In today’s world, change is fast and new trends are constantly emerging. If we think back to the world 20 years ago, it was a radically different place. Even if we think back to just five years ago, our environment was very different. These changes do not only influence our lives, but also change the way businesses work: it makes accurate planning on the long term much harder. Traditional management and business strategies are reaching their limits and there is a need for new concepts to understand the increasingly complex framework conditions that change faster and more unpredictably. One of our co-founders, Adrian Reisch, helps you understand these new trends, but also helps you benefit from these new environments in our new series: living in a VUCA world.
What is VUCA?
In 1991, the U.S. Army introduced VUCA as a concept to describe new situations they encountered. New and unknown situations can be defined as volatile, uncertain, complex and ambiguous. In other words: situations where you cannot rely on proven methods from the past. Since then, the concept has been adopted by the corporate world to describe our current world with its fast changes, where old rules and dynamics no longer apply.
According to Adrian, we live in a ‘VUCA’ world. But what does this exactly mean? Over the next few weeks, we will take a deep dive into the VUCA framework and how businesses can master the challenges of this changing world. In this article, however, we will dive into the megatrends that shape this change: technology, globalization, demography and the scarcity of resources.
Currently, we’re living through a fourth industrial revolution, driven by the Internet of Things and its smart machines, virtual reality and AI. All the industrial revolutions the world has seen have been driven by technology. Be it the transition from manual production to steam-powered machines, Henry Ford's division of labor by conveyor belt production lines, or the digitalization and the use of IT on shop floors. The adoption of new technologies can completely disrupt the way business has been done up until that point, and force leaders to rethink their strategy or lag.
Due to increasing trade liberalizations and emerging new economies, globalization has accelerated in recent decades. As new competitors enter the game, business models are disrupted, and supply chains are reordered while price points fall. However, globalization is a double movement: as our world globalizes, some economies take protective measures, or even start trade wars.
Populations do not grow at an equal rate around the world: relatively high birth rates change demography and will make Africa and India engines of economic growth in the coming years. The west is dealing with something different: an aging population is putting pressure on everything from health care to real estate. Younger generations drive changes in work culture, shifting towards a more flexible workplace culture, while valuing meaningful work.
As climate change is becoming a more pressing issue, sustainability becomes increasingly more important on the agendas of governments and global organizations. Stakeholders want to know more about corporations than just financial performance. At the same time, social responsibility emerges as a significant differentiator for how innovative enterprises operate and define value. This, however, is not the only scarcity playing into VUCA: scarcity of people and skill may influence supply chains and businesses in general, too.
COVID-19: a concentration of VUCA and megatrends
The Covid-19 crisis that has developed over the last year is a perfect example of how megatrends shape a VUCA world. It is a concentration of VUCA: we see increased volatility, uncertainty, complexity and ambiguity due to the pandemic.
Still, it is hard to plan for the future, because we don’t know what any of these developments mean. We deal with many variables in life – that is the point of the concept of VUCA –, but a global pandemic is an extreme representation of these variables. And here, too, the megatrends increase the effect:
- Globalization has sped up the spreading of the pandemic, now coming to a halt and, for instance, supply chains becoming more regionalized.
- Millenials (demographics) make up a large part of the workforce, and
- the current pandemic has forced us to utilize the technologies available to change the workplace and work almost exclusively from home.
- Resources on the other hand are also challenged due to the massive switch to remote working, as well as local restrictions limiting the possibilities businesses have to use their resources.
Combining these four megatrends, Covid-19 is like a catalyst to VUCA, and forces us to reevaluate how we operate within our businesses.
Megatrends make the world increasingly VUCA and drive businesses to become more agile, work a lot leaner and use digital enablers to stay competitive. In the next few weeks, we will dive into the different aspects of this framework, starting with volatility. What exactly is volatility in VUCA, how does it influence the supply chain, and how do you manage volatility?