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What is strategic human resource management?
What is strategic human resource management?

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4 Volatility, uncertainty, complexity and ambiguity

In our overview of the environment so far we have emphasised a number of features of turbulence and uncertainty. Most notably, we earlier referred to the acronym of VUCA. In their Harvard Business Review article, ‘What VUCA really means for you’, Bennett and Lemoine (2014) suggest that this level of complexity is often used to excuse the hard work of planning. However, the authors contend that one can prepare for a VUCA world. They reason that the four elements have different attributes and appropriate preparations can be made as follows:

Volatility

Volatile contexts throw up unexpected happenings and challenges. Crises and disasters can result in broken supply lines and loss of staff. Recommended responses include disaster planning, and building in slack. These mean extra expense, so the strategy has to match potential reward to the level of cost and risk incurred.

Uncertainty

In these contexts there is a shortage of experience and knowledge. As an example, a disruptive innovator may threaten established markets with a new product which displaces existing products or services (e.g. when desktop computers replaced mainframes, and, more recently, smartphones – which have largely replaced other mobile and fixed-line phones). The recommended approach is to invest in intelligence.

Complexity

A complex situation has many component elements which are interconnected. Some partial information is available but because of the volume or nature of it, this can be hard to interpret. As an example, a multinational firm has to cope with extensive variations in regulatory environments, cultures and tariffs. The recommended response is to build resources and capabilities to match the level of complexity.

Ambiguity

In these situations meanings and causal relationships are unclear. As an example, moving into new emergent markets presents unknown challenges. The recommended response is to experiment and pilot.

Activity 6: Preparing for a VUCA world

Timing: Allow around 30 minutes for this activity.

Part 1

Jot down in the space below your thoughts about how employers might respond to the environmental challenges represented as volatility, uncertainty, complexity and ambiguity.

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Part 2

Now answer the following question:

How would you use the VUCA model to advise a grocery retailer seeking to grow in its own domestic market while also planning for expansion into international markets? In particular what are the HR implications? We have reproduced the VUCA diagram below from ‘What VUCA really means for you’ (Bennett and Lemoine, 2014) to help you create a VUCA diagram for the grocery retailer. Click on ‘View’ below the diagram to access a blank version and add your notes, using the Characteristics, Example and Approach structure that you see here.

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Figure 3: VUCA grid (Bennet and Lemoine, 2014, p. 27)
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Figure 3 shows the VUCA diagram from Bennett and Lemoine (2014). It is shown in the form of a two by two grid, with a vertical axis and a horizontal axis which do not show values but have arrows at the end of the axes to suggest that values go up, in the case of vertical, or to the right, in the case of the horizontal axis. The vertical axis is labelled ‘How much do you know about the situation’, suggesting higher or lower knowledge, with the horizontal axis being labelled ‘How well can you predict the results of your actions?’ suggesting higher or lower predictability. The four VUCA concepts – Volatility, Uncertainty, Complexity and Ambiguity each have one square of the two by two grid, each with a list of characteristics, examples and approaches. At top left of the grid (higher knowledge, lower predictability) is ‘Complexity’. Characteristics are listed: ‘The situation has many interconnected parts and variables. Some information is available or can be predicted, but the volume or nature of it can be overwhelming to process.’ Example is listed: ‘A grocery retailer might find that different markets have diverse regulations, tax regimes and shopping habits and expectations.’ Approach is listed: ‘The retailer may respond by building local partnerships or with a programme of management development through expatriate placements, or with a targeted drive for local talent recruitment and so on.’ At the bottom left of the grid (lower knowledge, lower predictability) is ‘Ambiguity’. Characteristics are listed: ‘Causal relationships are completely unclear. No precedents exist; you face “unknown unknowns”.’ Example is listed: ‘Entry into an emergent market will make demands on knowledge and agility.’ Approach is listed: ‘Pilot experiments and recruitment of local staff may be considered.’ At the top right of the grid (higher knowledge, higher predictability) is ‘Volatility’. Characteristics are listed: ‘The challenge is unexpected or unstable and may be of unknown duration, but it’s not necessarily hard to understand; knowledge about it is often available.’ Example is listed: ‘a change of government in a foreign location may result in a change in tax policy or in tighter regulations, or an economic crisis may result in plummeting sales revenue.’ Approach is listed: ‘Planning options may include lobbying of governments, reconfiguration of supply chains or online delivery across national frontiers. Human resources would need to be in place to deliver on such strategies.’ At the bottom right of the grid (lower knowledge, higher predictability) is ‘Uncertainty’. Characteristics are listed: ‘Despite the lack of other information, the event’s basic cause and effect are known. Change is possible but not a given.’ Example is listed: ‘A new entrant to the market muddies the future of the business and market.’ Approach is listed: ‘Greater market intelligence is required, an investment in data analytics may be justified; investment may be required in enhanced customer service and thus in staff training and selection so that a new entrant possibly competing on cost such as an Aldi or Netto might be countered with a different customer offer.’

Figure 3: VUCA grid (Bennet and Lemoine, 2014, p. 27)
Interactive feature not available in single page view (see it in standard view).

How did your answers compare with the initial notes you made?

Discussion

Click on ‘View larger image’ to read our version of the VUCA model.

Described image
Figure 4: The four VUCA challenges (Based on Bennett and Lemoine, 2014)
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Figure 4 shows the VUCA diagram from Bennett and Lemoine (2014). It is shown in the form of a two by two grid, with a vertical axis and a horizontal axis which do not show values but have arrows at the end of the axes to suggest that values go up, in the case of vertical, or to the right, in the case of the horizontal axis. The vertical axis is labelled ‘How much do you know about the situation’, suggesting higher or lower knowledge, with the horizontal axis being labelled ‘How well can you predict the results of your actions?’ suggesting higher or lower predictability. The four VUCA concepts – Volatility, Uncertainty, Complexity and Ambiguity each have one square of the two by two grid, each with a list of characteristics, examples and approaches. At top left of the grid (higher knowledge, lower predictability) is ‘Complexity’. Characteristics are listed: ‘The situation has many interconnected parts and variables. Some information is available or can be predicted, but the volume or nature of it can be overwhelming to process.’ Example is listed: ‘You are doing business in many countries, all with unique regulatory environments, tariffs, and cultural values.’ Approach is listed: ‘Restructure, bring on or develop specialists, and build up resources adequate to address the complexity.’ At the bottom left of the grid (lower knowledge, lower predictability) is ‘Ambiguity’. Characteristics are listed: ‘Causal relationships are completely unclear. No precedents exist; you face “unknown unknowns”.’ Example is listed: ‘You decide to move into immature or emerging markets or to launch products outside your core competencies.’ Approach is listed: ‘Experiment. Understanding cause and effect requires generating hypotheses and testing them. Design your experiments so that lessons learned can be broadly applied.’ At the top right of the grid (higher knowledge, higher predictability) is ‘Volatility’. Characteristics are listed: ‘The challenge is unexpected or unstable and may be of unknown duration, but it’s not necessarily hard to understand; knowledge about it is often available.’ Example is listed: ‘Prices fluctuate after a natural disaster takes a supplier off-line.’ Approach is listed: ‘Build in slack and devote resources to preparedness – for instance, stockpile inventory or overbuy talent. These steps are typically expensive, your investment should match the risk.’ At the bottom right of the grid (lower knowledge, higher predictability) is ‘Uncertainty’. Characteristics are listed: ‘Despite the lack of other information, the event’s basic cause and effect are known. Change is possible but not a given.’ Example is listed: ‘A competitor’s pending product launch muddies the future of the business and the market.’ Approach is listed: ‘Invest in information – collect, interpret and share it. This works best in conjunction with structural changes, such as adding information analysis networks, that can reduce ongoing uncertainty.’

Figure 4: The four VUCA challenges (Based on Bennett and Lemoine, 2014)