2. VUCA Flashcards
Volatility - What is it? [D’COST]
- duration of outcome: unknown with no clearly-defined end
- known cause
- outcome-based: outcome and impact is volatile, not the event itself
- unstable or unexpected changes caused by shocks or triggers
Volatility - change vs volatility
nature: self-initiated (change) vs imposed by the environment (volatility)
speed: can be controlled (change) vs always fast (volatility)
volume (how much it changes): varies but predictable (change) vs large (volatility)
magnitude (impact of the change): varies but predictable (change) vs always large (volatility)
Volatility - how to deal and overcome [RAD]
REDUNDANCY: resource-devotion as a form of preparation
- stockpile inventory
- bench strength
- strategies are usually costly (investments need to match the risks)
AGILITY-BUILDING: learning to work with changes
- e.g. just in time strategy by Japanese companies (to reduce costs by saving storage space)
- cross-training staff
- better than decoupling and redundancy due to cheaper costs
DECOUPLING
- decouple supply-chains systems of essential components (diversifying suppliers and have alternative supplier lists)
- separation of critical processes (ensure no common critical nodes; create a parallel system)
Uncertainty - What is it? [P-FRIK]
- lacks predictability (and not knowing how to plan the best response)
- forecasting and decision-making is thus difficult and challenging
- poorly understood cause and effect relationship (leads to multiple outcomes)
- need for investing in information (collect, interpret and share; from multiple sources and new information networks; new perspectives)
- lack of good knowledge about how the future is like
Uncertainty - how to deal and overcome it
Understanding trends affecting demand
Knowing your knowables
- things that can be uncovered through research; and things you already know
Uncertainty - levels and forms [CART]
Level 1: Clear-enough Future
- single forecast/outcome
- precise enough for strategy development
Level 2: Alternate Futures
- few discrete scenarios defining the future
- establish probabilities and crafting appropriate responses
- decision analysis frameworks to calculate risks and returns
Level 3: Range of Futures
- PPC curve
- range of possible outcomes, but no discrete scenarios
- frontiers = extreme scenarios
Level 4: True Ambiguity
- no basis to forecast the future
- rare and transient
- stabilises overtime to a lower level of uncertainty
Uncertainty - Postures and Moves
POSTURES [SAR]: defines the aggressiveness in strategy
- Shape the future: be the leader by establishing how the industry operates
- Adapt to the future: win through speed, agility and flexibility in recognising and capturing opportunities
- Reserve the right to play: wait-and-see; invest incrementally and sufficient to stay in the game
MOVES [NOOB]: defines risk averseness
- NO regret moves: positive payoffs in any scenario (e.g. through process improvement)
- Options: scalable investments that can be ramped up or scaled back (maximise gains, minimise losses)
- Big bets: major commitments with positive payoffs but also negative impact on others (go big or go home
Complexity - What is it?
- interconnected parts of variables forming an elaborate network of information or procedures
- properties (DIM)
- Diversity: degree of heterogeneity
- Interdependence: degree of connectedness
- Multiplicity: number of potentially interacting elements
Complexity - complex vs complicated
Complex: interactions that are constantly changing, hence unpredictable
(e. g. air traffic control)
- many possible permutations, non-linear dependencies; a different outcome every time you start
Complicated: many component variables, but operating in fixed and predictable ways
(e. g. operating aircraft)
- linear dependencies
Complexity - the types of complexity
Institutional vs Individual
- institutional: issues on the executive level (e.g. number of countries the company operates in, number of levels of people, number of partners, etc)
- individual: front-line issues dealt with by employees (e.g. poor processes, confusing delegations and roles)
[IIDU]
Imposed: cannot be easily fixed (institutional)
- laws, industry regulations, interventions by lobbyists, NGOs
- companies are policy takers
Inherent: can be fixed, difficult (institutional)
- intrinsic to the business and only jettisoned by exiting part of the business
- organisational structure, etc
Designed: can be fixed, difficult (institutional)
- results from strategic positions
- change will impact control systems and business models
Unnecessary: easily fixed (individual)
- misalignment between needs of organisation and processes supporting it
Complexity - how to deal with it
WITHIN THE ORGANISATION
Reduce, Restructure, Manage
- change forecasting methods (averages vs outliers)
- build better models
- make better use of data
- risk mitigation (redundancy and decoupling)
- triangulation (multiple perspectives)
IN THE ENVIRONMENT
- adaptation and flexibility
- align to new environmental complexity
Ambiguity - What is it?
- doubt about the nature of cause and effect relationship and its mechanism (compared to uncertainty where cause is known and outcome is unknown)
- unknown-unknowns: lack of knowledge about the basic rules, no precedent for decision making
- example: launching a new product outside its core competencies in a new unexplored market
Ambiguity - how to deal with it
EXPERIMENTATION - to establish relationships through CBA and find situations where formal rules of business do not apply
- degree of control vs generalisability of results
- Lab Experiments - high degree of control, low degree of generalisability
- Quasi Experiments - non-randomised participants
- Field Experiments - participants have an equal chance of being selected; field sample with random assignment
- Natural Experiment - naturally occurring; extremely low degree of control, high degree of generalisability
