The VUCA world is synonymous with the increasing dynamics in digital markets. In contrast, the VUCA model offers a framework for action and orientation for corporate management under these conditions.
In this article we offer a perspective on the VUCA world and show which options for action the VUCA environment offers.
VUCA stands for…
Volatility in VUCA stands for the fact that we live in a world that is constantly changing, becoming more unstable, and in which small or serious changes become more unpredictable – and more drastic and more rapid. Events take place completely unexpectedly and understanding cause and effect sometimes becomes impossible.
In the VUCA world, volatility refers to frequent and strong changes in the market environment. Many of the changes are driven by new technologies, regulations and cultural trends. These provide for new competitors, substituting products and ever shorter product life cycles in the VUCA environment.
Products and services based on these new technologies are also changing customer needs and expectations. For example, since the introduction of smartphones in 2007, an “always-online” society has emerged for which a good customer experience is much more based on the fact that information and functions are always and everywhere available.
Uncertainty in VUCA stands for the rapidly decreasing predictability of events, forecasts and experiences from the past as a basis for shaping the future losing their validity and relevance. Planning investments, developments and growth becomes almost impossible. Furthermore, VUCA stands for the fact that it is less and less clear where the journey is going.
As a result of increasingly shorter product life cycles, market analyses are losing their truth content much more quickly in the VUCA world. As a result, quantitative bases for decision-making are no longer available and the uncertainty of many decision-makers is increasing. Companies are therefore under great pressure in the VUCA environment if they want to react more quickly to changes.
Questions of principle arise in the VUCA world that were previously clearly settled:
- How long will our business model continue to work?
- Which technologies should we opt for?
- How do we differentiate ourselves to our customers from global competitors from lower-cost manufacturing countries?
- What job profiles are needed for our value proposition?
Disruptive innovations are particularly dangerous for companies because they often happen insidiously. In the first step, they are usually underestimated and laughed at by established market players. It is only when they are successful that the uncertainty gives way and the momentum in the company increases.
Complexity in VUCA stands for the fact that our world is more complex than ever. What is the cause? What is the effect? – Problems and their effects are becoming more complex and harder to understand. Different levels are intermingled, making interrelationships more confusing. Decisions become an uncontrollable web of reaction and counter-reaction. The decision for the one right way is hardly possible.
New technologies, new regulations, globalized markets, new competitors, changing customer requirements – the changes in the VUCA world are no longer manageable. Every day it becomes more and more difficult to understand the cause and effect of the different developments.
Changes take place in parallel on too many levels in the VUCA world. In this web of reactions, currents and interactions, managers increasingly lose their influence on the system. Companies often unintentionally counter this development with even more complexity:
In order to increase the quality of work, they divide activities into ever smaller tasks. To better manage these in the VUCA world, highly specialized experts are trained, and managers are entrusted with their leadership. The effort required for this is often disproportionate to its effectiveness, and the organizational structure becomes much more complex.
In order to increase sales, companies expand their service portfolio and increase the variety of products. However, each individual product must be planned, developed and marketed separately, so product complexity increases.
Attempts are being made to increase the speed of work in order to complete projects more quickly. However, shorter deadlines lead to neglecting standards and planning, so that the complexity of the actual processes increases.
Managers also have difficulty predicting the impact and success of innovations in a complex environment. If they have to fear risking their careers by making a mistake, they are often tempted to stick to existing solutions and processes. As a result, innovation decreases, the company does not develop further, and the long-term success of the company is endangered.
Ambiguity in VUCA stands for that one fits all and best practice were yesterday – rarely is something completely unambiguous or exactly determinable. Not only black and white, but also colourful is an option. The demands placed on organizations and leadership in today’s VUCA world are more contradictory and paradoxical than ever before and completely test the personal value system. The What? takes a back seat to the Why? and the How? Decisions in the VUCA world demand courage, awareness and the willingness to make mistakes.
In the VUCA world, ambiguity refers to the ambiguity of the information situation. Information that can be interpreted in different ways carries a high risk and often leads to wrong decisions.
Managers are also faced with a problem already mentioned here: the concern of damaging the company or their own reputation by making the wrong decisions prevents them from taking courageous, strategic measures. As a result, the company does not develop further.
Historic background of the VUCA world
First described in 1985 by economists and university professors Warren Bennis and Burt Nanus in their book “Leaders. The Strategies for Taking Charge,” describe the challenges posed by various external factors to management and leadership and what the consequences are for business leadership.
While strategies during the Cold War were largely one-dimensional and focused on one adversary, the focus fragmented in subsequent years. Terrorism, suicide bombers, and adversaries organizing in a decentralized manner presented new challenges to the military.
In the early 1990s, VUCA was the US Army War College’s response to the collapse of the USSR. With the demise of the “Eastern Bloc” as “the one enemy,” the challenge was to find and implement new ways of seeing and responding under conditions of volatility, uncertainty, complexity, and ambiguity.
The military responded to this new VUCA world by investing in technology but also building new organizational structures. Drones, robots and modern infrastructures, but also a move away from hierarchical “command and order” structures. The leadership and organizational change are impressively described, for example, in the book “One Mission”. With the increasing dynamism and chaos that digitization sometimes causes, the term VUCA world is now also used in the context of corporate management.
“Something brittle is apparently strong and solid, but it can fall apart quickly because it lacks resilience. It seems to keep working very well right up to the point of collapse, and with the illusion of stability, we haven’t prepared a cushion for failure and may find ourselves unable to cope with the disaster. Sometimes brittleness can be caused by a single, overlooked point of weakness inside the system.” – CREATING INNOVATION 2021
VUCA world: Examples from the business world
VUCA world example automobile manufacturers
A current example of this behaviour pattern can be found among car manufacturers. There, Tesla’s potential was ignored for a long time. Now the German premium manufacturers are having great difficulty catching up with the vehicles from California. Porsche, Mercedes-Benz and co. will not succeed in bringing battery-powered electric vehicles to market until 2019. But in terms of autonomous driving, in-car entertainment and performance values (range, acceleration, safety), Elon Musk’s vehicles are further ahead as of October 2019.
To deal with Tesla, major automakers have created dedicated innovation divisions. At Daimler, CASE has been launched, while at BMW the equivalent is called D+ACES. These units are working specifically on the companies’ mobility future.
VUCA world example telecommunications
Telecommunications in particular have been characterized by volatility in recent years. Whereas phones with dials could once be used in a household for decades, today’s cell phones are already obsolete after just a few months. It is not only the disruption caused by smartphones that plays a role here. Technology changes, such as we currently have with 5G or through the further development of chip, battery and charging technologies, also ensure continuous change.
Because of these volatile markets, Samsung, the No. 1 in memory chips, smartphones and TVs, had to issue a profit warning for Q4/2019. Due to falling chip prices, the South Korean’s profit dropped by 56% year-on-year.
VUCA world example digital photography
A tragic example of wrong decisions due to ambiguity is the traditional American company Kodak.
In 1975, Kodak engineer Steve Sasson developed the world’s first digital camera. However, Kodak’s management did not want the new technology to jeopardize its main business of photography films and decided not to pursue digital photography any further.
When competitor Sony launched the first digital camera in the early 1980s, Kodak management commissioned an extensive study to explore whether digital photography posed a threat to its film-based core business. The study actually concluded that it would take about 10 years for digital technology to displace traditional film cameras.
Kodak’s executives became victims of ambiguous information in this crucial situation, because the company was making promising sales from its film business into the mid-1980s despite the predicted decline. As a result, they largely let the 10-year period pass without preparing the company for digital photography in a VUCA environment.
Sales finally plummeted dramatically in the late 1980s, and Kodak was forced to introduce tough cost-cutting measures. It wasn’t until 1991 that the company launched its own digital camera, but it was never able to match its old successes and had to file for bankruptcy after 120 years of corporate history. The technology that heralded the company’s downfall in the VUCA world had been developed in-house.
VUCA environment described in “CREATING INNOVATION”
In times of paradigmatic change, creative creation as well as creative destruction are both present. And this is what we can heavily observe in our environment: never before have we seen so many changes on so many levels in such a limited period of time. The technological progress has led to faster paradigm shifts which led to an even more diverse environment and shape our VUCA world. The 2nd, 3rd and 4th wave of economic development are all present right now at the same time – some societies, some countries, some industries, some firms and some individuals may be yet in the 2nd, while others are already operating in the 3rd or 4th paradigm, or in mixtures of the same – the complexity of our world today is that we have those very different paradigms running in parallel today, often even within the same organization! Our exponentially growing technological capabilities are testing all of our abilities to adapt and to evolve as to better deal with the complexity.
Responding to these implications of the VUCA environment, we have developed a variety of ground-breaking tools and models.
Thriving in a VUCA world
To thrive in a VUCA world, leaders need to be ready to disrupt and be disrupted. This requires flexibility and the ability to adapt to new circumstances.
In the VUCA environment, the perception of what constitutes good leadership is also changing. Whereas in the past the ideal of leadership was the doer or the “strong man,” today other qualities count for thriving in a VUCA world.
For thriving in a VUCA world today, it is much more a matter of leaders:
- Set an example of autonomy and personal responsibility, and encourage and demand this from their employees
- Build relationships and engage in dialog
- Build trust
- Actively and precisely improve the self-efficacy expectations of their employees in order to have courageous comrades-in-arms for complex challenges
- Understand the design of a learning organization as the highest own task and not only as a topic of personnel development
One way to thrive in the VUCA world is to move away from black-and-white thinking.
BANI as an extension of VUCA?
At this point, however, it must also be noted that VUCA dates back to the 1990s and while it is still relevant, it also comes under quite understandable criticism in some places. In contrast, BANI is a new model adapted to the situation. BANI stands for Brittle, Anxious, Non-linear, and Incomprehensible.
Stephan Grabmeier describes in his article BANI versus VUCA the details for this more accurate method to describe these circumstances.
Conclusion for business in VUCA world: The world remains VUCA!
Volatile, uncertain, complex, and ambiguous conditions do not stop at leadership or strategies for teams and in organizations. Experiences, beliefs, and paradigms have to be put to the test, as there is no longer one way or one leadership tool. Individuality and co-creation replace standard. Dealing with dynamics instead of linear thinking and acting are required. With the result that you will say, “Fortunately, it is only VUCA!”
In order to optimally lead through the VUCA world, we have developed numerous unprecedented tools. These are available via our download link.