Decision Making During Uncertainty

VUCA – Volatility Uncertainty Complexity Ambiguity

The acronym VUCA was first used in 1987. This was part of the response of the US army war college to the collapse of the USSR. Suddenly there was no longer the “only” enemy, resulting in new ways of seeing and reacting.

Neither an organization nor its strategies are spared in the VUCA world of today. There is no “the” way or “the” tool. Nowhere is this better demonstrated than in the global response to the Covid Pandemic – think about it – lockdown or no lockdown, open borders or close, mandate vaccination or allow choice and the list goes on.

The big underlying factor today that drives uncertainty is the pandemic – it has impacted business, travel, hospitality, entertainment, education etc. Some businesses have collapsed while others have thrived! A pivot to digital has been a lifesaver for many businesses, but not for all.

Other factors that contribute to our VUCA world –

-?????????Greenflation – wherein certain commodities/ products are no longer are in favour due to their negative implications on climate change. The resultant impact to the supply situation creates a spike in cost (fossil fuels, minerals/ metals dependent on mining etc)

-?????????Political tensions – particularly geopolitical conflict situations tend to create a sharp uptick in uncertainty that affects everyone (look at the Russia-Ukraine situation and its impact on markets)

-?????????Terrorist acts – we have seen repeatedly how these incidents are disruptive in the short term and can trigger longer term policy changes that have implications for everyone

-?????????Loss of liquidity due to a credit crisis – what happened in 2008 with the Global Financial Crisis

-?????????Changing policy environment – Think about EdTech companies in China dealing with the government mandating that they should be non-profit. Many sovereign governments expect data relating to their citizens/ residents be processed and stored onshore etc. Legislation changes, particularly those with retrospective effect (remember the “retrospective” tax law changes)

-?????????Natural disasters (eg earthquakes, floods etc)

-?????????Accelerating technology change – This is less of an evolution and more of a continuous disruption of the status quo. Digitization has permeated all sectors and created new business models and services. Did you imagine a few years ago that there would be an Uber like offering for Operating Theatres in hospitals? Or an AI based insurance claims and grievance service with outcome-based revenue? Consider how UPI is crowding out the payments market particularly for the credit card networks – this was unthinkable 4 years ago.

-?????????Shift in demographics – an aging population is a looming threat in many countries. Equally it also creates a large market for products and services for this segment of the population

-?????????Global supply-chain disruption – think semiconductor chip shortage, Active Pharmaceutical Ingredient (API) supply dominance by China etc.

How does one respond?

When faced with extreme danger the hard-wired human response is “fight-or-flight.” But it appears that when faced with extreme uncertainty, the general approach is procrastination or brash action and, in both cases, with incomplete or biased data. Where there has been a thoughtful approach backed with sound data and analysis, the chances of successfully navigating the uncertain environment are vastly improved.

Some examples to reflect on:

1.??????The Serum Institute of India (already the world’s largest vaccine manufacturer) deciding early in the pandemic to expand its vaccine production capacity

2.??????Automobile manufacturers and ancillary supplier switching production lines to EVs and related parts

3.??????Banks in India not completely recognizing UPI to be the game changer it has become in the micro-payments market.

You will notice that these situations require big bets – unfamiliar, high stakes decisions. In normal circumstances, postponing a decision to wait for more data, can still work. But in an uncertain situation (where there is urgency and imperfect info), postponing the decision is also a decision.

1.??????Take a pause – step back, take stock, anticipate, and prioritize. DO NOT PANIC.

a.??????Remember Captain Chesley Sullenberger – Sully. In Jan 2009 he took off from LaGuardia airport. Soon after the aircraft experienced a bird hit and both engines were down. He had to decide on landing at a nearby airport or do a water landing. There was no training for such a scenario. He reflected for a few seconds and decided to do a water landing on the Hudson River. All 155 people on board survived.

b.??????With huge demand for medical oxygen in the first and second wave in India, there was a massive crisis building up. But not in the Nandurbar district in Maharashtra. The DC, Dr. Rajendra Bharud anticipated this demand spike and had an O2 plant built to supply medical O2 to the local hospital by the time the second wave hit

c.???????The large hotel chains who catered to business travelers suffered from loss of business. However, the smart ones who were able to switch to servicing leisure travelers (once the lockdown eased) managed to salvage their business

2.??????Let go of old habits. Ask the right questions. Listen, experiment, notice and learn

3.??????Involve more people – The Boss does not have all the answers!

-?????????In a VUCA environment, there is no playbook. And therefore, no single individual has all the answers

-?????????The prudent way is to involve people across disciplines and leverage their collective knowledge and experience in dealing with the situation

4.??????Make the critical small choices –e.g., Netflix moved to lower-res streaming so as not to crash the internet

5.??????Empower leaders – Identify those who have lived through a crisis and shown resilience, those who right but made tough/ unpopular decisions and those who have willingly given bad news up the chain

6.??????Take Bold Decisions– e.g., movies releasing on OTT platforms since cinema halls are constrained. Sports events being put off (E.g., Euro 2020, Olympics 2020, IPL2021 etc.)

7.??????Plan and prepare – I cannot emphasize this enough. Conducting crisis simulation exercises regularly and refining the playbook with involvement of senior leaders in the organization is invaluable. Build organizational muscle memory in dealing with crises

To Conclude

• Learn to act quickly but thoughtfully with available info and recognizing that there is no playbook
• Learn as much as possible about the options (without procrastinating)
• Avoid emotional risk taking
• Avoid unnecessary risk/ defer those risks that are in your control
• Keep options open where feasible
• Get the best people engaged in dealing with the situation
• Plan and prepare