VUCA – Metric to measure the Company in the age of permanent volatility

The challenges and opportunities that used to take months to mature now suddenly strike organisations without warning? If so, you’re not alone. What you are experiencing is the VUCA world:

VUCA is an acid test that any business needs to pass today to survive. The days of SWOT analysis are gone. To understand the positioning and the future prospects of the Company it is necessary to understand how the VUCA elements are affecting them and how the Company is countering the same. Post 2008, the business environment is getting more and more complex. Customers are demanding products/ services anytime, anywhere, anyway and in any form. Companies are losing edge overnight. – examples include Nokia, Kodak, Blackberry, GM globally and S. Kumars, Kingfisher, Manugraph locally etc.

Trends such as Digitization, emerging markets, complex regulations, environmental norms, fluctuations in raw material prices, political imbalances and the need for the greater organizational adaptability are the need of the hour.

The forces that have shaped VUCA environment seem irreversible. Trade and financial flows are expected to multiply, as well the penetration of communication and information technology. The world has already more cell phone connections than bank accounts, and this trend will only gain momentum. All this will intensify the interconnectedness of business and consumers across markets and nations, making all participants even more vulnerable to shocks.

Companies must innovate continuously not only to stay ahead of the competition but also to stay alive.

We would try and dissect the elements of the VUCA to understand how they affect the businesses..

  • Volatility: means the nature, speed, volume and magnitude of change that is not in a predictable pattern. Volatility is turbulence, phenomenon that is occurring more frequently than in the past. We usually associate volatility with anything that is too fast, too slow, dynamic, speed, constant change, turbulence etc. We are noticing with every passing year the volatility is increasing from quarter to quarter.

 

Volatility can hit one’s business in many ways… may it the changing technology: while Moser Bear had to shut down the CD business due to changing technology, Digitization: the traditional retail chains are crying foul since the PE money is funding huge discounts in the ecommerce segment.

 

  • Uncertainty: Can simply be put as the lack of predictability in issues and event. As times are becoming more volatile its getting difficult for leaders to use past issues and events as predictors of future outcome, making forecasting extremely difficult and decision making challenging.

 

Uncertainty about the government in the India had many companies delay their investments for years together. A boom in eBooks is pushing the printing industry in severe pressure since many years. Say in the case of the Manugraph – one of the largest manufacturers of Printing press machines – increasing digitization of content is leading to less orders of printing press. The Company is unable to innovate the product line so as to offer complimentary products. It soon may have to shut shop.

 

  • Complexity: this term is generally used to characterize something with many parts where those parts interact with each other in multiple ways. As HR thought leader John Sullivan notes, there are often numerous and difficult-to-understand causes and mitigating factors (both inside and outside the organization) involved in a problem. This layer of complexity, added to the turbulence of change and the absence of past predictors, adds to the difficulty of decision making. It also leads to confusion, which can cause ambiguity, the last letter in the acronym.

 

India, is very well associated with the complex labour laws and business laws. It is imperative for all business leaders to understand the nuances of the ever changing regulation before taking any action.

 

  • Ambiguity: Simply put it’s the phenomena and the outcomes are hazy and unclear precisely when one wants to understand them better. It’s the lack of understanding of the causes that and the ‘who, what, where, how, and why’ behind the things that are happening (that) are unclear and hard to ascertain.

 

It is imperative that time and again we test our organisations to check how we are surviving in the VUCA environment. The four easy to implement antidotes on VUCA: Vision, Understanding, Clarity and Agility

 

The best way to protect an organization from the VUCA effect is by

  • Embracing a larger vision and understanding of your business
  • Taking a systems and team approach; individuals working alone cannot keep up with the flood of information generated
  • Creating Insight not Data – It is very essential that deliberate process is made to make sense in the chaos. A leader who can quickly and clearly tune into all of the details associated with the chaos, can make a better, more informed decision.
  • Demonstrating Agility and Adaptability to communicate across organization and to quickly apply the solutions.

 

Here are few companies who we think are successfully countering the VUCA environment with their innovative approach:

 

Zara: The Spanish fashion giant is extremely agile in the area of supply chain management, with exceptionally short production cycles. Though the brand is in existence since 25+ years it has able to bring outstanding organizational agility. Zara is able to bring fashion trend in the stores quicker than any competitors. Thanks to the feedback received from stores, it can immediately identify new trends. It is one of the only chains in the world where the inventory changes twice a week. This enables customers to enter the shop more frequently and buy immediately since they know the next time they come – the item wont be available.  In India, they have managed to get the highest per sq. feet sale within couple of years of operations.

 

Pitti Laminations: A Hyderabad based capital goods laminations Company, systematically diversified into tooling and machining to give one stop solutions to all its clients. To counter power uncertainty it has invested in a second manufacturing facility in Pune. They chose this destination since its strategic from the point of view of nearness of customers, suppliers and also a continuous supply of power. Today it has become the only company in India to provide end-to-end products and services in the electrical laminations segment.

 

Flipkart: The Bansals were quick to realise the potential of the fashion industry in online sales. Todays its their acquisition of Jabong and Myntra which allow them to sit comfortably on the number one position even after repeated fund infusions by Amazon.

 

Secto Automotive – Recently Accenture has conducted a study on how the VUCA environment is shaping the auto ancilliary Industry in India. Out of the 200+ Industries analysed by them Setco was one such Company (out of 6) which they think have the vision and the agility to implement changes. Venturing into independent after sale market and backward integration has made the Company  ready for next bull run the MHCV market.

 

Do let us know of examples of various organisation which have thrived using innovation in the VUCA environment.

 

For any more write ups on the VUCA you can write to moneshi@moneybeeadvisors.com

 

This article has been contributed by Moneshi Shah, Partner, Moneybee Investment Advisors Private Limited.

 

Refrences:

http://www.kenan-flagler.unc.edu/~/media/Files/documents/executive-development/developing-leaders-in-a-vuca-environment.pdf

https://www.nahdo.org/sites/nahdo.org/files/conference_sessions/Phil%20Kalin%20(Pinnacol%20Assurance).pdf

https://www.rolandberger.com/media/pdf/Roland_Berger_tac_How_to_survive_in_the_VUCA_world_20131008.pdf

 

 

 

 

 

 

 

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