This is a volatile, uncertain, complex and ambiguous (VUCA) world that demands new strategic approaches from organisations, according to James Moncrieff, professor of practice in strategy at Ashridge Executive Education.
James Moncrieff’s first experience of risk came about when he was working at a microwave telecommunications station in Australia. The station carried about two-thirds of Australia’s voice and data traffic to the international world – and he managed to accidentally put the whole system off the air for fifteen minutes, briefly isolating two-thirds of Australia from the outside world.
Today, working as a consultant with Ashridge, Moncrieff’s work is focused on corporate strategy. It’s becoming a more challenging activity for businesses than ever, he told delegates. When uncertainty and complexity are low, strategising is akin to solving puzzles, where there is a correct answer, Moncrieff explained. Unfortunately, the real world is usually characterised by considerable uncertainty and complexity.
“The world of strategy is more like what we might describe as the world of problems, where there is no single right answer, where there is no methodology to help us do it, where we don’t have all the data. It may be incomplete, out of date and ambiguous. And so we can’t make decisions based on data when we’re working with strategy and looking into the future,” he told delegates. “What we have to do is to exercise judgement.”
Judgement is what you do when the answer is not implicit in the data: “We exercise our judgement based on our experience and our intuition, and hopefully that of our colleagues.”
Explore, don’t navigate
Organisations tend to gravitate towards certainty when formulating strategy and that means navigating the way ahead using charts and factors that indicate the direction of travel. It is a flawed approach, according to Moncrieff. “Nowadays we have to work in ways that are much more like exploration: probing, testing, scanning, experimenting, trying things out, learning as we go along,” Moncrieff said. “This world really requires an exploratory kind of approach.”
The business environment today can be summed up by the US military term VUCA: Volatile, Uncertain, Complex, Ambiguous. “We have this interconnectedness and an interaction of factors and forces that previously didn’t influence each other because the connectivity wasn’t there,” Moncrieff said. “When Volkswagen was called out for the fraud that it was committing over its engine emissions, it was a volatile, unexpected event that has had ripples running right across the automotive industry and will probably run for some time,” he explained.
Global disruptors are appearing all the time, he pointed out: the rise of the middle class in China and its appetite for protein is changing land use and leading to water scarcity. In Indonesia land where food was grown is being ploughed up to produce palm oil for bio fuel. The rise of driverless vehicles will create new liability risks for car makers – but could also create a new form of terrorism. 3D printing will revolutionise the world, from sectors such as construction to medicine. Crowd funding platforms are now outstripping venture capital as a source of corporate funding.
“Change is disruptive rather than incremental these days and that gives rise to unforeseen consequences. It is further complicated by the interconnectedness of risk. This is the world that we’re facing, and we have to learn how to be able to work in it,” Moncrieff said.
Picking up signals
Business leaders and strategists need to develop their ability to pick up the signals of what’s changing in their world, according to Moncrieff, or at least listen to the people that can.
“We’re bombarded with stimuli all the time as humans. If a cloud goes over, the light will dim slightly. We may not recognise it consciously but our eyes and our brain will pick that up. Sometimes some of these stimuli will come to the fore. Then we concentrate on it and it becomes the focus of our attention,” Moncrieff said.
“What we were experiencing there comes from the field of Gestalt psychology: it’s known as the Gestalt cycle of experience. It’s how individuals respond to internal or external stimulus. It starts with sensing: just picking up the signals subconsciously at first. But eventually it comes in to our conscious awareness.”
Moncrieff believes that there is a similar process at work in organisations when it comes to picking up signals of change and working with change. The Gestalt cycle could be applied to the organisational energy wave that starts with picking up the signals of change and raising awareness in order to make sense of them.
But whose job is it to pick up the signals of change in a big organisation? Who is making sense of those signals? “Very often, the people at the top and centre are the last ones to pick up the signals of change because they get their information through reports from analysts and consultants and specialists. And there’s always a delay,” Moncrieff said.
“In reality, it’s the boundary workers in the organisation interacting with the world outside, with customers, competitors, suppliers, that are very often the ones picking up the signals,” he went on. “With the bigger geopolitical and other issues we’re looking at today, it is more likely to be people further up in the organisation.”
Talk about change
One of the most difficult challenges that organisations face is getting organised to be able to pick up the signals of change, make sense of them, and bring them in. “How do you create a sense in everybody that part of their job is to pick up the signals?” he asked. The challenge doesn’t end there: having recognised change, the organisation has to be able to make decisions and mobilise. “If we’re able to do that, then we’ll be able to make the impact that we want and move that strategic issue into an operational status,” Moncrieff said.
The ability and willingness of business leaders to rise above the day to day details regularly and look for patterns and trends is increasingly important. Opening up communication channels so that people can talk about change and challenge some of the thinking that permeates the organisation, as well as influencing people who take these decisions, should be a priority.
“With all the books on strategy and all of the courses and all the MBAs, why do great companies still fail? I think this quote from Lou Platt, former CEO of Hewlett Packard sums it up entirely: ‘These companies did not make gigantic mistakes. They were not led by stupid people. The only mistake they made was to keep doing what had made them successful for a little too long.’”
