VUCA: What is it?

We are living in a VUCA world – it’s volatile, uncertain, complex and ambiguous. Cathy Parker explains.

V is for Volatile – the first part of the acronym. The applicable dictionary description is “liable to change rapidly and unpredictably”. With an addendum in some “usually for the worse”. This applies in a business sense where external events may have a major and often unpredictable event on the business – think natural events such as storms or earthquakes, sudden changes in exchange rates or the share market (outside of general trends).

The external event can be magnified if, for instance, a key supplier is taken offline by the event. The large Japanese tsunami for instance took out one of two plants of Renesas Electronics, a major supplier of automotive engine management chips, shutting down many automotive plants worldwide.

In a New Zealand context the recent Kaikoura quakes shut down and then significantly slowed road and rail transport through the upper South Island disrupting many industries.

Whilst risk planning can mitigate some of the potential events the very nature and unpredictability of potential issues challenges the ability to have specific plans.

Certainly, having a diversity of suppliers and a backup plan for key suppliers helps, more important is to have a general recovery plan – how will we handle a major (unknown) adverse event; who will be in charge and how would a team be structured including key personnel; where will the team operate from (and is there a backup plan if our offices are selected). Should we run practice scenarios – war game an issue? Often specific solutions will need to be on the fly, with the crisis team  able to make decisions and implement quickly. The team should also be able to quickly call in specialists for the specific area affected (production, logistics, HR, etc) depending on the specific issue.

U is for uncertain – the dictionary definition is “not able to be relied on; not known or definite.” This is more of a known rather than a volatile event – we understand the basic cause or causes but are uncertain of timing or magnitude of any change. Exchange rates, dairy commodity prices, fuel prices, competitor activity all fit this description, as do many other (in fact you could say most) business parameters.

We can model – we can guess but the final arbiter is the market.

The best solution is to constantly monitor your business KPI’s and be ready to respond as the actual course becomes clear – either to take an opportunity or to take corrective action. Information is king when there is uncertainty – stay as well informed as possible and a board should make sure management are feeding you the required information so you can monitor, review and challenge.

C is for complex – the dictionary definition is “composed of many interconnected parts”. If you have one thing to consider that is generally easy, but in a complex system there are multiple things all happening together and impacting on each other – sometimes in known ways but sometimes in unknown or unforeseen ways.

Humans are, by definition, complex – ask any parent. As are politics and business – the risk is often in the unintended or unforeseen consequences.

An action or policy may seem logical looking at the surface but may have impacts that weren’t considered. Entering a new international market might be one of the most complex issues with cultural nuances and traditions to deal with.

Utilising experts can help with some of this but can only go so far. This is an area where diversity in management and governance can also be a huge help – different voices, experiences and viewpoints around the table are more likely to identify some of the potential pitfalls.

A is for ambiguous – the dictionary definition is “open to more than one interpretation; not having one obvious meaning”. In a business sense it means that there are no precedents or the relationships between things are not clear. Launching a new product in a new market or area of business is ambiguous as you have no, or little, precedent to fall back on. It’s much more seat of the pants than extending product range in your area of expertise/competence.

This can be de-risked by experimenting, this could be consumer clinics, launching a restricted range or in a smaller market initially to test and refine the product. Some internationals use New Zealand as a test market for exactly this reason. Gather as much data so you can, refine or change/pivot the approach (or abandon). Similarly A/B testing of two or more ideas can help.

This is the first of several articles around VUCA by Cathy Parker, a director and business owner and the publisher of Adrenalin Publishing. She has spent 25 years managing and governing businesses in a VUCA environment.

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