VUCA Model is widely used, however outdated. We suggest updating it to face the complexity of today’s world.
Interdependences and complexity of crises have changed
In today's rapidly changing world, companies often struggle to adapt and survive in the face of constant disruption. The VUCA model describes those changes and stands for Volatility, Uncertainty, Complexity, and Ambiguity.
The term VUCA comes from the US Army and was introduced in the early 1990s at the US Army War College to describe the changes that occurred after the Cold War. The term spread and found application in the business world. Today, this model describes challenging conditions in a company's environment.
The concept originates from a time when speed and connectivity were not as developed as they are today. As a result of globalization, massive interdependencies and therefore complexity has emerged. The outdated VUCA model no longer clearly identifies interrelationships and interdependencies in the business environment.
Take, for example, the low oil prices triggered by the COVID pandemic. Due to travel restrictions (which led to further severe consequences for the travel industry), gasoline and kerosene demand dropped sharply. At the same time, these changes in oil prices led to a significant price reduction of polymers, which in turn caused major difficulties in the materials industry. Raw material prices fell so drastically that recycled materials could no longer find a market1. Most companies responded to these changes by cutting back on R&D spending. Within one and a half years, however, prices recovered and those companies that had nevertheless continued to invest in innovation were now in a stronger position. Hence, with foresight challenges can be recognized as opportunities.
A further example is the dependencies in supply chains that globalization has caused. When one of the largest ports in the world, Ningbo-Zhoushan (China), was closed due to the pandemic, enormous supply problems around the world arose.2 Furthermore, the increasingly uncertain geopolitical landscape and the war in Ukraine induce supply chain uncertainties. Consequently, overcoming the supply bottlenecks became one of the biggest challenges of our time.
At the same time, today's infrastructure offers entirely new opportunities to procure and produce intelligently. To remain competitive, manufacturing companies no longer have to optimize for low labor costs. Digital and automation solutions enable location-independent production.
We can still work with VUCA, but it must be updated.
So, what are the implications for the VUCA model in a digitally connected, modern world? The individual building blocks of the model should be updated to enable a proactive and positive mindset in dealing with change.
Vision instead of volatility. Companies should develop a vision to create anchor points for their employees. When major changes occur every day, people can easily lose track of new information and technologies. Under circumstances of constantly changing assumptions, it helps to have a long-term goal. This creates a stable foundation for employees to turn challenges into opportunities and work on new solutions.
User priority instead of uncertainty. At the beginning of the COVID pandemic, it was impossible to predict its impact and how it would unfold. Many of the expected scenarios did not materialize, and user priorities changed. As a result of the COVID pandemic, for example, the attitude towards hygiene altered and so has the demand for hygiene products and solutions. In 2020, there was great interest in converting biomass gas into hydrogen. Due to the ongoing gas crisis caused by the war in Ukraine, however, this technology is no longer prioritized. The same gas can be fed directly into the grid for a more attractive price. Demand is therefore strongly influenced by the environment. Successful practice companies differentiate by deploying a very clear picture of the future which serves as an anchor for partners and employees even in harsh and constantly changing environments.
Cooperation instead of complexity. Companies need to focus on their core competencies. In most markets, it is impossible to keep up on a competitive level for all the components of your product and business without innovative partners. Companies need to collaborate and understand how to work with suppliers, supply chains, and partners to enable a stable future.
C should also stand for communication. It's about not just creating a vision but establishing a lean communication cycle that promptly informs employees about changes.
Agility instead of ambiguity. There is still a misconception that agile working leads to unfinished products. However, if you see closely, the biggest challenge of agility is leadership’s anxiety about losing control. At the same time, agility may be the only productive way of working in modern fast-paced times.
The VUCA model, which describes the constant changes and disruptions companies face, is no longer sufficient to fully capture the complexity and interdependencies of today's rapidly changing business environment. The COVID pandemic and globalization have further increased the complexity and interdependencies of crises, making it necessary to update the VUCA model. By updating the model to include a proactive and positive mindset, companies can develop a vision to create anchor points for employees and prioritize user needs, allowing them to turn challenges into opportunities and work on new solutions in an ever-changing landscape.