VUCA is a popular acronym to describe today’s business environment, so it’s useful to know what it means. VUCA stands for : Volatile, Uncertain, Complex and Ambiguous. It is characterised by, or subject to, rapid or unexpected change; indefinite – not reliable – not constant – unpredictable. A situation that is doubtful or uncertain – capable of being understood in two or more possible senses or ways.
We live in a world of fast change and information overload. Technology changes the world we live in at a lightning pace. The consequences are far reaching.
Technology changes the way we live: how we communicate with each other, how we create and gather knowledge, how we travel, how we listen to music, how we do our shopping and even how we start, build or terminate a relationship. We can hardly imagine a world like it was just a decade ago. Slowly but surely century-old concepts such as family and nationality shift to a new reality.
The environment companies and authorities have to operate in changes at the same speed. As a result, companies continuously have to adapt the products and services they offer, as well as the way they produce, promote and sell them. Companies are desperately trying to be proactive, by imagining what the world could be like tomorrow and by continuously developing new products and services. Because the world has become so unpredictable, trial and error has become the only way forward in the fast changing sectors of the economy. This is the basis of design thinking and customer centric design.
But not only products, services and processes need to change, the companies have to change more fundamentally. They need different business models, different company structures, a different employee profiles, different leadership, and different ways of interacting with each other. But how? How can you prepare for a future you can’t predict?
The origin of VUCA
Trying to make sense of it all, CEO’s are referring more and more to this changing environment with the term VUCA: Volatile, Uncertain, Complex and Ambiguous. The acronym VUCA was first introduced in 1991 by the U.S. Army as a result of the extreme conditions in Afghanistan and Iraq. These conditions were totally new and totally changed the nature of warfare.
Unsurprisingly, today’s business environment has changed in a very similar way. Like warfare, business in the 21st century will never be the same again; old rules, economics and dynamics have become obsolete and will continue to change.
Things change continuously. What is true today isn’t true tomorrow. Even the nature and dynamics of change change. Products that are an absolute success today can be worthless in less than a years’ time. 10 years ago, Blackberry knew an exponential growth with it smartphone. Competing touchscreen smartphones couldn’t spoil the party, until the launch of the iPhone. Because of iPhone the sales of Blackberries collapsed in two years’ time. Or take the world of banking when suddenly faced with negative interest rates. This previously unthinkable situation completely changes some of the fundamental banking business models. What other things are going to happen next?
More than ever, we live with a lack of predictability and a prospect for surprise. It is impossible to predict how markets will evolve. Vinyl records, believed to have died a long time ago, can have a sudden revival. Fixed values in the economy and stock exchange can collapse overnight. And because of globalisation a relatively small cause can have huge worldwide consequences, known as the butterfly effect. Think of how one bank shook the world economy to its foundations in 2008. While it’s relatively easy to explain all these events after the facts, few experts predicted them.
Simple cause-and-effect chains have been replaced by complex interconnected forces and events. Interconnectedness makes all things increasingly complex. Your phone or TV were simply connected with a wire to an antenna or the phone network. Today it has become far more complex with setup-boxes, routers, wifi connections, the list goes on. Or take the advertising world: in the past the advertiser bought advertising space in printed media, on radio or tv and reached his targeted audience. Today’s programmatic advertising is a labyrinth of complex bidding systems to get the right advertisement on the right screen of the right person. The possibilities are endless, but the realisation is highly complex.
Is milk good or bad for you? What’s the cost of nuclear versus wind energy? Are internal social media such as Yammer a success or not? You can easily find convincing but totally contradictory information for any assertion. Old certainties have disappeared in a mist of haziness and misunderstanding. And because of complexity and unpredictability, many leaders avoid taking positions. Is Donald Trump in favour or against raising minimum wages? He might be a champion in ambiguity, but it’s easy to see similar vagueness in many organisations. The ubiquitous availability of information has created a mist in which it becomes increasingly difficult to find clarity.
VUCA can be seen as four types of environment (complex, volatile, ambiguous, uncertain) in a matrix with two dimensions:
1. How much you know about the situation?
2. How much you can predict the results of your actions?