As we've been talking about in past lectures, the rapid growth of
globalization, information technology and a changing environmental context are all working to take us into a much more complex world.
This world is interconnected, interdependent,
nonlinear, and more volatile.
Over the past few decades, an acronym has emerged within the business community to define the fundamental internal and external conditions
that affect organizations within these complex environments. This acronym is called VUCA, and it stands for:
Volatility (V), Uncertainty (U),
Complexity (C) and Ambiguity (A).
The common usage of the term VUCA began in the 1990s and arises from military
vocabulary, were it refers to the experience of officers in operations. It tries to capture
the uncertain and dynamically changing situation of a military engagement where there is lack of information,
events often happen in a chaotic and unpredictable
fashion, in what it is called the "fog of war".
Military commanders sometimes describe this as being in a world of "unknown unknowns". This is the extreme version of a VUCA world.
In this section, we'll talk about how to develop strategies for operating within this VUCA environments.
So let's start by talking a bit about strategy and our traditional approach to it in a non VUCA world.
Strategic management involves the formulation and implementation
of major goals and initiatives taken by an organization's top management based on an assessment of the internal and external environment
within which the organization operates.
Thus, how we approach strategy will obviously change in response to the environments within which our organization is operating.
Owing to its origins within industrial age manufacturing, much of our modern management
theory is focused upon relatively stable, predictable, routine environments where there is one
relatively clear objective. These factors make possible an approach to strategy that is based around a few key concepts and methods.
Firstly, there is one OPTIMAL GOAL or SOLUTION within these relatively static
environments, where there is one clear defined metric for performance, such as maximizing revenue, there can be one right answer,
one optimal solution. And, thus, the aim is to obtain all of the information
required and perform analysis upon it in order to identify this optimal solution. The objective then is to guide the organization
towards this desired outcome through the control of the elements within the organization.
Secondly, FIXED FUTURE PROJECTIONS. Due to limited volatility and the high level of predictability
within the environments, we can project past experience and data onto the future, and use risk-based
analysis to calculate and ascribe quantitative payoffs to a limited number of future possibilities.
Lastly, the use of PROGRESS PLANNING. The progress towards our ultimate goal can be broken down into stages.
We can create clear metrics for each stage, and the movement through these stages is typically a linear incremental process.
This approach to strategy works fine until we turn up the volatility, uncertainty and complexity within the environment.
Turning a rapidly changing
external environment to our advantage
requires a recalibration of many dimensions across how we develop, deploy, and deliver our strategy. And this is where complexity management
finds its application to offer us an alternative paradigm with which to lead organizations in these more complex environments.
So let's take a quick look at the different dimensions to the VUCA world, and responses complexity theory offers to this changing environment.
Firstly, VOLATILITY. In systemically volatile environments,
change is the constant and our strategy needs to evolve from resisting it to working with it. This means creating
organizations that are resilient through their agility and capacity
for adaptation. The strategic emphasis shifts from creating fixed, well-defined goals and plans, to trying to create agile
organizations led by a clarity of vision and effective communications, so that it can be very clear about its values and objectives
but very flexible in how it implements capabilities and achieves that vision.
Secondly: UNCERTAINTY. Uncertainty
is the inability to know everything fully. This uncertainty is derived from the large number of elements within the system,
their nonlinear interactions, and the capacity to adapt to local events as they evolve over time.
This means that, in these complex systems, the future emerges. The outcome of an emergent process cannot be known beforehand.
Trying to compute the actual details and define a single future scenario is in lost endeavor.
In environments where uncertainty is pervasive, our traditional risk-based
analysis of the future breaks down. The only way to respond to this is to perform multiple simulations
and experiments that will allow us to explore
how things will really play out on the ground, and to maintain a diverse and complementary system
that is capable of responding to a number of different possible environments and conditions.
Next: COMPLEXITY. When people talk about complexity within the VUCA framework, they're referring to interconnectivity and
interdependence. The nonlinear interactions and interdependence within complex organizations
renders our capacity for control over the system through direct interventions limited. In complex systems
we can not always know what the outcome to our interventions will be, due to these nonlinear interactions and interdependencies.
Thus, our capacity to directly align the elements of the organization towards some desired future goal is very much limited.
The main response to this is for a leader to focus on creating the context that enables
solutions to emerge in response to the changing environment.
Lastly: AMBIGUITY. Ambiguity
Is the quality of being open to more than one interpretation.
When environments become complex, simple, linear, cause-and-effect
descriptions of events breakdown, and ambiguity arises due to this lack of models to explain the observed phenomena.
Resolving ambiguity means understanding the context within which events take place. It requires systems thinking to see the interconnections,
to gain different perspectives in order to build up the full context within which an event can be properly understood.
In this video, we've taken a brief introduction to the VUCA world.
We've looked at our traditional approach to strategy
within stable environments, and a brief overview to how this needs to change when dealing with more complex environments.
And we'll spend more time in the coming modules exploring each of these different dimensions to the VUCA world in greater depth.