VUCA! One of the most widely used business strategy acronyms,
in sentences like “We operate in a VUCA environment”
and “It’s a VUCA world out there”. Where does this
VUCA acronym come from? What does VUCA mean?
What is the impact of VUCA on leadership and strategy?
Let’s start off with the origins of VUCA.
Actually, let’s go back to the time before VUCA! Once upon a time, actually not that
long ago, between World War 2 and 1990, there were two very different worlds residing on
one and the same planet: the communist world led by the USSR and the capitalist world led
by the USA. Life was by no means easy before VUCA, but at least you always knew who you
were up against: two big power blocks trying to outperform each other in terms of military
power, trying to win over countries in all parts of the world to their side, competing
on technological achievements like the ability to send people into space and to the moon,
and trying to win more medals than the other side at the Olympics.
Then in the late 1980’s, the Soviet Union started to implode. This changed everything.
Strategists at the US Army War College started to think about the world after the Cold War,
and came up with the acronym VUCA to describe it: a world where you are no longer up against
a known “Big Enemy”, but you might be under attack from various terrorist and guerilla
groups in various parts of the world that can organize themselves quickly and successfully;
appear, attack and disappear before you had the chance to organize your response. A very
different way of working for the military. In the 21st century, as the pace of change
in the business world is increasing, business people have also adopted the term VUCA.
So what does the acronym VUCA stand for? V U C A. Volatile. Uncertain. Complex. Ambiguous.
Some people think VUCA is only used to describe “dark clouds on the horizon” scenarios,
but it is far broader than that. It can be “positive” as well as “negative”.
The meaning of VUCA becomes a lot clearer if you contrast it with its opposites.
Volatile versus stable. Uncertain versus predictable and certain. Complex versus simple and linear.
Ambiguous versus clear. Some situations in life are on the VUCA side, others are on the
non-VUCA side. The tragedy is to mistake one for the other!
Let’s take one such example where some people believe they are making a decision under conditions
of stability, while they are really looking at a more VUCA-type environment. Simplistic
linear thinking would simply assume that there is a causal one-way effect from A to B. This
is the type of textbook problem (with typically only one “correct” answer) that we are
used to ever since high school. Is it worth doing A in order to achieve B? With a less
abstract example: let’s lower interest rates in order to boost economic growth. Sounds
simple and attractive, but it assumes “all other things to remain equal”.
And that’s where people discover that there are unexpected side effects. Interest rates
could also have an effect on currency exchange rates, which in turn have their own effect
on economic growth. Interest rates could affect wealth, for example a lower interest rate
negatively affects the ability of pension funds to cover the pension liabilities to
retirees, which could in turn slow economic growth. Interest rates could have an effect
on inflation. And most importantly, if interest rates are low, individuals, companies, and
countries take on too much debt, which they may be unable to handle when the next economic
anomaly occurs and interest rates are suddenly rising. We could be planting the seeds for
the next crisis here with a decision that originally looked simple and straightforward.
In a VUCA environment there are not just unintended side effects (A causing B, but also C, D,
E and F), but also unexpected factors (many different factors impacting B). So we need
to draw a lot more arrows impacting B (the “known unknowns”) as well as ensure we
don’t get hurt by unknown unknowns. To summarize the two environments: under conditions
of stability, it is OK to think cause-and-effect. Under VUCA conditions, it’s more about building
robustness around the effect. Make sure your fishing boat doesn’t just survive a storm,
but also survives a shark attack. The natural inclination for business leaders
is to try to improve their forecasting, thinking that more visibility will help identify and
domesticate more of the “unknown unknowns”. This has some merit, but could lead to paralysis
by analysis. My advice is to work in a very fundamental
way on building a mindset to live in a VUCA world. Stop saying “It won’t get any weirder
than this”, and get ready for the next level. Here are three must-read books to start with:
“Thinking fast and slow” by Daniel Kahneman, on how our mind sometimes deceives us, “Antifragile”
by Nassim Taleb, on how to live in a world we don’t understand, and “The tipping
point” by Malcolm Gladwell, on how to make “sticky” and “contagious” your friends.
Let me summarize some of the insights from these books, from videos about VUCA, and from
articles about VUCA, to help get you started. Build resilience, the capacity to recover
quickly from difficulties. Essential in a VUCA environment, on a personal as well as
on an organizational level. And it is an ability you can train and develop.
Have “spare” resources ready for rapid action. In a stable environment, productivity
and maximum utilization of resources (factories, people, cash) are key. In a VUCA environment,
having optionality is more important. Do you have the “spare” resources to deal with
challenges or opportunities when they arise? Clarify what you are really trying to accomplish.
Explore and discover the underlying goal, and adapt when conditions change.
Build an innovation and improvisation mindset. A VUCA environment requires creativity and
agility. Once again, something you can train and develop. Whatever you give attention,
grows. Innovation is a habit. Get backups ready to do a “one up”. Get
every emerging leader ready to take over from his next level manager in the organization
if the need arises. I would love to hear your insights on how
to survive and thrive in a VUCA world, please leave a comment so we can strengthen each
other’s learning. I hope you enjoyed this short discussion of
VUCA. Volatile. Uncertain. Complex. Ambiguous. It’s here to stay. Get ready for it!
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