The term ‘VUCA’ has been used increasingly to describe the environment in which organisations operate today.
VUCA stands for Volatile, Uncertain, Complex and Ambiguous. It is true that today’s world is vastly different to that of a few years ago, or even last year’s world. It’s also true that given technological development, artificial intelligence, automations and more, it’s likely that the rate of change in our environment will not slow down soon.
However, the term VUCA is also very commonly misused and misunderstood.
Often VUCA is used to describe a problem where the situation is unpredictable or changes rapidly. It is often used to describe any type of radical change, and the words that make up VUCA – Volatile, Uncertain, Complex and Ambiguous – are used interchangeably.
However, they are not synonymous and each one describes a unique problem that requires a unique solution, rather than a blanket approach.
In the fields of Economics and Finance, volatility is a statistical measure of dispersion, usually of returns on a security or market index. In other words, volatility measures the rate of change for returns, and is usually calculated using the standard deviation. The higher the volatility – the higher the risk.
In the VUCA context, this implies that a highly volatile environment is one in which changes occur rapidly and to great extent. However, it doesn’t necessarily imply that the changes are complex, unpredictable or ambiguous.
Uncertainty is defined as a state of limited or imperfect knowledge. ISO31000 defines risk as the effect of uncertainty on objectives. Putting the two definitions together, we can conclude that risk is, in essence, the lack and/or quality of information and how that affects achieving desired outcomes.
In our VUCA, modern context, this means we rarely, if ever, have complete and reliable information in any given situation. It does not, however imply volatility, complexity or ambiguity. We could be operating in a stable, simple and clear situation, but one where we simply do not have all the information we need.
Complexity, in this context, refers to the interconnectedness and intersection of many systems, most of them complex within their own right. In other words, operating in a complex environment involves many moving parts. However, it doesn’t necessarily mean rapid changes, lack of information or ambiguity. The challenge with complexity is ensuring that there are structures and/or frameworks that can support it.
Lastly, ambiguity refers to a lack of clear cause-and-effect relationship. In other words, if I pull lever A, while I may have some idea on what will happen to variable B, I may not know the effects on variables C through to Z, and I may not even be able to trace back any change to lever A at all. It doesn’t necessarily mean the changes are rapid or significant, that the system is complex.
When chunking these 4 words together as synonyms, we ignore the unique challenges each presents.
However, when we consider these 4 elements together, once their individual meaning is properly understood, it creates an even greater challenge!
So, what does VUCA mean, now that we understand the meaning of each term?
Our modern environment is one where changes happen quickly and to great extent and where we don’t have sufficient or quality information and where there are many, interconnected systems and components and the effects of changing any variable within those systems are often vague, unquantifiable and/or unidentified.
But there is hope!
When faced with a challenge, simply attributing it to VUCA doesn’t help us in prevention, preparation, response or recovery. Quite often, it results in a focus on resilience. While resilience is certainly a desired attribute, relying on resilience implies a lack of foresight and a reactive, rather than proactive, mindset.
Rather, when faced with a challenge we should strive to understand which of these elements is at play, as each requires a different approach in order to solve the unique problems that it presents. What problem are you actually facing?
- Is it the rate and magnitude of change?
- Is it the lack of information about the change?
- Is it the intricacy and complexity of the change?
- Is it the lack of understanding of the relationships between the variables that change?
By adopting a proactive mindset based in Presilience® (i.e. proactive resilience) we will be better equipped to identify the relevant VUCA elements and respond, rather than react, better.