By Nando Malmelin and Sofi Kurki
The term “VUCA” is familiar to most of us as a convenient label to characterise our constantly changing world. But what practical steps can we take to operate effectively in this environment? Perhaps the answer lies in changing how we think about the future?
It’s often said that we live in a radically uncertain world that makes it difficult to foresee future directions of business development. In this kind of VUCA world, corporations operate in an uncertain, volatile, and fast-changing environment, where strategic management is challenging.
The VUCA concept has gained much attention and popularity as a way of describing the general vagueness of the business operating environment. It has become an umbrella term that captures the volatility, uncertainty, complexity, and ambiguity of our ever-changing and hard-to-predict world.
The VUCA acronym dates from the late 1980s when it was coined by the US military to describe the instability of the post-Cold-War world. The term later spread to the business world, where the concept was adopted to refer to the uncertainty of the operational environment. It became a catchphrase and metaphor for the ever-increasing difficulty of managing businesses in strategically uncertain environments.
The world today differs in many respects from the 1980s, when the VUCA concept was originally created. In the 2020s, there’s not much point or news value in saying that, from a strategic management point of view, business companies face a challenging and risky operating environment in the VUCA world. In many branches and industries, it’s taken for granted that the operating environment is in rapid and unpredictable flux and that it’s difficult to navigate.
The VUCA world is often considered as a threat to business and business management because it’s hard to understand and predict. This uncertainty has usually been approached in terms of managing risks and controlling threats. This thinking needs to change. Uncertainties must also be seen as opportunities to go beyond the obvious, as new sources of innovation and growth. When old practices no longer apply and when current structures lose their meaning, uncertainty can pave the way to creating something new and groundbreaking.
One of the most topical questions is: what capabilities and practices do we need to operate and manage in strategic uncertainty? In this article, we will discuss how foresight can contribute to a more in-depth and practical understanding of how to thrive in the VUCA world.
Is there a future for the VUCA world?
The VUCA world is often discussed as a single, coherent phenomenon. However, there exists no such thing as a VUCA world. Rather, it represents one way of approaching concepts and phenomena related to environmental uncertainty.
To better understand the VUCA world as a whole, we need to understand the specificities of its component parts and to emphasise their differences and interrelations, rather than look at them as one single cluster. In practice, the VUCA world consists of four distinct and different phenomena that require four different organisational responses.
First, volatility refers to rapid, sudden, and unpredictable changes in the environment. Typically, the problems are unexpected, and it is not known how long they will last. Although they may come about by surprise, the problems are not usually difficult to understand.
The second dimension, uncertainty, describes circumstances where there is a shortage of information about the situation, even though the causes and consequences of events may to some extent be understood. To dispel the uncertainty, it’s necessary to take steps to collect and interpret information. For example, information will be needed about change drivers such as technological development, industry and market changes, shifts in consumer behaviour, and changes in politics and values.
Complexity is the third dimension. It refers to the presence of multiple interconnected variables. There is a reasonable amount of information about the complex situation, and it is possible to predict how it is going to unfold, but not with great depth or consistency. It is essential to collect new information to be able to create a new understanding in a seemingly complex environment.
And fourth, ambiguity, means that the situation is open to interpretation and can have multiple meanings. It’s also difficult to understand the patterns of interactions within the situation. Collecting new information will not go very far toward solving ambiguity problems, because it’s often not known what information is relevant and what is not.
To have a profound understanding of the phenomenon, we examined the research literature on the VUCA world and found that the concept is quite superficial and general. The VUCA acronym is mostly accepted at face value as an easily identifiable catchphrase for the changes happening in the operating environment and the importance of those changes. The VUCA world is a more or less random assembly of concepts describing the uncertainty of the operating environment and related phenomena collated under one umbrella.
In our study, we understood that there are two ways to approach the state of the VUCA concept. The first option is to concede that the VUCA term and its analyses are outdated and have limited significance. This would mean that, in the absence of any efforts to develop the concept, VUCA would begin to fade and fall into oblivion.
On the other hand, it is clear that even though the concept offers a quite shallow framework to understand these issues, it addresses an important and current phenomenon about which we need to know more. One of the critical values of the concept of the VUCA world lies in its providing a framework for discussing phenomena related to environmental uncertainties and their meaning for business development and strategic management.
That is why the second option is more constructive. We should take a practical view of how to develop and elaborate VUCA so that the concept would be of actual use to strategic thinking and to achieve a deeper and more diverse understanding of how our uncertain world is changing.
In our analysis, we found that literature on the VUCA world does not have very much to offer for strategic management or management practices. The observations made and conclusions drawn in the research literature had only little practical relevance for the managers and organisations of the future. Thus, we need to develop a more concrete and practical understanding of how to thrive in the VUCA world.
Critical capabilities of the future
Developing foresight capabilities provides a significant opportunity for solving practical questions related to strategic uncertainty. It also supports organisations in identifying and seizing new possibilities raised by uncertainty. How to proceed, then?
Businesses and industries differ widely, and therefore it is challenging to offer a single recipe or universal set of guidelines for strategic management in an uncertain world. The approaches and solutions suited to each company depend largely on the future development of their specific operating environment.
However, the role of foresight is bound to increase in times of uncertainty. Developing foresight capabilities will help companies meet the challenges raised by the VUCA world.
Foresight capabilities help companies anticipate future disruptions and recognise opportunities presented by uncertainty, providing crucial support for innovation and business growth. An insightful understanding of future changes in the operating environment will also facilitate ongoing discussion about the company’s strategic assumptions, objectives, and direction. In addition, foresight supports innovation and the search for new business opportunities, organisational renewal, and strategic agility.
Foresight capabilities and practices provide valuable tools for understanding and processing uncertainty. Our research identified two separate but interconnected approaches to foresight capabilities, which are especially valuable in the VUCA world: alternative futures and futures literacy. The former emphasises the organisation’s systematic approach to foresight, and the latter emphasises future thinking skills.
The alternative futures approach is grounded on the premise that, in the VUCA world, it is not possible to base decision-making and action on prior experiences of similar situations. The more uncertain the operating environment, the harder it is in the new situation to draw on decision-making models based on previous experience.
The uncertainty of the VUCA world complicates the challenge of defining clear strategic paths, plans, and roadmaps. Companies have less clear information about the operating environment and its driving forces. Therefore, it is important that they integrate foresight of the operating environment more closely as part of their strategy work. At the same time, management must be able to create a shared understanding of how phenomena of the VUCA world impact upon strategy work and what kind of threats and opportunities they entail.
In these circumstances, the key is to ensure that the organisation has the ability to create and simulate future scenarios that it can use in its decision-making and in developing its operations. In a fast-changing world, it’s also essential to have the flexibility to change and shift between different future scenarios. This is a critical risk for decision-making in the VUCA world.
Another foresight approach to the VUCA world is to emphasise futures literacy as a meta-skill that can bring a more in-depth consciousness about the content of assumptions about the future and in this way improve the practices of strategic decision-making. As in the case of alternative futures, futures literacy implies that, to succeed in the VUCA world, the organisation should not latch itself on to individual future forecasts but use foresight as an approach to developing its capacity to navigate uncertainty. Futures literacy is first and foremost about reversing the perspective, so that the aim and purpose of foresight is not so much to describe the future but rather to serve as a tool of learning.
Strategic decision-making is based on shared visions of the future. By analysing and reflecting upon views and assumptions about the future, the organisation can be more open towards alternative ways of thinking about the company’s and the operating environment’s future. This implies a shift in the organisation’s approach towards more active future-shaping.
In the VUCA world, organisations need foresight capabilities, such as the ability to picture alternative scenarios and to question their own assumptions about future directions. In addition, organisations need management models and practices that are grounded in futures thinking. They can steer organisations to challenge and question current ways of thinking and break down traditional assumptions. Identifying and utilising new emergent opportunities is crucial for innovation, renewal, and growth.
The article is based on the authors’ research project at VTT Technical Research Centre of Finland.
About the Authors
Nando Malmelin, PhD, works at consulting agency Capful as a Head of Renewal. He is also an Associate Professor at the University of Helsinki. Malmelin has published extensively on leadership, creativity, organisational renewal, and strategic thinking.
Sofi Kurki, PhD, is a Senior Scientist at VTT Technical Research Centre of Finland. Kurki is an expert in corporate foresight, foresight methods, futures studies, and societal development.
