With new threats and crises appearing on an almost daily basis, how can business leaders even begin to make sense of the world?
How should we prepare our organisations and brush up our leadership skills for what lies ahead?
Here, we cast a fresh eye on the VUCA concept, the idea that the world is Volatile, Uncertain, Complex and Ambiguous. We examine the potential inadequacies of this decades-old theory in the current chaotic landscape and try to identify the qualities and characteristics leaders should actually be focused on to build resilient businesses.
It was the end of the Cold War, the Soviet Union had started to collapse, and the old assumptions about the world no longer worked. People needed a new framework to try to understand what was happening, and the one that gained particular attention was the concept of VUCA, the idea that the world was Volatile, Uncertain, Complex and Ambiguous.
Fast forward to the late nineties, and something called “the internet” was gaining ground. Business strategists had an inkling that this might change things but were less clear on what shape those changes might take, and what the consequences might be. In this context, VUCA was adopted and frequently evoked by the business world as a kind of sense-making framework.
Which brings us to the present, with all its political mayhem, global instability, climate crises, pandemics, and everything else. At first glance, VUCA might seem like the perfect lens for viewing all that’s happening right now: from energy prices and FX rates through to customer demand, volatility is everywhere. Anyone who has tried producing a workable financial forecast recently will know all about uncertainty. When an already Covid-depleted supply chain is impacted by regional conflict, it brings home the sheer complexity of the operating landscape. And when you try to make sense of vague, already out-of-date or incomplete market data, you realise that ambiguity is the norm.
If there’s a criticism of VUCA however, it’s that it doesn’t go far enough. It was useful for illustrating the type of changes that arose from the new platforms, networks and consumer behaviours that were emerging in the early 2000s. It was also good for pointing us towards the type of mechanisms that could help us deal with those changes; things like digital transformation, scenario planning, predictive modelling and rapid, evidence-based decision making.
These days though, we’re not just having to deal with the occasional, common disruptor (eg the arrival of some new local regulations, or the launch of a new online shop). Increasingly, we’re talking about events that are huge in scale, and often impossible to predict in advance; distinct in their own right, but somehow interconnected with each other. It’s an entirely new landscape, requiring new descriptors – and new approaches to leadership.
Post-Covid, a new descriptive model – BANI – has been gaining traction as a way of augmenting VUCA. Created by US author and futurist, Jamais Cascio, BANI characterises the current environment as follows:
Brittle. Some of the banks that collapsed in 2008 looked to be too big to fail – until they suddenly did fail. Some of the most sophisticated-looking public health systems in the world were utterly floored by Covid, whereas other, apparently less well-equipped countries fared better. As Cascio puts it, “Brittle systems are solid until they’re not. Brittleness is an illusory strength.” Companies, sales teams, individuals…: they could be sending out messages that they’re on top of everything – right up until the very moment it all collapses.
Anxious. The problems senior execs are expected to deal with can appear impossible to solve, leading to a sense of fear and helplessness. This is exacerbated by the type of information we are often exposed to: a constant stream of apocalyptic headlines, which often focus on the shocking, rather than the accurate.
Non-linear. In a non-linear environment, the consequences of an event or action can seem disconnected or disproportionate. Even a small decision – renegotiating a contract in your supply chain, for instance – can have massive consequences that can seem impossible to predict at the time.
Incomprehensible. This is one step up from the ‘ambiguity’ in the VUCA model. You could find yourself with masses of data in front of you – maybe even aggregated into some kind of model – and still be left struggling to understand situations and how to respond to them.
From the annual tally of natural disasters, through to the WEF World Uncertainty Index, all macro risk indicators point in one direction: in the future, significant and potentially adverse events will unfold quicker and in more varied ways.
It might be described as ‘VUCA on steroids’: when we use the terms volatility, uncertainty, complexity and ambiguity, we are referring to the everyday environment – not just distinct, localised events. In formulating responses, it’s important to address those ‘BANI’ characteristics: guarding against organisational brittleness, combatting anxiety among decision makers and other employees, responding to nonlinear consequences and seemingly incomprehensible information.
To respond, leaders should focus on the following:
Resilience is the opposite of brittleness: the ability to protect and grow value in the face of rapidly changing conditions. For instance, team performance may look strong, but fault lines could exist under the surface, eg over-reliance on past successes or on contracts from too few crucial customers.
To create resilience, leaders need to actively seek out and address those fault lines.
Preparedness is key.
You might not know what shape the next crisis will take, but you can and should take steps to shore up your business and create slack against a wide range of threats, eg looking for ways to diversify your cash flow and encouraging team members to seek out new opportunities.
Your business might face the possibility of having to pivot into entirely new activities. Individuals will need to step out of their comfort zones, and you may need to look to those individuals for fresh thinking in the face of novel problems.
As McKinsey put it, “Agility is the ability of an organisation to renew itself, adapt, change quickly, and succeed in a rapidly changing, ambiguous environment.”
Building a do-anything workforce means looking again at existing rigid hierarchies; creating the type of culture where good ideas are welcome – no matter where they come from – and innovation can thrive.
When change seems like something that’s being done to people, rather than something they are involved in, it’s a recipe for anxiety. Morale is instantly sapped.
Emotional intelligence and the associated skills, the ability to understand people’s perspectives and bring them on the journey – have always played a crucial role in effective leadership. This is even more so in this new age of anxiety, when people are being served up gloomy stories via their social feeds, 24/7. One area to focus on involves earning, establishing, and maintaining trust; being transparent with employees, but without the hyperbole they are exposed to elsewhere.
One of the biggest leadership challenges for the future will be in addressing the nonlinear nature of the problems we are likely to be faced with. For instance, if there’s a decision to be made, how do we know we’re not triggering some unforeseen and adverse consequence, somewhere else in the business?
Part of the answer may involve deploying tactics to widen our sphere of knowledge. On a basic level, this demands greater collaboration between different areas of the business, eg making sure operations, customer service and finance are in the room when big decisions are made – and ensuring executives are equipped to speak each other’s language and put their perspective across effectively.
Silos tend to narrow perspectives, whereas a broadening of experience will expand it, helping your employees to join the dots between actions and consequences. Is there scope for encouraging more cross-departmental projects and deployments within your business? This could be something to encourage as a way of breaking down those silos.
In the new environment, leadership cannot be about sticking rigidly to your Gantt chart or trying to sequentially tick off each section in your five-year plan.
Nevertheless, being able to lead with agility is not the same as switching your purpose or scrapping your core mission, each time a crisis hits. A short time ago, PwC set out a concept of four different paths for the businesses of the future: the Red World where innovation rules, the Blue World where the growth of size and influence is paramount, the Green World where corporate responsibility is an imperative, and the Yellow World – a ‘worker guild’ model. No single model is inherently better or worse than any other, but each has its own set of priorities, principles, and roadmap.
Leadership requires you to create your roadmap and communicate it effectively to the rest of the team.
We’re in a ‘VUCA on steroids’ world, which means plenty of uncertainty – and, perhaps, the need to take frequent detours from your original roadmap.
Nonetheless, leadership now must be about embracing that uncertainty, being comfortable with it, and providing direction for your teams through it. Sometimes, despite mountains of data in front of you, there will be a need to trust your intuition and take your colleagues along with you. There will be other times when it will be tempting to wait for the markets to settle down, for forecasts to become more concrete or for a client’s needs to become clearer before you take action. However, your company’s wellbeing may depend on you taking action without the luxury of those things happening.
So how do you embrace agility, while still acting with clarity and confidence? For a handful of managers, it will come naturally. For the great majority however, it demands a mindset shift: a reformulation of the underlying attitudes and beliefs that shape your leadership approach.
Are you ready to futureproof your leadership abilities for the challenges ahead?