We Live in Dynamic Times
Natural disasters, technological disruptions, transitory advantages, fractured markets, multifarious competitors, increasingly demanding customers and fickle consumers. Thanks to the military, we have a useful descriptor for the conditions and environment these drivers create; ‘VUCA’ – volatility, uncertainty, complexity and ambiguity… a combination of the magnitude and speed of change, the lack of predictability and prospect of surprise, the multitude of forces and confounding issues, and the lack of ‘one right answer’ or single course of action.
You’re likely to be feeling this already – 89% of participants on our recent ‘S&OP Control Paradox: Folly in Volatile Times?’ webinar delivered with decision-support technology provider Steelwedge said they are. If you aren’t, enjoy it while you can… and get ready for it. Even being fully aware of confirmation bias (the tendency to select information that confirms a predetermined hypothesis), there is compelling evidence that there are few places to hide:
- Natural disasters – with over $350bn of damage, natural disasters across the globe made 2011 the costliest on record in terms of property damage. 2011 is “one for the record books,” said Bob Hartwig, head of the Insurance Information Institute, “we are rewriting the financial and economic history of disasters on a global scale”.
- Commodity prices – while Oil price is an obvious and ubiquitous example – the chart looking like a particularly extreme mountain range, with lows of $12/Brl in 1998, to highs of $147/Brl in July 2008 and back down to $36 in December the same year, and back up to $120/Brl since – many other commodities are exhibiting similar volatility and unpredictability.
- Financial market booms and busts – the inescapable interconnectedness and fragility of global financial markets and the speed at which global flows of capital and easy credit quickens the boom and its consequences accelerate the bust.
- Massive socio-political, socio-economic and socio-technological shifts – accelerating regional unrest, as exemplified by the Arab Spring of 2011, and globally orchestrated protests, such as the ‘Occupy’ movement, largely coordinated and reported through new social-media platforms. Intersecting demographic shifts drastically reshaping the competitive landscape – the growing importance of BRIC countries and developing economies, shifting regional demographics, a growing global middle class, increasing resource pressures, and a consumer-centric, ‘always-on’, marketplace, to name a few.
The world is an increasingly connected, complex and turbulent place. While change is not a new thing, many factors seem to be conspiring against us to increase the rate of change and the depth of its impact. Many of these changes are largely exogenous – caused by factors outside of the control of any one organisation – formed at the intersection of many different shifts, trends and dynamics. These types of changes may be explicable in hindsight, but are largely unpredictable, particularly in any detail. The connected world we live-in has an increasing number of interdependencies, causing events to be the cause of more events, creating epidemics with arbitrary and unpredictable effects.
To amplify these external changes further, most companies are clambering for ways to drive growth and increasing the internal pressure for more ‘new stuff’ – new products, new services, new channels, new markets, new technologies – to do more of the unpredictable (and create unpredictable responses in the marketplace). Again, you’re likely to recognise this; 91% of the participants in the ‘S&OP Control Paradox’ webinar did.
‘VUCA’ – Threat or Opportunity?
Against this backdrop of exponential change, it’s easy to see only a world of risk, particularly if you have a ‘control’ mindset; a belief that ‘efficiency’ is the only basis for performance and ‘improvement’ requires increasing control and predictability of our environment.
But the history of growth, indeed the innovative persistence of life, has been built on a combination of two essential conditions. First, a capacity to make new connections, find new niches, new ‘ways through’; to nurture and develop new ideas against the odds of the status quo. And second, a ‘randomising’ environment that enables and exercises this capacity, forcing and accelerating the need for new combinations. The computer scientist Christopher Langton observed several decades ago that innovative systems have a tendency to gravitate toward the ‘edge of chaos’; the fertile zone between too much order and too much anarchy.
A ‘VUCA’ world provides the second half of this equation, bestowing on us all an environment crying-out for new insights, connections, and ideas – whether we like it or not! Tipping the effects of this from threat to opportunity requires us to address the first half of the equation. A capability to continually make sense of a changing environment and seek out new and novel ways of creating value requires a ‘growth’ mindset; a belief in the competitive advantage offered by ‘agility’ and the rewiring of the ‘hard’ and ‘soft’ organisational capabilities – structures, processes, technology, skills, behaviours, etc – to survive and thrive against a backdrop of change.
Turning a rapidly changing external environment to our advantage requires a recalibration of many dimensions across how we develop, deploy and deliver our strategies and business objectives. Not least of this recalibration are a new lingua franca of time and a new competitive currency of speed.
Wanted: Joined-up Decision-making
I know you don’t want to hear this, but much of the planning, decision-making and control ‘apparatus’ many businesses have assembled over the last ten years or more is out of synch with the demands placed on us by unprecedented degrees of external change… although probably not yours of course (more about this in just a moment).
Again, compound this by an internal drive for growth, innovation and increasing levels of ‘new stuff’, and processes founded on an extreme ‘control’ mindset – ‘traditional’ demand and supply-based S&OP processes, StageGate-type processes that look for certainty from the earliest gates, ‘Scorecards’ focused on functional control, as opposed to cross-functional alignment and pointing the way to strategy, etc – begin to collapse under their own weight and lose value through irrelevance.
What we need is ‘joined-up decisions’. Sure, it’s another three-word descriptor, but it’s not another TLA (we will never abbreviate it to JUD… we promise!). Joined-up decisions gets to the heart of what’s needed to align the many moving parts of a complex organisation and focus on the decisions and coherent actions to progress towards our goals. Connecting across organisational boundaries, linking strategic choices and tactical actions, and integrating long, medium and short-term horizons has always been critical to this alignment. But now clockspeeds of different decisions are changing – challenging the typical annual, quarterly and monthly planning calendars – and the conversations need to be different to integrate the ‘existing’ and ‘new’ portfolios, sense for weak signals of change and simultaneously execute strategy and inform an ongoing strategic dialogue – changing the players, the information required and the way decisions are made.
Rewiring and re-plumbing this planning, decision-making and control apparatus is more than a ‘mechanical’ exercise. While there are fundamental process implications of shifting from ‘control’ to ‘growth’, the bigger challenges are the cognitive and behavioural ones. As we come to terms with an increasingly ‘VUCA’ world we face a minefield of cognitive biases and traps. Just a few of the most prevalent ailments the human mind will suffer from in situations like this include:
- The ‘illusion of understanding and control’ – or how everyone thinks they know what’s going on in a world that is more volatile, uncertain, complex and ambiguous than they have experienced before or realise, and a tendency to believe we can control or influence things we clearly cannot.
- The ‘smooth sailing’ fallacy – the tendency to assume that a recent lack of turbulence and storms means there is no risk. A system with a critical design flaw, that makes it incompatible with its environment, does not necessarily display the flaw until it collapses.
- The ‘bandwagon effect’ or ‘social herding’ – “everybody else is doing it; it must be OK”. While understanding what others are doing is an input, we cannot live by others choices. If everyone else is doing the same, this mutual calibration – too often dressed-up as ‘best practice’ – becomes dangerous.
- The ‘inside view’ or ‘planning fallacy’ – echoing Johnny Mercer’s popular lyrics, Nobel laureate Daniel Kahneman and Dan Lovallo identified the tendency, as the result of cognitive biases and organisational pressures, to ‘Ac-Cent-Tchu-Ate the Positive, E-Lim-In-Nate the Negative’. While there’s something to be said for positive thinking, this trap can create a blind-spot to pertinent data and insights and perpetuate the illusion that “our case is different” (remember I said at the beginning of this section that your current ‘apparatus’ is probably just fine!).
Maybe the biggest trap is not recognising or confronting the cognitive and behavioural challenges at all. Many attempts at trying to achieve improved integration, alignment and collaboration through ‘S&OP’ and ‘IBP’ focus almost exclusively on ‘process design’, ‘templates’, ‘information packs’, and ‘new meeting structures and agendas’ – often overlaid on top of existing processes and meetings – and do not actively dismantle any of the old apparatus or challenge existing mindsets.
Clearly, developing ‘joined-up decision-making’ capabilities for a ‘VUCA’ world is a challenge, for many a transformational challenge. But the prize is creating an organisation that is agile enough to not only cope with volatility, uncertainty, complexity and ambiguity, but to also turn these conditions to your advantage. When pursued with pace – remember, speed is a competitive currency – and connecting not just cross-functionally, but also creating a line-of-sight from strategy through to tactics, two natural advantage arise. The first natural advantage is the concentration of resource across the organisation and focus on our strategic imperatives, and this advantage is completely in our own control; not subject to the vagaries of the marketplace or actions of the competition. The second natural advantage that arises from developing a ‘growth’ mindset and agile capabilities, is when your competition doesn’t (this is where their ‘inside view’ works to your advantage!). Elaborating on Sun Tzu’s writings centuries ago, “Strategy without tactics is the slowest route to victory. Tactics without strategy is noise before defeat”, world chess champion Gary Kasparov summed-up the increasingly entwined nature of strategy and tactics, and real-time decision-making in a ‘VUCA’ world: “Every step, every reaction, every decision you make, must be done with a clear objective. If you play without long-term goals your decisions become purely reactive and you’ll be playing your opponents game, not your own”.
Bridging the Control-Growth Divide
The contradictory pressures of both growth and control have long created a paradox and require a delicate balancing act – this paradox being heightened even further by increasing pressures for growth, both internal and external, external VUCA conditions, and internal processes, behaviours and capabilities that have their roots in a previous age of stability and competition based on efficiency.
The paradox is compounded yet further given the speed at which we need to recalibrate our processes, behaviours and mindsets. Most companies do not have the time, or the appetite, for large-scale, company-wide ‘initiatives’, and in the spirit of agility, we need to progress rapidly recognising the overlapping and interdependent nature of strategy development, deployment and delivery. The transition needs to simultaneously focus on both delivering now and developing for the future.
Some questions to frame, focus and accelerate this transition include:
- Does ‘VUCA’ represent a strategic threat or opportunity in our environment and do we understand our drivers of growth? Are these reflected in our Strategy, Tactics and underpinning Assumptions and Plans?
- Are we ‘wired’ for Control or Growth? Are our internal mindsets, processes, routines and behaviours synchonised with our external realities?
- Do our decision-making processes and forums ask the right questions, bring together the right perspectives from across the business, and generate insight and coherent actions?
- Do we have explicit development actions building organisational capability – Capability with a ‘Big C’ – to develop agility and use ‘VUCA’ to our advantage?
- Are we countering ‘VUCA’ with vision, understanding, clarity and agility, and accelerating results through an aggressive transition, rapid experimentation and ‘learning-by-doing’?
In approaching these questions with a ‘growth’ mindset and looking for new opportunities, consider the words of Nobel prize winner Albert Szent Gyorgi: “Discovery consists of looking at the same thing as everyone else and thinking something different.”
Are you asking the right questions and developing the right minset to see something different in a new and “VUCA” context?