In the fifth article of our series on VUCA, we’re diving into Ambiguity. Ambiguous things are open to more than one interpretation and do not have one obvious meaning. Therefore, within the VUCA framework, Ambiguity tells us it is not clear how to interpret events. We rarely, if at all, know what effect events will have on the future. The role they will play in further developments is fuzzy.
To deal with Ambiguity in a VUCA world, flexibility to eventually manage multiple outcomes or the ability to follow different paths at the same time is vital. It boils down to answering the following question: what new & innovative business models are successful in the market? Established business models have reduced sustainability. This is because the meaning of technological developments and global events is not exact – it is ambiguous.
Take, for example, the social media channel TikTok. It was growing fast, with more and more users joining every minute – TikTok was the number one grossing app in the second quarter of 2020. It was probably one of the businesses that benefited from a global pandemic, lockdowns, and stay-at-home orders. In this case, an unexpected event positively influenced business, and, at least for a while, the sky seemed the limit. However, another unpredictable event changed its fate: the USA targeted over security concerns in the second half of 2020. With a new US president in place, what the US measures of 2020 will mean for TikTok’s future at this moment remain unclear.
Another example deals with the future of the automotive industry and e-mobility in particular. Currently, the majority of cars run on combustion engines. A transformation towards newer, cleaner ways of fueling your vehicle is not a question of if, but rather a question of when. There are multiple technologies to take over, such as electric cars or hydrogen, which one will assert dominance remains to be seen.
To manage Ambiguity, it is important to establish robust cash, liquidity, and working capital management. When markets and events are uncertain and ambiguous, a good cash position and transparency on cost structure and operations is vital. Only then can you adequately react to events and remain flexible. Working capital management is a cross-departmental discipline that poses particular challenges within your company’s organizational setup. You can read more on the subject in our article on cementing working capital management in your organization or our piece on increasing your liquidity.
Micro demand planning can help to anticipate ambiguous events. Supplementing your data with third-party data to get a more detailed view of customer behaviour and demand enables you to make the right decisions. Do demand planning on a granular level – focusing on planning on the level of a machine, store or dedicated channel to help reduce waste and boost customer experience. This allows you to anticipate changes and react even before they occur. Latest ML-based forecasting algorithms and demand sensing techniques can help to quickly adapt to changing demands – especially in the near-term horizon.
Enhancing supply chain autonomy will increase operational speed and responsiveness by automating a growing number of decisions. Automating simple decisions gives supply chain managers the freedom to focus on those complex tasks where human judgment is a value-add and better react to ambiguous situations. AI-driven decision-making will be the next normal and lead to a higher dependence on analytics capabilities. As a result, some businesses may choose to outsource the design and maintenance of their supply chain systems, such as planning or dashboarding.
To summarize, Ambiguity signifies that the consequences of events and developments are unclear. Ambiguity means understanding what new and innovative business models are successful in the market and adapting to these quickly. To be agile and successfully reacting fast, robust working capital management, transparent demand planning, and enhanced autonomy for your supply chain are crucial. Now that we have zoomed in to the individual concepts that spell VUCA, next week, we will return to a higher level and discuss what businesses thrive in the next normal. To be competitive in a VUCA world, it is essential to be lean, agile and digital, acting as a project-driven company.