VUCA analysis has become a trendy term in some management circles, especially in the finance sector. VUCA is an acronym standing for Volatility, Uncertainty, Complexity, and Ambiguity, and is used to describe key characteristics of the external environment. It is a valuable analytical tool, so VUCA analysis for better issue planning and management is a valuable tool.
Some knowledge of VUCA factors is valuable to communicators. Apart from considering these factors in your own communication plans, you will impress senior management by being knowledgeable about the terms during planning sessions.
Confronted by this buzzword/buzzphrase, some managers can be overwhelmed and use it as an excuse not to engage in rigorous development of strategy because such factors apparently make it intimidating to look ahead.
However, VUCA types of factors are not new. They have always been integral to scenario planning and in PESTLE analysis (Political, Economic, Social, Technological, Legal and Environmental) of the external environment in issue management.
(Personally, I would add a ‘C’ to PESTLE analysis – Communication Climate – so it becomes PESTLEC. A crucial part of issue management is analysis of factors affecting communication and stakeholder relations. You can read in more depth about SWOT and PESTLE analysis in my article, “Make the most of SWOT analysis for communication planning.”
Anyway, planners and managers have always had to cope with ambiguity and uncertainty in decision-making, and they have always been obliged to try to predict the outcomes of their actions. Therefore, VUCA is not a dramatic step forward. Nevertheless, it can be a valuable tool to include with SWOT and PESTLE analysis and scenario planning. In this way, VUCA analysis for issue planning and management adds a further dimension to your business environment monitoring and evaluation.
Two key questions that VUCA analysis can help to address are:
Dr Nathan Bennett, a business professor from Georgia State University, explained the VUCA concept in a Harvard Business School image below. He said each factor needed to be analyzed separately from the others; the 4 factors don’t just add up to one big variable.
Prof. Bennett discussed the characteristics, as well as a business example and business approach relating to each VUCA factor. These are shown below in my own words. In addition I have outlined in italics an example of a communication role relating to each factor to show how the analytical elements of the corporate communication planning model is vital to issue management. It should be noted that fully comprehensive information is seldom available in any situation, and therefore managers are invariably obliged to make decisions based on the best information they can assemble.
By allowing you to take these related variable factors into account, VUCA analysis for issue planning and management increases the benefit from adding VUCA to your tools.
Image, right: “What VUCA really means for you.” Harvard Business Review, Jan-Feb 2014.
Relatively unstable change. The challenge is unexpected and may be of unknown duration, but it is not necessarily hard to understand; knowledge about it is often available.
Prices fluctuate after a natural disaster, such as when a fire takes out a supplier.
Conduct risk analysis, build in spare capacity and devote resources to preparedness – for instance, stockpile inventory or overbuy talent. These steps are typically costly and therefore management should only commit where the cost is justified by the downside.
Prepare a crisis management strategy. The communication function should be integrally involved.
Lack of knowledge. Nevertheless, the situation’s basic cause and effect are known.
A competitor’s expected product launch can change the future of the business and the market.
Increase business intelligence activities. Collect, interpret, and share relevant information. Engage in serious boundary-spanning collaboration.
The organization’s communication function is the logical area in which to build these resources, especially as the role incorporates boundary-spanning.
Complexity variables are the easiest of the 4 factors to understand, but managers can’t know what they don’t know, which compounds the complexity of the situation. Managers may know the likely outcomes but not the unintended consequences of complexity factors. For instance, writing new computer code may open up the further complexity of unforeseen security risks. Some information is available or can be predicted, but the volume or nature of it can be overwhelming.
The company operates in many countries, each of which has its own regulatory environment, tariffs and cultural values.
Restructure, bring in or develop specialists, and increase resources adequate to address the complexity.
Identify the key stakeholders in each country and initiate a systematic stakeholder relations management program. Tailor messages for each country and its unique culture. Government relations is crucial.
Causal relationships are completely unclear. No precedents exist; management faces “unknown unknowns.”
The company decides to move into developing markets or to launch new types of products that are outside its previous experience.
Companies need to be prepared to take on risk, perhaps initially in trial markets, to evaluate outcomes. Lessons learnt can be applied progressively over time to other markets.
Communicators can support with gathering intelligence about the operating environment including regulatory parameters, and in preparing broad issue management and crisis communication strategies in advance.
Ranking all the variables within the four VUCA factors in terms of importance seems to be a complicated exercise, but in a 2020 LinkedIn article, “Adding VUCA to SWOT for business risk management,” Dr Steven Cooke from Thomas Edison State University shows in the matrix below how to calculate rankings of VUCA factors.
Image: LinkedIn article by Steven Cooke in 2020, “Adding VUCA to SWOT for business risk management.”
The VUCA# is the total reached by multiplying all items for a particular factor. For the purpose of calculation, the individual rankings range from 1, for a low probability or impact, to 4, for a high probability or impact. (You could rank them from 1 to 5 if you want, with 3 being the neutral, mid-point value.)
Factor One in a hypothetical example might be “Delays in completing new product design caused by key staff shortages during COVID.”:
The VUCA score for the above factors is shown in the sample matrix below. The total score of 24 is reached by multiplying the score (out of 4) for each VUCA factor:
The addition of a VUCA analysis to the factors defined in the SWOT analysis can provide essential information about the potential impact of both the positive and negative factors on a proposed action. Neither analysis on its own can provide the overall assessment necessary to make the best business decisions.
For example, a factor that may be considered a strength might also be shown to be more complex or uncertain. That would reduce the weighting that should be applied to that strength in the SWOT analysis, possibly even changing it into a weakness. Similarly, a weakness that is determined to be stable, fairly certain, clear and simple can be focused on for specific and effective mitigation actions, possibly removing it as a weakness in a plan altogether.
Combining the two matrices [SWOT and VUCA] in an analysis allows you to focus on the factors with the most impact on the potential success of a project. It may also reveal any “show stoppers” that have a high probability of completely derailing or defeating the process in the existing environment. It can also be used as a way to provide objective interim evaluations of the health of an organization and its operations.
In the modern fast-paced world of business it is essential to understand the sensitivity of each factor in a business plan as well as the fundamental attributes. Using a SWOT+VUCA analysis will help to minimize risks and seize opportunities more effectively.
These matrices help to give a more reasoned assessment of business risk. Using VUCA analysis for issue planning and management will certainly appeal to management, who want to see fewer subjective issue assessments and more objective analysis.
Many people have commented that the COVID world we are living in, along with COVID variants, form a VUCA operating environment for business everywhere – an organizational environment that is volatile, uncertain, complex or ambiguous.
According to VUCA expert, Assistant Professor Jim Lemoine in a 2020 article for the University at Buffalo School of Management On Leadership publication, the consolation is that:
…most business climates—including the one created by COVID – are not volatile, uncertain, complex and ambiguous all at the same time. It might be one or two, but it’s generally not all four. And being able to identify which one describes your climate is critical to understanding what the most effective response might be.
Dr Lemoine makes the point that clearly, the COVID-19 situation has been volatile, and now we’re living in a time of uncertainty. Therefore, we should invest in information-gathering capability and then use that information to build agility and contingency options for the future. He says “Research shows that with more robust information, not only does our decision-making capability and effectiveness improve, but our intuition also leads us to better choices. All in all, the better informed we are, the better decisions we make—even when we don’t take time to think through those decisions.” He notes that:
…as challenging and dangerous as current operational demands may be, it’s the effect on employees that may have the most long-term impact for organizations. Research shows we are more likely to respond strongly to recent events than distant ones, and negative experiences generally outweigh positive ones. No matter how well you treated your employees before, their experience during this tumultuous time may disproportionately affect their plans for the future.
Dr Lemoine agrees with Prof. Bennett (quoted earlier in this article), according to a 2020 article in the Harvard Business School Working Knowledge newsletter:
They argue that volatility should be met with agility; uncertainty with information; complexity with restructuring (with internal operations reconfigured to address external complexities); and ambiguity with experimentation. Uncertainty in this sense refers not to scientific questions about the coronavirus, but to what effect the virus will have on the future. What new realities will it generate? What will recovery look like? How long will it take? What will a post-COVID world entail?
Bennett and Lemoine recommend reaching out “to partners, customers, researchers, trade groups, and perhaps even competitors” in times of uncertainty, in order to understand the impact of this phenomenon. Seek out new data sources and gather new perspectives.
It is also important for the organization’s management to adopt an agile mindset requiring frequent and rapid feedback loops such as a brief daily check-in to give and receive feedback. Shifting leadership style from commanding to coaching is another agile leadership tool. Leaders use two-way communication methods and positive language, focusing not on what can’t be done but on what can be achieved.
Communicators may not be involved in decision-making by top management, unless the head of comms is on the executive committee. However, at a minimum, the comms team can contribute the knowledge it picks up from monitoring traditional media and social media coverage, and from feedback received via employees. This information can be provided by the comms head with advice from their viewpoint as a strategic adviser. Therefore, it is important for the comms team to understand SWOT, PESTLE and VUCA analysis.
We are well into the COVID era, and most organizations are responding to the paramount priority of internal communication. Recovery strategies need to include a detailed communication plan focused on all internal and external stakeholders. Many CEOs report their concerns about getting communication right, especially with their employees. For instance, how often, what channel and the most effective tone.
Experts also advise achieving a situational perspective by regularly standing back from the turmoil caused by COVID, observe the situation in real time, and taking action. “This exercise allows leaders to assess their people’s mindsets and tailor their communications accordingly, write the authors, Boris Groysberg and Sarah Abbott of the Harvard Business School: “Stepping onto the balcony [stepping back for perspective] is even more challenging in a virtual world. But CEOs [and their communication strategists] can test out different messages before disseminating them widely, seeking feedback and using it to fine-tune their communications.” These messages can be largely based on VUCA analysis for issue planning and management because of the more reliable conclusions that can be drawn from this thorough type of external operating environment evaluation.
Take the time to review how your organization responded to the current situation and ask, “What can we do better next time?” This is not about placing blame. It’s about learning for a next time.
If feasible, begin reviews while the event is happening, with multiple after-action review (AAR) meetings. Each meeting should start by reminding attendees of the rules: “Participate. No thin skins. Leave your stripes [i.e. indications of seniority or status] at the door. Take notes. Focus on our issues, not the issues of those above us…Absolute honesty is critical.”
These meetings address four questions:
These questions relate to four fundamentals of the AAR process:
The middle of a pandemic may not seem like the best time for an after-action review, but during periods of intense activity, briefly holding daily AAR meetings can help teams coordinate and improve the next day’s activities. AARs can be done on single projects like a pandemic-focused marketing campaign in order to improve response quality and long-term effectiveness: “Managers throughout the organization should understand their exposure.”
As Warren Buffett declared: “rationality frequently wilts when the institutional imperative comes into play,” according to Adam Bryant in a Strategy+Business article in 2021. In other words, when participants “read the play” (understand the boss’s opinion), they will quickly support the leader’s view, eg with detailed ROI expectations, and they will find supporting data to justify this.
The logic box is what you find yourself in when you think you are making analytically solid choices among various options but haven’t understood that the overall concept is misguided or flawed. There may be many defensible reasons that one possible choice is clearly better than the others. But the decision you make is in the wrong box.
The point of the logic box is to help develop self-awareness, an essential skill of leadership, including comms leaders, which is becoming more important as we all negotiate the VUCA world – volatile, uncertain, complex, and ambiguous. Executives and other leaders must always examine the fundamental reasons for a key decision, and explore underneath its apparent validity.
Interestingly, on the very day I was writing about the logic box, I received a farnam street blog about the same subject:
Most times, not everyone on a team agrees with the course of action. Even when you have enough cognitive diversity in the room, people still keep their mouths shut because people in power tend to reward people who agree with them while punishing those who dare to speak up with a dissenting view.
In view of this, Nobel Prize winner, Daniel Kahneman recommends conducting a “pre-mortem” for making an important decision. You can read about this in the farnam street blog of 19 December 2021, titled “Daniel Kahneman’s favorite approach for making better decisions.”
You can read more about VUCA in a Wikipedia page: “Volatility, uncertainty, complexity and ambiguity,” which also reinforces the value and adaptability of using VUCA analysis for issue planning and management.
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