Bringing VUCA into your shop

 I teach strategy in a graduate business program and one of my favorite frameworks to introduce to the students is VUCA.  Unlike, say, Porter's Five Forces or Treacy's three competitive positions, VUCA is something they've all experienced, just never had a framework or way to put a name to what they've experienced.

VUCA was developed by the military to help officers better consider what they were facing and how to respond. Private companies and universities started teaching the VUCA approach in the late 1990s as a way to think through complex situations. Today, businesses need to be much better at interpreting the change that's going on around them, and, more importantly and perhaps surprisingly, the VUCA we ourselves create and even welcome into our operations by adopting AI.

Every new technology or platform has introduced uncertainty and change.  I've been in the sphere long enough to remember what it looked like to get an email address, and what that meant for communications.  Then, we moved from discrete functional software applications like financials or warehousing to integrated ERP systems.  That advance made companies more efficient and caused them to rethink their business processes.  Then the internet changed how we interact with customers.  All of these technical advances came with promises and warnings, but none actually created as much VUCA as AI and most of the VUCA these other technologies created wasn't as self-imposed.

VUCA - the Acronym

VUCA is an acronym which stands for Volatility, Uncertainty, Complexity and Ambiguity, and yes, there is overlap between some of those concepts.  

Volatility describes the nature and rate of change and its predictability.  Uncertainty describes the lack of information about change and competition.  Complexity describes the number of factors or forces and their interplay.  Ambiguity describes the lack of clear definitions and motivations.

Previous technologies that entered and changed how we did business created some initial volatility.  All new technology makes things volatile for a while, until we adjust and adapt to the new expectations.  With new technology comes uncertainty, mostly for the users, since they need to learn to do their jobs with the new technology, or watch their roles or position requirements change.  New technology can introduce complexity, due to new roles and responsibilities.  So, it's not surprising that new technologies like the advent and adoption of ERP, or the introduction and use of the internet, have created VUCA for the companies, their employees and for customers.

But the range and impact of AI will introduce VUCA in ways that I think we've never seen before, and when VUCA is severe, psychological and emotional lock up, leading to decision paralysis can occur. 

System Lockup

If you've experienced what happens when a young child is presented with too many options, when they appear to freeze up and cannot make a decision, then you've witnessed in a very small way what it's like when adults are faced with many interwoven and competing factors, great volatility and uncertainty, only stakes are greater.

The advent and adoption of AI is causing VUCA to a significant degree in multiple levels simultaneously. 

• At the individual or employee level, it is causing volatility because employees are expected to become more adept at using AI, but it is unclear which platforms are preferred and what tasks the AI should perform.  Plus, most individual employees are learning these platforms on their own, and many are simply waiting for their employers to dictate which tools should be used and for which purposes.  This volatility, uncertainty and ambiguity leaves employees anxious and often unwilling to do anything.  Every action or decision seems to conflict with other advice or recommendation.  Some employees are simply frozen, uncertain as to what to do, what to implement or what to learn.  Other employees, the self-starters or the technocrats, are off learning new platforms and doing things that might not be acceptable to the company.
• At the company level, executives are trying to determine what AI means for their functional area, how to incorporate it into the daily working environment and how big a threat AI is to their revenues.  The answer is that no one really knows. When you compound a new technology that is likely to make sweeping changes with a poorly defined and implemented strategy, complexity and uncertainty will certainly increase.  Most companies aren't very efficient decision makers or allocators of capital, and the uncertainty will cause two effects:  some functions and teams will slow down, waiting for insight or direction, while others will speed up, adopting technologies or advocating strategies based on their limited understanding of AI (and its unproven state of effectiveness).  Neither response is necessarily wrong, but each will conflict with the other.
• At an industry level, the impacts of AI will differ widely. Today, AI will start to replace repetitive jobs and some analysis and white-collar work, but other tasks cannot and will not be automated quickly.  Some roles that require humans in the loop may actually become more important.  We lack clear rules and guidelines from regulatory bodies such as the government and other organizations that dictate working rules or funding, such as financial institutions and insurers.  Just ask the folks who were sure we'd all be riding around in driverless cars by now.
• We can extend this to the government level, where there is an instructive case with the Department of War.  Anthropic (the vendor!) was not willing to allow certain use cases to be explored by its application, so the Department of War decided to switch vendors.  This is almost a complete reversal of the way things typically work, where the Department of War had complete clarity about what it wanted (let's not debate whether the clarity was correct) and the vendor had concerns.  

We just don't know

VUCA was developed to help decision makers break down and understand a fast moving and complex environment, but we lack experience in a situation where so many attributes are moving so quickly and with so little clarity.  Further, volatility and uncertainty are usually forced upon a decision maker from external sources, but with AI, companies are creating VUCA by encouraging the use of AI without clear guardrails.  Of course, the press, the financial markets and some experts are creating more VUCA by claiming that children today will never work, or that all white-collar jobs will be eliminated by 2030.  Even if the guardrails existed, no one really has a good sense of what capabilities or outcomes will emerge and what the implications will be.

What to do

If we cannot escape typical VUCA that exists in the marketplace, we can at least minimize it through good planning, forecasting and trend analysis.  That is, we need to fix in place our strategy and seek the areas of sensitivity for the things we need to predict and possibly control or influence.  That will address external VUCA.  For internal VUCA brought on by most companies' incomplete or inadequate embrace of AI, we need better planning and communication.  AI will have an impact today, and we cannot be certain of its future impact, but rapid but controlled experimentation to learn and adapt is vital.

Further, companies need to rethink their strategies and competitive positions in light of AI and what it can do and stake out clear differentiators.  Further, these same companies need to reinforce what they can defend and be prepared to compete more aggressively on what were commodity stakes previously.  AI will more quickly and more completely expose the facets of your business that aren't defensible, so you need to be either building defenses or moving to new competitive positions quickly.

Don't move without purpose but get your purpose from clear strategy and then move quickly.  Volatility can be expected so learn to operate even when the environment is changing.  Uncertainty can be overcome with good planning and excellent observation and early warning systems.  Complexity will be a part of your operations going forward, so simplify what you can, and get good at experimenting and learning quickly.  Finally, embrace ambiguity by teaching your leaders how to operate in VUCA conditions.