Living in a VUCA World
Mar 27, 2022
This article is the first of two dealing with our VUCA world and how the board of directors can help their organizations to navigate its challenges. Part 2, Navigating our VUCA World, was published on April 3rd. Click here for Part 2.
As a board director, are you finding that your organization is operating in an environment that has changed radically – and keeps changing at an accelerating pace?
If so, you’re not alone. You're facing a VUCA world. Surviving and thriving in that world demands a different approach and a new way of seeing the organization.
VUCA is an acronym composed of four terms: volatility, uncertainty, complexity, and ambiguity. The term has been embraced by leaders in all sectors to describe the challenges they find themselves facing. These days, VUCA is on the verge of becoming a trendy catchall phrase, a more sophisticated way of saying, “Hey, it’s crazy out there!”
We can't change the VUCA world. But with the right approach, individuals and organizations can not only learn to live in it, but face up to the challenge and harness its potential.
In this article, we'll explore the meaning of VUCA and its impact on organizations. Next week, we'll turn our attention to how boards and individual directors can hope to navigate our VUCA world.
VUCA Explained
In the early 1990s, VUCA was the US Army’s response to the collapse of the USSR. With the end of the Cold War, they were hard pressed to find new ways of seeing and responding to a very different world. From there, it caught on as a useful way to describe the challenges facing leaders in business, government, not-for-profits – all of us in fact.
In a VUCA environment, it’s hard to predict the future using today’s information because conditions keep changing, coalitions keep getting more complex, and motivations are harder to discern.
The first step in figuring out how to navigate a VUCA world is to break the acronym down into the four distinct types of challenges. As explained in the HBR article 'What VUCA Really Means for You,' identifying the challenge (or challenges) you face helps to determine how best to respond. Keep in mind, though, while each one is distinct, they are related and can be present in combination.
Volatility - The more volatile the world is, the more and faster things change. Volatility describes the speed of change. When a situation is volatile, it’s unstable and unpredictable, but it’s not necessarily complicated or difficult to understand. Since it’s hard to predict what will come next, a volatile situation might carry a lot of risk.
The stock market is a good example of volatility, as you can attest if you or your organization have an investment portfolio. Market price fluctuations, like oil prices, are another example.
Uncertainty - The more uncertain the world is, the harder it is to predict. Uncertainty refers to situations where we just don’t have enough information to predict the impact of our actions. In an uncertain environment, we can’t make proper plans. Part of uncertainty is our inability to understand what’s going on – perhaps because we haven’t gathered the right information. But there are also truly uncertain situations in which the information simply doesn’t exist.
The COVID-19 pandemic offers an example of uncertainty. Governments everywhere struggled to decide what measures to implement, because even with sophisticated computer modeling, it was almost impossible to say which would be effective and how they would impact the economy and society.
Complexity - The more complex the world is, the harder it is to analyze. Complexity refers to factors we need to consider in making a decision. The more factors, the greater their variety, and the more they are interconnected, the more complex the environment is. Under high complexity, it’s almost impossible to fully analyze the environment and come to rational conclusions.
Living and social systems are examples of complex systems where changing a single variable can impact all the others in unexpected ways. When we push complex systems too hard, they can break down – think about our healthcare system in this context.
Ambiguity - The more ambiguous the world is, the harder it is to interpret. Ambiguity refers to a situation where there is no “right” or “wrong” decision - the best outcome is really a matter of interpretation. An ambiguous situation is vague, obscure, incomplete, fuzzy, or even contradictory.
Ambiguity doesn’t arise from a lack of information, but from a lack of clarity about how to interpret the information. Even when all the facts are on the table, ambiguity hinders our ability to analyze and evaluate them.
The VUCA Impact
For individuals, VUCA sows confusion and fear, leading to feelings of insecurity, loss of motivation, decline of creativity, and erosion of trust. We feel powerless when we can’t understand a situation, know how to influence it, or predict the future. It’s a natural reaction - our brains are hard-wired to try to predict the future.
For organizations, VUCA can paralyze decision-making and lead to short-term thinking. Conventional management practices that are based on stability, quantifiable risks, and a “best practices” environment can’t keep up, and traditional decision-making frameworks are no longer adequate. Instead, as described by McKinsey & Company, agility needs to be the dominant organizational paradigm
For boards, VUCA means that staying inside the narrow confines of compliance, oversight, and traditional approaches to good governance just won’t do. VUCA demands that directors view the organization differently - not as a machine with a top-down hierarchy and a rigid bureaucracy, but as a living organism without traditional "boxes and lines."
When it comes to strategy, the VUCA world requires changes to how organizations collect and analyze information, make decisions, and develop and implement strategic plans. Modern business tools and technologies can help equip leaders for VUCA readiness – tools like scenario planning, road mapping, stress testing, and predictive modelling.
VUCA also requires organizations to continuously sense, monitor, and interpret changes in their internal and external environment – an environment that’s expanded outside the traditional fields of corporate analysis to include value systems, social and political contexts, and technology.
But when it comes to navigating VUCA, an organization’s people and culture may be more important than any set of strategic management tools or data collection methods, no matter how sophisticated. The ability to create, shape, and transform the organizational culture has become a critical leadership skill. In response, oversight of culture is increasingly seen as within the board’s purview.
“In the end, the biggest thing you can try to shape is the culture in the organization.” - Tony Guzzi, CEO, EMCOR
The goal of this transformation is to build and sustain what McKinsey calls the five trademarks of the agile organization:
- A shared purpose embodied across the organization.
- A network of empowered teams.
- Rapid decision-making and learning cycles.
- A cohesive community of dynamic people.
- Next generation enabling technology.
Navigating Our VUCA World
Read our second VUCA article, Navigating Our VUCA World (published April 3rd), to explore how the board can help your organization survive and thrive in the VUCA world – and the part that you can play as an individual director.
Your takeaways:
- VUCA - volatility, uncertainty, complexity, and ambiguity - has been embraced by leaders in all sectors to describe the challenges they’re facing.
- VUCA impacts individuals, organizations, management, and, of course, the board of directors.
- VUCA affects how organizations monitor the environment, collect and analyze data, and make strategic decisions.
- For management, the ability to shape organizational culture is a key leadership skill. For directors, that implies the board has a role in the oversight of culture.
- The goal of cultural transformation is to build and sustain an agile organization.
Resources:
- What VUCA Really Means for You. Nathan Bennett and G. James Lemoine. Harvard Business Review. January-February 2014.
- What is the Meaning of VUCA World? Markus Peschl and Michal Matlon. The Living Core. February 2021.
- What Does VUCA Really Mean? Jeroen Kraaijenbrink. Forbes. December 2018.
- The 5 Trademarks of Agile Organizations. McKinsey & Company. December 2017.
Leave a comment below to get in on the conversation.
Thank you.
Scott
Scott Baldwin is a certified corporate director (ICD.D) and co-founder of DirectorPrep.com – an online hub with hundreds of guideline questions and resources to help prepare for your next board meeting.
Share Your Insight: How has VUCA impacted your organization's operating environment?
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Scott Baldwin, ICD.D
Co-founder | Director
Scott has served on boards and provided governance advisory services to boards since 2001. Private company, nonprofit and government agency boards have been his focus. He is now leveraging that expertise with his own director work while helping directors prepare for their board role so they can collaborate, contribute and influence decisions.
