The term VUCA is increasingly being used to describe the world in which leaders and organisations have to operate. It stands for Volatile, Uncertain, Complex and Ambiguous.
The VUCA environment
VUCA can be applied to the environment of business over the last few centuries. What makes the current environment more challenging than the business environment of the past? Simply, it is the speed of change oiled by collaborative and social technology. Whereas the explorer of the 17th century faced many VUCA challenges, he probably took between three and five years to report back to his sponsors that he had not in fact fallen off the edge of the Earth. Today, any noteworthy event is instantly transmitted throughout the world.
This acceleration of information and connectivity has occurred largely over the last three to five years – and the effect is a profound change in the kind of organisation and leader needed to thrive in such an environment.
The speed of information sharing has increased the scale of volatility, uncertainty, complexity and ambiguity.
The VUCA-fit organisation
Success in the past is unlikely to be the predictor of success in the future. The organisation of the future will need, more than anything, to be agile and able to take advantage of a rapidly changing market.
Traditional organisational designs are largely defined by boundaries and structures and these largely determine how organisational members behave. These boundaries take the form of different functions, divisions, enterprises, geographies, teams, hierarchies and corporate and operational structures. They are reinforced by scorecards and objectives for each part of the organisation, all of which are supposed to contribute to the organisational strategy. In practice, in most organisations, there is strong competition for resources, and parochial goals and processes take precedence over ‘the greater good’. A good example in many organisations is the procurement function whose primary concern is governance and cost containment through centralised purchasing. These are quite legitimate goals, but in reality the processes are often so cumbersome that operational effectiveness and agility are compromised.
While all organisations will have some type of formal structure, modern agile organisations will be described more by the flow of information and energy, which is a function of culture and the determinant of behaviour rather than structure.
There are a number of behavioural characteristics which define VUCA-fit organisations and which will be essential to organisational prosperity in the future.
VUCA-fit organisations will be defined by their approach to networking. Organisational members will have access to collaborative technology to enhance their ability to network internally and externally. Members will no longer be constrained by hierarchical, functional, divisional or even organisational boundaries and will be encouraged to network with whomever they need to, in order to achieve the organisation’s goals. In fact, having a well-developed network of connected people will be a key success factor for future careers. Organisations such as IBM already behave in this manner. Any one employee can access others within the approximately 450 000-strong staff contingent in about 190 countries to collaborate and share information and experiences to create solutions. While it is often believed that the key to such networking is technology, it is in fact the culture of information sharing that is definitive.
Organisations that have created open networks understand that one of the most important assets of such an organisation is social capital which facilitates an organisational chemistry in which talented individuals collaborate to create next-generation solutions.
VUCA-fit organisations will also be defined by their innovation capability. Creating market disruptive products or business models will provide organisations with clear competitive advantage. In fact, the inability to innovate will most likely be the death knell of organisations in a hyper competitive VUCA environment.
Innovation is a very complex subject and seldom arises within an operating organisation or through the use of sectoral benchmarking. The challenge lies in overcoming conventional mental models and assumptions and creating the organisational space and time for that to occur outside of normal operations. In the extreme, it may require the willingness to invest in creative destruction, where current operations are sold or shut down in favour of repositioning for the future.
For innovation to achieve traction in an organisation, a culture of entrepreneurship is a necessity. It is about an externally focused orientation and the willingness to take considered risk and devise new business models rather than the internal focus so common in mature organisations.
The VUCA-fit leader
If the aforementioned points are some of the characteristics of a VUCA-fit organisation, what are those of the VUCA-fit leader?
Traditionally, leadership in organisations has been defined in terms of team leadership. Expressions such as ‘my team’ reinforce such a mental model.
In networked organisations, the role of leaders extends well beyond their own team to all stakeholders with whom they interact, although clearly their own team is an important stakeholder.
The essential competence of a VUCA-fit leader is collaboration across all the boundaries previously described. The focus is on ‘the greater organisational good’ rather than on team or departmental or even organisational interests.
It is only through collaboration and extensive leadership networks that innovation combined with entrepreneurship can deliver the next game-changing business idea.
In a fast-changing world, another essential leadership attribute is the willingness to be outwardly focused and able both to pick up the ‘weak signals’ of change in the environment (both threats and opportunities), and to ‘connect the dots’ representing disparate individual events that are in fact signals of impending systemic change.
The ability to think systemically helps facilitate an understanding by such leaders of the role of business in society and the importance of sustainability. Leaders such as Paul Polman of Unilever recognise that social and environmental policies should be centrally incorporated into an organisation’s strategy and not remain the sole domain of a support department created to keep such matters away from normal operations.
The recognition of the value of diversity, in all its forms, as a key contributor to innovation and organisational relevance will be embedded in the mental model of a VUCA-fit leader.
Finally, the VUCA-fit leader will facilitate and promote an organisational (and personal) purpose that inspires and engages all stakeholders. In a world where the legitimacy of business is under scrutiny, such purpose will speak to social value creation rather than purely economic value, although the achievement of an enterprise’s purpose will result in increased and sustainable profitability.
The VUCA-fit organisations of the future and the leaders that create such organisations will need to break many traditional organisational boundaries and mental barriers to enable them to become aware of changes in the business context and facilitate rapid and innovative responses.
In five or 10 years from now, many of the organisations currently represented on leading global stock exchanges will no longer exist. They will be replaced by organisations whose leaders facilitate organisational behaviour that enables them to be fit in a technology-powered, next-generational VUCA world.
Terry Meyer is a strategy and leadership consultant, an academic, author of six books and a keynote speaker. His areas of expertise include strategy, organisational design, leadership, and human capital and talent strategy.