with complexity is that you (or anyone, for that matter) can not understand the entire situation to be able to “plan a way out of it”. So how do yo resolve this situation? Establish a distributed intelligence in your organization. This requires two key things: clear goals, and well defined roles.
Define clear goals. Make sure that you and the rest of your organization understand exactly what goal is to be achieved, and also understand why that goal is being pursued. Think SMART goals, for example.
Well defined roles
The first thing to be clear on is the term “role” vs. “position”. The difference is significant, since a position is a passive description of somewhere within an organization, and a role describes an active part in achieving a goal.
A position is essentially a title (“Head of XYZ”), referring to where on an org-chart someone is located, who they report to, and their area of responsibility. It is focused on the organizational structure and hierarchy, and shows the channels of communication for that position.
A role, on the other hand, is a functional description that clearly indicates what someone is responsible for achieving. Role definitions should answer the question of what someone ensures (i.e. “I ensure that …”), and confer to that person the authority to act and make decisions to achieve their goals. Communication channels are established as needed for the task, and decisions are taken in in the context of the role and its goals.
Getting to clarity
Goals and roles play a large part in providing clarity in a complex situation, since they define what everyone is responsible for ensuring. The goals and roles themselves should, together, paint a complete picture of what the key areas to address in complex situations are, how they are to be addressed, and who is responsible for ensuring success.
Collecting and sharing information is also key to clarity and informed decision making. Organizational structures play an important part in sharing information within an organization and making sure that actions are coordinated. Cross-functional teams are a must since most topics cannot be solved by one function only. Matrix or network organizations help with information sharing by forcing different teams and functions to work together, providing an organic way of disseminating information without having to explicitly make sure to keep everyone informed.
4. Solving Ambiguity with Action
It may at first sound counter-intuitive, but when faced with ambiguity the best thing to do is to act. Why is this?
It is often said that taking the wrong decision is better than taking no decision at all, and the same can be said for action. When faced with an ambiguous situation or information, the best way forward is to take action and “test the waters” rather than to stand still and wait for things to clear up (which they likely won’t do by themselves anyway). This does not mean that you should take major decisions before things are clearer, or that big projects should be kicked off without knowing what lies ahead, but rather that small “testing” actions should be taken to see what happens.
The only way forward in an unclear, ambiguous situation is taking the initiative to explore the situation further, learn from it, and gradually clear things up. Identify small actions that require only limited resources and risk, and that will help clarify a part of the situation. Dip your toe into the water to test it, rather than jumping right in. You can do hypothesis testing with small, targeted projects and initiatives to see what happens. Once you have taken small steps and understand the situation better, you can start taking bigger and bigger steps and be sure that you have enough of an understanding of the situation to justify them.
Use agile methods to counter VUCA
Since “the only constant is change,” especially in a VUCA world, agility is a key competence to be able to deal with it effectively. Understand agile principles and deploy agile methods in your organization to become more flexible and at the same time more resilient.
Above all, understand your market and competitive environment, your customers (think “customer journey”) and set your priorities according to the most pressing business needs. Remember, strategy also means deciding what not to invest resources in!
The current VUCA world is here to stay, but you now have ways of addressing it and helping your company navigate the situation successfully.