Our world has become increasingly complex, challenging, and disruptive. So, it makes sense a new term is emerging into the mainstream conversation – VUCA. This acronym summarizes today’s business challenges quite well – standing for the group of challenges faced by most businesses today: Volatility, Uncertainty, Complexity, and Ambiguity. Separately, these conditions represent formidable barriers to business growth. Combined, these conditions have created a formidable challenge that has elevated the need for businesses to adopt a digital-first mindset. Despite these challenges, companies can overcome VUCA by adopting modern systems and automation strategies.
According to Wikipedia, this acronym was coined back in 1987 based on the leadership theories of Warren Bennis and Burt Nanus. The U.S. Army War College introduced the concept of VUCA to describe global conditions at the end of the Cold War. Ironically, there are many parallels between that time in history and today. It is only fitting that the term VUCA is coming back into vogue.
What is VUCA?
VUCA reflects the enormous challenges that businesses face today, namely, how to operate with greater efficiency while facing the challenge of rising costs, supply chain disruptions, labor shortages, and intense global competition. Each VUCA component brings with it unique challenges. These can be overcome with the right information management system, application architecture, and automation strategy.
First, let us take a closer look at each term to best assess each specific challenge.
Volatility is best viewed as a measure of how quickly change occurs. A recent example is the stock market activity that occurred right after it was announced that Silicon Valley Bank was taken over by the FDIC on Friday, March 10, 2023. The stock market quickly dropped for several days thereafter. Investors tried to assess whether this was a broader market correction impacting the banking industry or an isolated incident. The level of uncertainty grew quickly, creating extreme volatility and causing a bank run on several other institutions. These other banks had no idea a panic would soon occur. The more volatile a market is, the faster things change.
Uncertainty refers to the level of surprise that occurs during a market movement or business change. Uncertainty emerges when future activity cannot be predicted with a high level of confidence. We all experienced exceedingly elevated levels of uncertainty in the March to April 2020 timeframe. Covid 19 had just emerged as a novel virus. This meant it was new. It behaved in such a way that future activity could not be forecast.
Complexity refers to the number of factors that must be considered when evaluating a condition. This might take the form of how many inputs are required to produce the expected output. The greater the complexity, the harder it is to operate profitably or forecast with any reasonable confidence. Intuitively, complexity is easy to understand. Many businesses operate within a complex regulatory compliance environment. Add data privacy and cybersecurity safeguards to business intelligence, and it is easy to see that businesses now face enormous complexity every day.
Ambiguity refers to a lack of clarity about how to interpret something. Predicting the future direction of interest rate increases by the U.S. Federal Reserve over the next 12 months is a very difficult proposition. Many variables will be utilized by the U.S. Federal Reserve to best assess each of its decisions. This lack of clarity creates challenges for businesses to assess future staffing requirements or capital investment opportunities dependent upon future growth expectations.
Any one of these conditions is difficult to manage. However, the combined impact of VUCA has delivered a new level of business conditions that most companies must adapt to survive. Compounding matters further, each VUCA condition impacts the other, resulting in even greater disruption. Companies seeking to overcome the combined impact of these factors are left with few choices – VUCA will continue to exist and will do so with greater frequency in the future.
What Can Be Done?
There is a theme that successful companies have embraced to minimize VUCA disruptions. Improve how quickly, efficiently, and easily the organizations can adapt to change. Couple that vision with the ability to accurately see when conditions change, and you have the formula for success.
IDC Research defines this ability as “digital resilience,” or the ability to rapidly adapt to business disruptions by leveraging digital capabilities. This approach can not only restore business operations but can also help to capitalize on the changed conditions (source).
- Volatility can be overcome with better visibility of leading indicators suggesting when a disruption might occur; the use of AI can be leveraged here to further this approach
- Uncertainty is best addressed when greater understanding is achieved of how business conditions changed – to then formulate the best response and path forward
- Complexity can be overcome with greater use of smart automation – this remedy can be further improved through the use of AI
- Ambiguity can be better managed when more options are available to operate with greater operational agility – enabled in part by investing in modern systems, data management, and data extraction processes
Read more here: A Business Case for Smart Data Extraction.
By now it should be clear why so many organizations are investing heavily in smart automation initiatives. Not only can these programs help improve operational resilience and agility, but they can also be used to offset the challenges associated with VUCA. The more systems and business processes that can operate seamlessly – and change as often and as quickly as needed – the greater the ability businesses can overcome VUCA. Today, it is all about change management. Any system or process that is blocking your ability to respond quickly should be closely reviewed, modified, or eliminated.
If history is any predictor of the future, expect VUCA disruptions to expand with greater severity and frequency. Those that have invested in the right IT systems and automation strategies will keep up with the change. Those that have not will continually be challenged to maintain the status quo.