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VUCA: In a changing world, here’s the smart way to think about risk

We live in unpredictable times. From our complex political environment to the speed at which technology is changing the way we operate, businesses are being forced to deal with uncertainty.

For business owners, that’s both exciting and frightening.

On the one hand, uncertainty makes decision-making harder. Boards must evaluate risk effectively; they must try to examine and quantify potential outcomes, and ultimately take a few leaps into the unknown. They realise that the status quo is never a safe refuge.

On the other, uncertainty creates winners and losers. When businesses are forced to make big bets, some of those bets will succeed. In a higher-risk world, the winners actually come out better off than they would in a more stable environment.

The secret, of course, is to maximise your chances of making winning decisions.

One helpful piece of leadership strategy in this environment is to be able to understand unpredictability itself. Only then can you begin to quantify risk and better predict the reaction of customers, competitors and even your own employees.

Luckily, thanks to a steady stream of recessions and other upheavals over the years, academics and business strategists have given unpredictability plenty of attention. One of the best definitions comes from military science: VUCA.

It stands for:

  • Volatility

  • Uncertainty

  • Complexity

  • Ambiguity 

In the late 1980s, VUCA was coined to summarise the environment faced by the West at the end of the Cold War. It’s interesting to businesspeople because there is a perfect parallel with defence: VUCA tells us how uncertainty is as challenging in its own ways as an acute event itself.

  • For the defence analysts, not being able to understand how relationships with Russia might evolve was as hard to deal with as actually being at war.

  • And for business analysts, not being able to predict how markets, customers and competitors will operate is as hard to deal with as actually being in a commercial crisis.

VUCA has therefore been adopted many times by business strategists, and it has a lot to offer in today’s complex and changing environment.

If you would like to understand more about risk and uncertainty, our free Cheatsheet is the ideal two-minute introduction (and will make you a dinner party authority on both business and military thinking). Download it here.

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