Written by Prof. Dr. h.c. Roland Berger and Charles-Edouard Bouée
Game changer in today's VUCA world
Challenges keep us alive and alert. 2014 has been yet another year of political, social and economic upheavals. And where is 2015 heading? We have no way of knowing. Major shifts that change the world in a foreseeable way seem to be long gone, as do clear trends pointing in a definite, discernible direction. So how do we deal with so many imponderables? Welcome to a brave new world that marks the end of certainty, an unpredictable world, a world full of black swans and unknown unknowns! Much of the prevailing uncertainty is driven by geopolitical instability, by customers who wield more power than ever before, and by exponential technological innovation, all of which disrupts the competitive status quo of business models and presents challenges to entire industries and countries. As we will see, however, a complex world in a state of constant flux also harbors plenty of opportunities for the tech-savvy, the agile and the collaborative.
Complexity has long been fertile soil for academic deliberations. Cybernetics teaches us that only variety can destroy variety -- which essentially means that simple tools won't work. What's more, we are taught that closed systems that are rigid, inert and cannot keep up with the pace of change are doomed to fail. Sadly, what we are not told is how leaders and entrepreneurs can tackle volatility, uncertainty, complexity and ambiguity, either head on or hands on. In this think piece, we propose a philosophy that can genuinely help people and organizations successfully negotiate the many and varied pitfalls we will inevitably (and unforeseeably) encounter in today's VUCA world. Our idea is an approach we call Light Footprint management, which helps leaders stay agile and steer companies safely through both mild breezes and raging thunderstorms.
More clearly than ever before, 2014 showed us that, rather than looking out for preconceived developments and calculable curves, we need to think about the world in less linear terms. For every opportunity that opens up, at least one risk seems to crop up somewhere at the same time. This is true in many respects:
1. Peace and war -- in on-and-off mode. A few weeks ago, the Germans celebrated the 25th anniversary of the "Fall of the Wall" -- the event that heralded the end of the Cold War. The two-and-a-half decades that followed spawned all kinds of business opportunities, not only for Germany but for Europe as a whole. However, this broadly peaceful quarter century, having appeared to some to ring in the "End of History" (Franci Fukuyama), came to an abrupt end when serious crises flared up in regions such as North Africa, the Middle East and Ukraine. Less acute, but nevertheless potentially dangerous, are the mounting tensions in South and East Asia.
2. Globalization and localization -- coming in waves. In 2005, Thomas Friedman expected the world to become "flat". Very soon his description of our global economy -- The World Is Flat: A Brief History of the Twenty-First Century -- attained iconic status. Many believed in Friedman's vision that "we are now connecting all the knowledge centers on the planet together into a single global network, which [...] could usher in an amazing era of prosperity, innovation and collaboration, by companies, communities and individuals." In reality, however, what we see now is that globalization, while on fast forward in some areas of the world, is apparently on hold in others -- with some countries even opting for isolationism.
3. Equality and wealth -- a difficult relationship. When an economy prospers, social inequality has long been thought to decrease continuously. This correlation may be true for the global economy, as more and more people in emerging countries advance toward the middle class. Yet inequality in a given society may well continue to rise at the same time. For the Western world, too, French economist Thomas Piketty recently cast doubt on the entire mechanism. His analysis suggests that the rate of return on capital in developed countries is persistently greater than the rate of economic growth, and that this will cause wealth inequality to increase in the future. This effect may then be compounded by the digitization of major parts of the global economy.
4. Integration or break-up -- Europe on the edge. Persistently sluggish economic growth in Europe and relentless recession in most of the continent's southern countries has stoked up dangerous political and social tensions within countries and between EU member states. Both developments are unsettling the European project: Enormous youth unemployment in Southern European countries such as Spain and Greece creates the very real danger that a second "lost generation" could trigger consequences that last for decades. (The first "lost generation" was the one that followed World War I; the extent of its consequences requires no commentary whatsoever.) Yet perhaps even more disquieting is the fact that European countries seem to be making absolutely no progress toward agreement on how to address the imbalances that clearly exist. The austerity policies favored by the core states of the euro area are increasingly being opposed by those countries that are mired in crisis. The resultant tensions could very conceivably endanger the European Union in its entirety.
5. Victory and defeat -- global plagues make a comeback. When it comes to curing diseases and controlling their spread, humankind has chalked up some impressive victories: smallpox, tuberculosis and cholera have all been conquered. At the same time, we must prepare ourselves for the scenario of epidemics incubating in regions with weak healthcare systems and then spreading all over the world thanks to our globalized way of life. The latest example is the Ebola epidemic in West Africa, which has recently found its way to Europe and the US.
Taming the VUCA world means being aware of these risks (and others relating to strategic decisions) and developing a management style that can cope with -- or, dare we say it, even benefit from -- the uncertainty that has fundamentally changed the game. Now is definitely the time for a new management agenda.