In a VUCA world the biggest risk is inaction
I have found myself in lots of conversations about risk recently - with clients and partners as well as with the Impact team. Partly this is a result of a growing optimism as the global economy recovers, but partly it is driven by a sense that the economic, social and environmental context is becoming ever more volatile, uncertain, complex and ambiguous – or “VUCA”.
Many of these conversations have been tinged with a sense of fatigue. For many, the pressures are relentless and the situation is overwhelming; things are just getting too difficult, the challenges just seem too big even for the most experienced leaders in business and in society.
Weariness also comes from a sense of boredom with the whole idea of VUCA.
‘Oh, VUCA is so yesterday Dave; we were talking about that 5 years ago…what’s NEW?’
Are people trying to rationalise our current reality so they can move on to something that is more attractive, new and different? In the race to identify the next fashionable acronym, are we in danger of missing the point altogether?
In my opinion, VUCA is simply one of many ways to describe the wider context within which business is operating - and it works. It captures a difficult, systemic truth about the state of our markets, our society and our politics. It was never intended as an action plan or a model and it doesn’t pretend to be one. It’s descriptive, not operative.
However we describe the context, most business leaders can relate to feeling that everything is in a state of flux – so much so that the very idea that businesses can continue to generate revenues from a marketplace where they have built a level of competitive advantage is threatened.
So, what do we do? How do we take VUCA by the scruff of the neck and work out how to not only cope but to thrive?
Perhaps the most useful strategy is not to get hung up on mitigating risks, but to focus on maximising the practical opportunities that flow from VUCA. To work out how best to build capacity to respond to opportunities and to take calculated risks. Surrounded by crocodiles? Think handbags.
All businesses must take risks to survive. Yet all businesses must also try to avoid risks in order to survive. Calibrating an approach to risk is tough to get right.
Conventional approaches to risk-scanning are top-heavy, tending to rely on one person at the top of a hierarchical heap - or at best a board of wise directors – to do all this. Yet the more diversified and devolved the processes of scanning and deliberation, the more likely they are to generate the knowledge and understanding on which effective strategy depends.This inclusive approach also has the added benefit of creating spaces in which innovation around opportunities is more likely to happen. If these spaces are filled with thought, exchange, conversation and imagination then the raw material of innovation will emerge naturally.
The new goal of business strategy is to understand how to constantly evolve competitive advantage, adjusting to an increasingly dynamic and uncertain world. At Impact we use the term “Agility” to describe all of the different ways in which a business can evolve their market position in this way.
Agile companies are able to confidently take more risks not only because they have more diverse, inclusive risk scanning capabilities but because they can quickly flex if the decisions they made turn out to be wrong. They can learn from those mistakes and move forward. Risk taking then can become a learning strategy in its own right.
It is frustrating to see so many businesses failing to grasp the strategic challenge as well as the opportunities of VUCA. When strategy becomes difficult, when the direction, scale and scope of change is difficult to map, when everyone is just really busy fire-fighting it is too easy to do nothing. I see many businesses using a strategy of ‘hoping for the best’. But it is clear to me that not taking action to create an agile capability that can thrive on risk leaves companies open to the biggest risk of all. Exit.