WINNING IN A VUCA WORLD

Introduction:

We are living in a world where volatility and uncertainty have become the New Normal. The Arab Spring saw a change of government in countries like Tunisia, Egypt, Libya, and Yemen. Once powerful countries in Europe are now fighting bankruptcy. We have taken growth in the developing part of the world for granted, but economic growth in China and India – growth engines for the world economy – has begun to slow.

Companies that were synonymous with their product categories just a few years ago are now no longer in existence. Kodak, the inventor of the digital camera had to wind up its operations. HMV, the British entertainment retailing company, and Borders, once the second largest US bookstore, have shut down due to their inability to evolve their business models with the changing times.

A VUCA World

The dynamic and fast-changing nature of our world today is best described by VUCA, a term coined by the US Army War College. VUCA stands for Volatility, Uncertainty, Complexity, and Ambiguity.

A few years ago the Lebanese American scholar Nicholas Taleb introduced the concept of black swans - events that are difficult to predict because they are low probability outliers so the past provides no reliable precedent. And yet these black swan events have a huge and profound impact. Think of the September 11 terrorist attacks or the rise of the Internet. We live now in a VUCA world surrounded by black swans. This is the New Normal.

But even within this unpredictably changing world, there are a few important underlying megatrends that will shape our future.

Megatrends

1.    Digitalisation:

The first of these megatrends is digitisation. It is worthwhile to step back and look at the recent history of human invention. The first telegraph machine was invented in 1838. Forty years later Alexander Graham Bell invented the telephone. It took over another forty years for us to invent the television and yet another forty to invent the silicon integrated circuit chip in the 1960s.

But it has taken less than forty years since the silicon chip to put all of those things – a telegraph, a telephone, a television, a computer chip, and much, much more – into one device that fits into the palm of our hand, the smartphone.

Today, there are almost as many mobile phones in the world as there are people. More than one-third of the world is online – a fivefold increase over the last decade. Facebook now has more than 1 billion active users; YouTube gets more than 100 hours of video content added every minute, and over 175 million tweets are added to Twitter timelines every single day. Interestingly enough, Facebook, YouTube, and Twitter did not exist a decade ago!

We are increasingly living in an interconnected world and this has changed how we interact with each other, and with governments and companies. Digitisation is now advancing even more rapidly and fundamentally changing the way business and society works. It presents both opportunities and challenges and the companies that adapt to this reality will succeed in the future.

2.    Rise of the developing world

At the same time, there is another megatrend happening. The world order is changing as economic power shifts from West to East. According to a 2012 McKinsey study, it took Britain more than 100 years to double its economic output per person during its industrial revolution and the US later took more than 50 years to do the same. More than a century later, China and India have doubled their GDP per capita in 12 and 16 years respectively. Significantly, China and India accomplished this while having about 100 times the population base as the US and Britain did during their industrial revolutions. The report goes on to state that “the two leading emerging economies are experiencing roughly ten times the economic acceleration of the Industrial Revolution, on 100 times the scale – resulting in an economic force that is over 1,000 times as big.” And we are just at the beginning of this massive transformation.

For the last century, the developing world produced for the developed world to consume. But by 2020, emerging Asia will become the world’s largest consuming block, overtaking North America. This changing balance of power is redefining the world of business.

This megatrend also presents both opportunities and risks to the business. Companies reorganizing their resources and leadership development towards the new economic centre of gravity will benefit. Others will fall behind.

Winning in a VUCA World

Putting the four dimensions of growth together is the key to unlocking not just how business can win in a VUCA world, but also to rediscover its true role in society. To do this, businesses need to first put in place the right hardware.

1.   Foresight and agility

Winning in a VUCA world requires the ability to simultaneously manage both the short-term and the long-term goals of a business. In turbulent and fast-changing times, businesses need to be anchored in a long-term destination while also dynamically managing the short-term.

The role of leadership is to have a clear point of view about the future and build an organization that can navigate towards that destination through good times, and importantly, also in bad times.

2.   Consumer centricity

As the world changes, consumers are also changing. There is an emerging poor in the developed world and an emerging affluent in the developing world. The way people shop and consume is also changing. More than ever, businesses must have an insight into the changing needs and aspirations of their consumers to be successful.

Employees must be encouraged to constantly engage with consumers and customers to understand their needs and preferences. The success of HUL in serving low-income

consumers and leading market development have come from a simple consumer insight of making our brands accessible through low unit-priced formats and a business model of reverse engineering our costs to support the price that consumers are willing to pay.

3.   Think local and act global

To consistently succeed in the VUCA world, one also needs to be globally leveraged and locally relevant. A very common phrase used by multinationals is 'Think Global, Act Local'. The success of global brands like Dove, TRESemmé and Knorr are just a few examples of this approach. Organisations of tomorrow need to be neither hopelessly local nor mindlessly global.

4.   Attracting great talent

The ability to attract, develop and retain the best talent is what makes businesses successful in the long-term. Increasingly, young men and women want to work for a company that reflects their own values. If they believe in a common vision and the larger corporate purpose, they are motivated to deliver great performance. It is no longer enough to be working for a business that is doing well if it is not also doing good.

Employer Brand is as important a driver of business as any of the financial measures. Successful global leaders of tomorrow must build commitment from their employees rather than just demand blind loyalty. This is only possible if businesses take a long-term and holistic view of our role in society.