Volatility in the business environment is a known fact, latest since the 2008 financial crisis. Since then corporate leaders have been on a roller coaster ride to stay on top of the competition. Shrinking or expanding the businesses in a very fast manner, integrating new acquisitions, while investors and owners push for higher profitability require business models, operating models and capability models (People, Technology) to adapt quickly to changing needs.
At the same the risks associated with climate change related disasters, political unrest, embargos, war and subsequent migration pose a number of additional challenges on businesses that operate globally. Speed is increasing based on technological advances that can create and destroy entire business models easily. All of the above is true for multinationals as well as medium sized businesses.
So what the heck is VUCA?
To describe this operating environment, the term VUCA was coined by US Military officials in the 1990s. VUCA stands for
Volatility: Rate of change,
Uncertainty: Lack of clarity about the present,
Complexity: Multiple key decision factors, and
Ambiguity: Lack of clarity about the meaning of an event.
The relative volatility, uncertainty, complexity, and ambiguity is related to what is known and the predicted outcomes. (Bennett and Lemoine, 2014)
The fact that we are talking about a VUCA environment, is in essence recognition that we have reached a point where the current business-, operating- and capability models of companies can no longer catch up with an ever-increasing rate of change.
The recent results of the US presidential elections will fuel this VUCA environment specifically when it comes to uncertainty. Implications for businesses and associated value chains can be huge.
Why does Sustainable Management matter in a VUCA environment?
The frameworks, data, underlying assumptions, interests and stakeholder expectations to make decisions are rapidly changing for managers in big, medium and small companies. The VUCA world forces managers to make decisions under greater uncertainty. While we have more data available than ever these days, we often lack the right information to support decision making.
In most corporate environments, a managers' success is tightly connected to 'making the numbers', which exacerbates the challenge at hand. Companies with long and elaborate decision-making processes run the risk of missing opportunities to become more effective and to stay ahead of the competition. Risks and their respective consequences are getting harder to manage.
Essentials of Sustainable Management in a VUCA World
Each of the different aspects of VUCA requires different responses and operational tactics. Knowing them is an asset, as sustainable management requires using the right approaches at the right time.
There are a number of common traits that sustainable management embodies. Businesses that want to future proof their setup should focus on 8 essential aspects:
1. Get great at sustainable and systemic cost reduction - Keep cost under control and find ways to work more efficient/effective at the system level. This requires to be great at cross-functional management, ie. looking at innovation, product development, supply chain operations and support functions as an integrated whole.
2. Build an agile operating model The links between Business Model(s), Operating Model and Capability Model become more important in a VUCA world. VUCA goes beyond traditional operations and requires to understand changes in real time and to respond to them in real time. Successful companies need to be nimble, fast and able to reallocate resources quickly.
3. Master collaboration Show a stronger commitment to collaborative relationships in global supply networks.
4. Build future-fit capabilities Build the capabilities you need right now, to be ready when times get rough. However, it is recommended to have a stable operating model before you engage into the learning organisation. Systems Thinking, Design Thinking, Problem Solving and other capabilities are essential to operating in a VUCA world
5. Be conscious about the use of digitalization Digitalization and the connected enterprise are providing massive opportunities, but also disruptive change for companies. While technology integration provides opportunities for speed, cost reduction and transferable production models, there is the massive impact on workers from Artificial Intelligence and Automation. Companies need to answer the question how digitalisation opportunities, risks and societal consequences are properly balanced. You cannot expect full commitment from your teams when digitalisation is putting their jobs at risk.
6. Measure impact and sustainable value Successful companies are building their successes on a performance culture that considers all aspect of value creation. To that extend the success of the company is measured on a sustainable value scorecard that measures key performance indicators for economic, societal and environmental value creation.
7. Dare to innovate (Fail early and responsibly) Moving away from being conservative and risk averse (to 'make the numbers'), requires courage. This means in many multinationals to move away from fear culture to embracing FEAR, in the sense of 'Fail early and responsibly'. Be ready and willing to experiment.
8. Transform in the right way Many organisations have embarked on 'transformation journeys' these days. And indeed, it is important to accept that nothing is static anymore in the business environment. In order to manage transformations successfully, organisations need to build the capabilities for good project management and controlling their portfolio of initiatives very tightly, to ensure that the most important things get done effectively and efficiently.
These 8 essentials are valid irrespective of industries and company sizes.
What are you doing to get your organisation ready for a VUCA world?
How we help clients
Our 'Future fit assessments' helps organisations to determine the current state of their readiness to manage successfully in a VUCA environment. We work with management teams to define capabilities that make the organisation future fit.
Our assessments include
- Effectiveness and Efficiency of the organisation
- Innovation capability maturity
- Product development capability
- End2End supply chain capability maturity
- Digitalization capability maturity, including the ability to tap into opportunities from digitalization
Let's talk about how your organisation can get 'future-fit'.