We are no longer living in a “fast-changing world,” but rather a VUCA environment – Volatile, Uncertain, Complex, and Ambiguous.
This doesn’t mean that you should ignore the impact of change on your people; rather, it means shifting your mindset to think strategically about what VUCA means for your organization and plan for how to act proactively, not retroactively, about it.
It relies on three main components:
- Fostering a VUCA mindset
- Labeling VUCA for your specific environment
- Defining what specific behaviors help address the challenges raised by each component of VUCA
1. Fostering a VUCA mindset
To best understand what companies could do to better approach a VUCA world, we gathered data from more than 1,500 leaders working for global companies highly exposed to VUCA environments to identify the best practices for leaders facing a VUCA situation. From this we observed two key differentiators: a strong level of individual resilience and a compelling company purpose.
Success Factor #1: A strong level of resilience
Companies often describe the need to develop resilience in their leaders. After assessing 1,500 leaders, this reality could not be clearer. In the assessment, leaders were asked to measure resilience against the following five criteria: positivity, focus, flexibility, organizational skills and proactivity.
Unsurprisingly, we identified that those who scored high on resilience were members of top-performing companies. Even less surprising, we noticed that the top two most highly ranked out of these five criteria were proactivity and flexibility.
These results demonstrate how successful leaders are those capable of bouncing back from challenging situations, and adapting to whatever is thrown at them.
Success Factor #2: A compelling company purpose that penetrates the heart and mind
When we analyzed the companies whose leaders had the highest resilience scores, we were able to clearly establish a correlation between the company’s purpose and the corporate culture. For those types of companies, a clear and compelling purpose or a strong corporate culture was even more important than a clear strategy.
This finding was surprising, but lacking a clear strategy did not prevent companies from having a compelling purpose or a strong corporate culture that was capable of driving a high level of individual resilience.
Examples of organizations with a compelling purpose include Lego, “Inspire and Develop the Builders of Tomorrow;” Volvo, “Protecting and Caring for People;” and Kellogg’s, “Nourishing Families So They Can Flourish and Thrive.” In these organizations, purpose acts as the guiding light for all strategic decision-making. Any activities that are in question – hiring, firing, internal initiatives, acquisitions, mergers, etc., are all measured against the company’s purpose and repositioned to fully align with their overall goals. This allows the organization to successfully implement and execute strategy – compelling the organization to act together, making decisions that allow for alignment without resistance.
2. Labeling VUCA for your specific environment
“It’s crazy out there, but you can label the craziness and respond to it.” – Nathan Bennett
The second step in mastering your VUCA environment is really understanding what it means to your company, division or department. The challenges that a fast-moving consumer goods company faces are very different from those of an oil and gas company and, therefore, each organization’s response should be different.
In order to truly understand your company’s specific situation, don’t use VUCA as a generic word – instead, spend time with your teams identifying what each component of VUCA means to them and how they are impacted by it. To do this, you first need to ask yourself how your company or function is exposed to each element of the VUCA environment.
Now imagine you are working as the VP of finance for a company in the energy sector. How would you describe the VUCA environment you are operating in?
Due to the nature of the industry, volatility is something that is commonplace in everyday business. For example, finance professionals are used to the volatility of the market that requires limiting exchange rate loss, or making sure the company is not exposed to sudden price increase of its raw materials.
However, complexity is something relatively new for the industry and is essentially due to the implementation of new big data systems. Additionally, financial services organizations are shifting to operate more as a “business partner” for their clients to help them with decision making. However, in reality there is so much data to analyze on any given topic that it can be perceived as more complex than it was before.
As a result of this, complexity frequently slows down the decision-making process. Uncertainty in this situation is the result of new players launching disruptive technologies in the competitive ecosystem. Consequently, it is now harder than before to guarantee the ROI of the company’s investments.
Finally, ambiguity describes any weak signals sent by the business or by competitors. For example, there is the possibility that one of my competitors is interested in investing in a company that would jeopardize my company’s business in specific regions of the world. If I don’t pay attention to these signals, however weak, and don’t raise the alarm soon enough, I risk putting the whole business in danger.
In the VUCA approach, the importance of change management is very limited. The focus is not on helping people change, but rather ensuring that you can foresee the possibilities of what could happen and that you are ready to mitigate the damage caused by change.
Now you may be thinking, “It’s great to understand how a business is exposed to VUCA, and what this might mean for my own organization, but what can I do about it?” Many consulting firms have identified that change management is no longer relevant, and have tried to identify a list of skills that would help leaders.
Ultimately this has amounted to what one would call a “wish list” of skills: agility, vision, trust, humility, fast decision-making, innovative thinking, and authentic leadership… leaders basically need to become superheroes to survive in a VUCA world.
Instead of asking people to become superheroes, there is a more pragmatic approach.
3. Define and practice the specific behaviors that help address the challenges raised by each component of VUCA
After translating the VUCA environment to the context of your business, the challenges and the risks become more apparent. The next step is identifying the specific behaviors necessary for facing the challenges of each dimension of VUCA. This is not another wish list of skills, but rather the key behaviors needed to embrace the VUCA environment that can be adopted by anyone in your organization.
Returning to the VP of finance example, this leader needs to be asking him or herself, what behaviors do I (and my teams) need to adopt to better master the “ambiguity” that translates into the weak signals from the key stakeholders of my company’s ecosystem?
The first step is being closer to the business of my company (i.e., not limiting my role and center of interest to finance topics). The second step is developing my external network in order to keep an eye on trends that may be of interest to the business. The third step is daring to raise the alarm signal early enough to prevent significant disruption, something that requires having the courage to stand up and share concerns.
Of course, every business is unique, so the behaviors necessary for combatting the VUCA environment will be specific to the company and its particular VUCA environment.
Once these behaviors are defined, they must also be practiced and tested. Customized business and leadership simulations that mirror the company’s specific VUCA environment are one way to do this.
When leaders are immersed in a simulated environment tailored to their workplace, and are able to work through highly realistic situations that represent Volatility, Uncertainty, Complexity and Ambiguity – yet all in a safe, risk-free environment – they are better equipped to exercise the behaviors they need back on the job when the stakes are high.
Putting leaders in a simulated situation allows them to experience VUCA and understand what VUCA means for their organization and function. They can clearly see the challenges and have a sense of the behaviors that will lead to success, the “ah ha” moments, and those that will not. It allows them to truly crack their VUCA code. VUCA is no longer just an acronym; it is a reality.
In conclusion
In this new era, cracking the VUCA code is key for success. Organizations whose leaders are ill-equipped to handle the VUCA environment will find themselves constantly falling behind, still struggling to keep up with the “pace of change.” Clear alignment, mindset, and capabilities coupled with a deep understanding of and practice addressing your organization’s specific VUCA environment are necessary for continued success, today and into the future.