VUCA OVERVIEW

1. UNDERSTANDING THE FUTURE

a. Megatrends:
i. Demographics
ii. Globalization
iii. Technology
iv. Economic power shift
v. Climate change and resource depletion
b. Black Swan events

2. OVERVIEW OF VUCA
a. Strategy
b. Volatility: unstable and unexpected change for unknown situation
c. Uncertainty: unable to know everything fully
i. Levels of uncertainty: Clear enough future, Alternate futures, Range of
futures, True ambiguity
ii. Strategic Postures: Shape the future, Adapt to the future, Reserve the right
to play
iii. Portfolio of actions: Big bets, Options, No-regrets moves
d. Complexity: many interconnected parts/ variables forming an elaborate network of
information or procedures
i. Institutional complexity
ii. Individual complexity
e. Ambiguity: lack of clarity/ knowledge
i. Solutions: systems thinking, experimentation, organizational agility

3. UNDERSTANDING CONTEXT: FROM THE LENS OF SPEED

a. First order capabilities
b. Types of markets: slow cycle, fast cycle, standard cycle
c. Adaptive capabilities
i. Ability to read and act on signals of change
ii. Ability to experiment rapidly and frequently
iii. Ability to make complex multi-company systems
iv. Ability to mobilize resources and motivate employees
d. Time pacing: scheduling change at predictable time intervals according to the
calendar
i. Transitions: process of changing from one state/condition to another
ii. Rhythms: create momentum for change, helps managers plan ahead and
synchronize activities
iii. Different from event pacing: change in response to events
4. UNDERSTANDTING CONTEXT: FROM THE LENS OF DISRUPTION
a. Disruptive innovation: innovation that creates new market and value network,
eventually disrupts an existing market and value network, displacing established
market leaders and alliances
b. Sustaining innovation
c. Capabilities

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 i. Resources
ii. Processes
iii. Values
d. Phases of disruption
e. How to disrupt
i. Find new customers
ii. Find new business models
f. Creating capabilities to cope with change
i. Creating new capabilities internally
ii. Spinout organization
iii. Acquisitions

5. UNDERSTANDING CONTEXT: ORGANISATIONAL BOUNDARIES

a. Organizational boundaries: imaginary dividers meant to distinguish a unit/ company
from external but nearby influences
b. Boundary decisions from transaction cost analysis
i. Governance
1. Market governance
2. Intermediate governance
3. Hierarchical governance
ii. Transaction-specific investment  opportunistic behavior
1. Transaction specific investment
2. Opportunism
c. Boundary decision from capability consideration
i. Cooperation with firms
ii. Develop capabilities needed in house
iii. Acquire another firm
d. Organizational boundaries
i. Vertical
ii. Horizontal
iii. Stakeholder
iv. Demographic
v. Geographic
e. Boundary-spanning model
i. Nexus effect
ii. Great divide
iii. Boundary spanning leadership
1. Direction
2. Alignment
3. Commitment
f. Boundary spanning practices
i. Buffering
ii. Reflecting
iii. Connecting
iv. Mobilizing
v. Weaving
vi. Transforming

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6. LEARNING FROM EXPERIENCE
a. Organizational learning: the capacity/ processes within an organization to maintain/
improve performance based on experience
b. Single vs double loop learning
c. Learning organizations
i. Knowledge type
1. Tacit
2. Codified
ii. 3 stages of learning
1. Knowledge acquisition
2. Knowledge sharing
3. Knowledge utilization
iii. Learning orientations
1. Knowledge source
2. Product-process focus
3. Documentation mode
4. Dissemination mode
5. Learning focus
6. Value-chain focus
7. Skill development focus
iv. Facilitating factors
1. Scanning imperative
2. Performance gap
3. Concern for management
4. Experimental mindset
5. Climate of openness
6. Continuous education
7. Operational variety
8. Multiple advocates
9. Involved leadership
10. Systems perspective
d. Analytics
i. Requirements for capitalizing on analytics 3.0
1. Multiple types of data, often combined
2. New set of data management options
3. Faster technologies and methods of analysis
4. Embedded analytics
5. Data discovery
6. Cross-disciplinary data teams
7. Chief analytics officers
8. Prescriptive analytics
9. Analytics on an industrial scale
10. New ways of deciding and managing

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7. BUILDING CAPABILITY: FUTURE SCENARIOS
a. Strategy as options for the future
i. Uncover the hidden constraints
ii. Establish processes
iii. Optimize the portfolio
iv. Combine planning and opportunism
b. Scenario planning
i. Orientation
1. Define the scope
2. Identify the major stakeholders
ii. Exploration
1. Identify basic trends
2. Identify key uncertainties
iii. Scenarios and narratives
1. Construct initial scenario themes
2. Check for consistency and plausibility
3. Develop learning scenarios
iv. Options consideration
1. Identify research needs
2. Develop quantitative models
v. Integration of scenarios into current management process
1. Evolve towards decision scenarios

8. FRAMEWORK FOR FUTURE THINKING

a. Theory: statement predicting which actions will lead to what and why
b. Stages of theory construction
i. Description of some phenomenon we wish to understand
ii. Defining and categorizing the phenomenon
iii. Formulate a hypothesis of what causes the phenomenon to happen and why
c. 3 aspects to consider
i. Pinpointing causation
ii. Moving towards predictability
iii. Importance of failures
d. Integrative thinking
i. 4 stages of decision making
1. Determining salience
2. Analyzing causality
3. Envisioning the decision architecture
4. Achieving resolution

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9. LEADING AND MANAGING ON THE EDGE
a. Organizational resilience
i. Zero trauma
ii. 4 challenges to resilience
1. Cognitive challenge
2. Strategic challenge
3. Political challenge
4. Ideological challenge
iii. Solutions
1. Conquering denial
2. Valuing variety
3. Liberating resources
4. Embracing paradox
b. Agility
i. Organizational agility
1. Operational agility
2. Portfolio agility
3. Strategic agility
c. Absorption
i. 10 ways to build absorption
1. Low fixed costs
2. War chest of cash
3. Diversified cash flows
4. Vast size
5. Tangible resources
6. Intangible resources
7. Customer lock-in
8. Protected core market
9. Powerful patron
10. Excess staff
d. Agile absorption

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10. VUCA INTEGRATION
a. Competing on the edge: strategy as a creation of a relentless flow of competitive
advantages that, taken together, form a semi-coherent strategic direction
b. Key assumptions
i. The marketplace is in constant flux
ii. Firms composed of numerous parts that form complex, adaptive systems
c. Ways of managing change
i. Reacting to change
ii. Anticipating change
iii. Leading change
d. Semi-coherent strategic direction
i. Unpredictable
ii. Uncontrolled
iii. Inefficient
iv. Proactive
v. Continuous
vi. Diverse
e. Ways to compete on the edge
i. Edge of chaos
ii. Edge of time
iii. Time pacing
f. Rules of competing on the edge
i. Strategy
1. Advantage is temporary
2. Strategy is diverse, emergent and complicated
3. Reinvention is the goal
ii. Organization
1. Live in the present
2. Stretch out the past
3. Reach into the future
4. Time pace challenge
iii. Leadership
1. Grow the strategy
2. Drive strategy from the business level
3. Repatch the business into markets and articulate the whole

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Practice

1. What are megatrends?

Megatrends refer to long term change that impact the society, government and economy
permanently over long periods of time.

One megatrend is demographics. The population has been increasing at an exponential rate,
especially is rapidly industrializing and less developed countries in Africa and Asia, and while this
creates new potential in terms of a larger, younger, labour force in these nations, it also strains our
natural resources. At the same time, the ageing population in developed nations serve as an
opportunity for the development of newer, silver industries to cater to the needs of the elderly.

Globalization: the increasing movement of goods and services across national borders. Opportunities
 allow the spread of capital, knowledge, enabled companies to set up operations overseas, reach
out to a larger audience. But challenge lies in intellectual property rights, brain drain, maintaining
culture?

Technology: now spread faster and to even more remote areas due to globalization. New forms of
communication and transport, robotics, enable people to be more efficient. Opportunities for
organizations to use analytics to formulate strategies specific to the needs of their consumers.
Challenges: allowing all to access and use technology? Digital divide.

Economic power shift: US seen as dominant force but increasingly china is catching up at first
providing low cost labour, cheap raw materials, but now increasingly educated and using
sophisticated technology. Africa as an under-tapped market with huge potential given young labour
force and south east asia rapidly industrializing, developing, and opening up their markets?

Environmental: businesses have exploited environment, strain on resources, impact indigenous

livelihoods. Global warming, rising sea levels a threat to all areas.

2. Define what is VUCA.

Volatility: unexpected and unstable change over an unknown period of time  turbulence. Driven
by forces such as digitization, trade liberalization, political forces etc. Firms need to be prepared
(have flexible systems in place, built in absorption to create a buffer against hard times), and match
the risk by allocating resources according to risk levels (mobilizing resources).

Uncertainty: unable to know everything fully  caused by lack of information. Cannot predict what
is going to happen next. Solutions need to tackle ways to increasing information  eg. building
intelligence operations, collect, interpret and share information, gather information from new
sources, look at things from various perspectives, developing learning organizations.

Complexity: many interconnected parts forming an elaborate network of information. Complexity

not the same as complicated. Individual complexity a result of poor processes and management
 should be identified and reduced. Institutional management  things like the number of
countries in which they operate, the number of products/ processes/ relationships etc. Need to
remove complexity that doesn’t add value and retain those that do. 4 different types of complexity.
Imposed: due to government regulation (cannot be removed, no control over it), inherent: those
that are part of the system and business processes, designed: a result of the decisions and choices
made (can be reduced or changed) and unnecessary: due to unclear accountabilities (should be
removed)

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Ambiguity: lack of clarity of the meaning of an event and lack of knowledge on the rules of the game.
Results due to volatility, uncertainty and complexity. Haziness of reality, mixed meanings, no clear
causal relationship. Need to use systems thinking  viewing the organization has a whole with many
interconnected areas, gain different perspectives and contexts to view the organization. Rapid
experimentation to gain some clarity about meaning of event, develop organizational agility so they
can react quickly and on time.

3. What are the levels of uncertainty, strategic postures and portfolio of actions of organizations?

4 levels of uncertainty: clear enough future  develop single forecast precise enough for strategy
development. Use traditional strategy toolkit eg. analyzing cost, competitor and industry behavior
etc. usually adapt to remain at low levels of uncertainty. Alternative futures: a few possible discrete
outcomes but not clear idea of which one is likely to occur. Use analytical tools like decision analysis,
option valuation models and game theory to predict which one is most likely to occur. More likely to
be a shaper to increase chances that one of the outcomes will occur. A range of futures  range of
possible outcomes but no discrete scenarios. Use tech forecasting, scenario planning to predict
scenarios and reduce level of uncertainty. True ambiguity- no idea of future outcomes, impossible to
predict anything. Usually transitional form. Use analysis and pattern recognition, non-linear dynamic
models to collect information.

3 strategic postures: shaper play leadership role in leading change, helps to gain market share and
brand recognition. Adapt to the future win through speed, agility and flexibility in responding to
changes and opportunities. Reserve the right to play  invest sufficiently to stay in the game but
avoid making premature commitments.

3 portfolio of actions: Big bets  significant positive payoff in one scenario and a negative effect in
others  very risky and large commitment. Options  positive payoffs in one scenario and a small
negative effect I others. No-regrets move  positive payoffs in all scenario

4. What are second order capabilities and how can firms be adaptive?

Second order capabilities: company’s attributes, abilities and assets that are difficult to duplicated or
exceed.  in contrast to first order capabilities, which are tangible resources like size, capital, scale
etc, but which is only temporary in VUCA world. Need second order capabilities in order to develop a
sustainable comparative advantage to be superior to other organizations.

4 adaptive capabilities. Ability to read and act on signals of change  identify change, analyze
change and act on it, to refine business model and reshape information landscape, rely on data-
driven business decisions through analytics 3.0. Ability to experiment rapidly and frequently 
generate, test and replicate a large number of innovative ideas faster, which lower cost and at less
risk, broaden scope of experimentation: eg. P&G and firm Innocentive design simulations. Ability to
manage complex multicompany systems: use effective strategies at network/ system levels, broad
signal detection, parallel innovation, rapid mobilization. Ability to mobilize resources and motivate
employees, drive decision to the front line, facilitate interaction, modular units, focused goal with
flexible rules.

5. What is time pacing and how is it different from event pacing?

Time pacing: scheduling change at predictable time intervals according to the calendar, ensures that
companies do not change too quickly or slowly (resist the urge for changing too often), helps
managers anticipate change, encourages continuous R&D. rhythmic, proactive, regular. Transitions:
process of changing from one state to another  clear choreographed processes, clear

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communication, opportunities for broad-based change. Rhythms: create momentum for change,
helps managers plan ahead and synchronize activities, align with rhythms in the market and with
internal capabilities.

Event pacing: change in response to events

6. What is the difference between disruptive innovation and sustaining innovation?

Disruptive innovation: innovation that creates new market and value network, eventually disrupts
existing market and value network, displacing established market leaders and alliances (new
customers/ new context of use- undervalued by current customers+ compete against non-
consumption + compete on lower price points + improved performance on new attributes + new
business models).

Sustaining innovation: innovations companies often need to stay in the game (incremental/
variations on a theme + most profitable customers in existing market + similar to existing model)

7. What are the firm’s organizational capabilities and how can they create capabilities to cope with
change?

Resources (tangible + intangible), processes (patterns of interaction, coordination, communication,

decision making employees use to transform resources into products and services of greater worth),
values (standards by which employees set principles that enable to make decisions independently,
consistent with the strategic direction and business model of the company). Over time, capability
evolve from resources to processes to values, values harder to change especially if they are
embedded into the culture of the firm.

Creating capabilities internally (when capability reside in processes)  create heavyweight teams,
cross-functional teams. Spinout organization  when innovation requires different cost structure to
be profitable, size of opportunity cost insignificant relative to growth needs of organization.
Acquisitions  acquire different organization whose processes and values match the requirement of
the new task.

8. How do firms decide on organizational boundaries?

Organizational boundaries: imaginary dividers meant to distinguish a unit from external but nearby
influences. Decision from transaction cost analysis (type of governance, level of opportunism) +
capability considerations.

Transaction cost analysis: condition under which firms should manage a particular economic
exchange within their organizational boundary and conditions under which it should be outsourced.
Governance: market manage exchange when they interact with other firms at arm’s length in a
nameless, faceless market, intermediate complex contracts and other forms of strategic alliances,
hierarchy  bring exchange within boundary)

Transaction specific investment: any investment that is significantly more valuable in a particular
economic exchange than in any alternative exchange. Threat of opportunism  when a party to an
exchange takes unfair advantage of other parties in that exchange.  need to balance threat of
opportunism with cost of governance?

Capability considerations: 1) Cooperate (market: prices/ intermediate: alliances) 2) Develop

capabilities in house (hierarchical)- but may be costly: ability to create capability depends on unique
historical conditions, path dependent, socially complex, ambiguous. 3) Acquire another firm

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(hierarchical)- legal constraints, reduce value of capabilities held in acquired firm, strategic flexibility
and uncertainty, unwanted baggage and diffused capability

9. Name the organizational boundaries and how firms can achieve the nexus effect through the
boundary spanning model.

Vertical (floors and ceilings that separate groups according to rank and privilege), horizontal (walls
that separate groups according areas of experience and expertise), stakeholder (when organization
seeks to serve own interests at the expense of external powers), demographic (workers defined
according to race, gender, education), geographic (physical separation)

Nexus effect: when firms can achieve much more together than they can on their own. Great divide:
when intergroup boundaries collide and groups feel threatened by their differences.

Boundary spanning leadership: ability to create direction (shared understanding), alignment (joint
coordination) and commitment (dedication) across group boundaries in service of a higher goal

Boundary spanning practices: buffering (shielding group members from undue outside influences so
as to maintain a clear group identity), reflecting (sensitizing group member’s to counterparts values,
roles, priorities), connecting (temporarily put aside group identities and step inside a neutral zone),
mobilizing (reframe boundaries and craft common purpose), weaving (group boundaries interlace
yet remain distinct), transforming (groups create new identities and new possibilities by reworking
boundaries between them).

10. What is organizational learning and how do firms practice single and double loop learning?

Organizational learning: the capacity within an organization to improve performance based on

experience

3 stages in organizational learning: knowledge acquisition, knowledge sharing, knowledge utilization

Single loop: repeated attempt at the same problem with no variation of method and without every
questioning the goal or assumption.

Double loop: when individual is able to, after having attempted to achieve the goal on various
occasions, modify the goal in light of experience/ explicitly identify and then challenge the
underlying assumptions

11. What are the learning orientations and facilitating factors in organizational learning?

Learning orientation: values and practices that reflect where learning takes place and the nature of
what is learned. 1) knowledge source- develop internally innovate or acquire/adapt 2) product-
process focus- focus on end product or how to achieve it 3) documentation mode- documented
personally or shared publicly 4) dissemination mode- share it formally through organization wide
means or informal, individual 5) learning focus- incremental/corrective or transformative/radical 6)
value-chain focus- market and deliver or design and make 7) skills development focus- individual or
group skills (KPDDLVR)

Facilitating factors: structures and processes that affect how easy it is for learning to occur and how
much effective learning takes place. 1) scanning imperative- gather information about external
environment 2) experimental mindset- support for trying new things 3) continuous education-
encourage lifelong learning 4) concern for measurement- respond to feedback that metrics provide
5) climate of openness- accessibility to info, open communication 6) Operational variety- variety of
methods, procedures and systems 7) Multiple advocates- learning advanced by employees at all

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levels 8) involved leadership- leaders engaged in implementation 9) Systems perspective- look at
internal systems as source of difficulties 10) performance gap- recognizing performance shortfalls
(SPECCCOMIS)

12. What is Analytics 3.0 and how can firms capitalize on it?

Analytics: able to produce and capture a large volume of information and discern patterns in it far
more quickly than the unassisted human mind ever could

Analytics 3.0- Prescriptive, uses big + small data  analyze data for the benefit of the consumers and
for creating more valuable products and services + embed analytics into business decisions

Requirements for capitalizing on analytics 3.0: 1) Multiple types of data, often combined 2) New set
of data management options 3) Faster technologies and methods of analysis 4) Embedded analytics
5) Data discovery 6) Cross disciplinary data teams 7) Chief analytics officer 8) Prescriptive analytics 9)
Analysis on industrial scale 10) New ways of deciding and managing

Challenges: which data to use, which algorithms to use, how to make business sense out of it

13. How do firms develop a portfolio of strategic options?

To 1) rapidly change its strategic direction 2) hedge yourself against major risk 3) reposition itself
faster than competitors

1) uncover the hidden constraints  market knowledge constraints + capability constraints 2)

establish processes  minimize cost in building and maintaining portfolio + build capability 3)
optimize the portfolio  consider alternative capabilities and potential future markets 4) combine
planning and opportunism  bounded opportunism: choose strategy in line with long term goals

14. What is scenario planning?

Disciplined method for imagining possible futures that consumers have applied to a great range of
issues

Capture richness and range of possibilities + organize possibilities into narratives + challenge the
prevailing market

1) Define the scope  products, markets, geographic area, technology 2) Identify the major
stakeholders  roles, interests, power, positions 3) Identify basic trends 4) Identify key uncertainties
5) Construct initial scenario themes  identify extreme worlds and string of outcomes 6) Check for
consistency and plausibility  contradicting scenarios 7) Develop learning scenarios organize
possible outcomes around themes 8) Identify research needs 9) Develop quantitative models
quantify consequences of scenarios 10) Evolve towards decision scenarios

15. How do firms construct theories?

Theory: statement predicting which actions will lead to what and why

Stages of theory construction: 1) description of phenomenon we wish to understand 2) defining and

categorizing the phenomenon in ways that highlight their meaningful differences 3) formulate a
hypothesis  iterative process

Aspects to consider: 1) pinpointing causation  correlations do not lead to causality, understand

underlying mechanism 2) moving towards predictability  circumstance contingent categories 3)
importance of failures  identify when companies did what was prescribed but failed

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16. What is integrative thinking?

Hold two opposing ideas in the mind and creatively resolve tension between the two ideas by
generating the new idea that contains elements of others but is superior to both

1) determining salience  what factors are important; consider less obvious but potentially relevant
factors 2) analyzing causality  consider multi-dimensional, non-linear relationships 3) envisioning
the decision architecture  see problems as a whole 4) achieving resolution  generate innovative
outcomes, refusal to accept trade-offs

17. What is organizational resilience and how do firms achieve it?

Dynamically reinventing business models and strategies as circumstances change + continuously

anticipating and adjusting to deep secular trends + having the capacity to change

Zero trauma: a strategy that is forever morphing, conforming itself to emerging opportunities and
incipient trends

Challenges: cognitive (free of denial), strategic (creating new options as compelling alternatives),
political (divert resources), ideological challenge (embrace a creed that goes beyond operational
excellence)

Solutions: 1) conquering denial  visit places where change happens first + filter out the filterers +
face up to the inevitability of strategic decay 2) valuing variety  broad based, small scale
experimentation 3) liberating resources  free up resources to support broad array of strategy
experiments + promote free flow of capital and talent to support new initiatives 4) embracing
paradox  balance between relentless pursuit of profit and relentless exploration of new strategic
options

18. What is agile absorption?

Organizational agility: ability to consistently identify and capture business opportunities more
quickly than rivals do. 1) Operational agility ability to find and seize opportunities to improve
operations and processes 2) Portfolio agility ability to quickly and effectively shift resources out of
less promising units and into more attractive uses 3) Strategic agility the ability to spot and
decisively seize the golden opportunities

Absorption: create buffer against hard times. 1) low fixed costs 2) war chest of cash 3) diversified
cash flows 4) vast size 5) tangible resources 6) intangible resources 7) customer lock-in 8) protected
core market 9) powerful patron 10) excess staff

Agile absorption: agility + absorption complement each other. 1) recognize sources of absorption
may vary in terms of its effect on agility 2) manage trade-offs between agility and absorption 3)
maintain a culture of agility

19. What is competing on the edge? What is a semi-coherent strategic direction and how do firms
compete on the edge?

Strategy as the creation of a relentless flow of competitive advantages, that taken together, form a
semi-coherent strategic direction

Assumptions: 1) marketplace is in constant flux, continuously deforming landscape 2) firms

composed of numerous parts/ agents that form complex, adaptive systems

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Managing change: 1) reacting to change 2) anticipating change 3) leading change

Semi-coherent strategic direction: 1) proactive  anticipating and leading change 2) inefficient

failure as opportunity for growth 3) continuous  rhythm of continuous moves 4) uncontrolled
moves in line with strategic direction 5) unpredictable 6) diverse  variety of moves

1) Edge of Chaos balance between structure and chaos, decide what to structure 2) Edge of Time
 balance between focusing on present vs past, manage all timeframes simultaneously without
being trapped 3) Time Pacing  managing transitions and setting the right rhythm

20. What are the rules for competing on the edge?

Strategy: 1) Advantage is temporary  focus on new sources of advantage 2) Strategy is diverse,

emergent and complicated 3) Reinvention is the goal  find new sources of revenue

Organization: 4) Live in the present  maximize minimal structure 5) Stretch out the past 6) Reach
into the future 7) Time pace challenge

Leadership: 8) Grow the strategy 9) Drive strategy from the business level 10) Repatch the business
into markets and articulate the whole

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