JUNE 2016 / NO. 1
TAGS: VUCA, ENVIRONMENT, ADAPT
Six risk environments in our VUCA world
“Companies operate in an increasingly complex world: business environments are more diverse, dynamic and interconnected than ever – and far less predictable”, HBR J/F 2016
Many firms still follow the traditional approaches to strategy that were designed for more stable times, emphasizing analysis and planning and focused on maximizing short-term performance rather than long-term robustness. In early 2016 Harvard Business Review published research dealing with 30,000 public US-companies over a time span of 50 years. From 2016 to 2020 public companies had a 33% chance of being delisted, because of bankruptcy, liquidation, M&A or other causes.
This ‘mortality’ applied regardless of size, for how many years they had existed, or sector.
The following causes were identified:
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Failing to adapt to the growing complexity of their environment
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Misreading the environment
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Selecting the wrong approach to strategy
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Failing to support a viable approach with the right behavior and capabilities
In strategic intelligence, we act in a VUCA (Volatile-Uncertain-Complex-Ambiguous) world. The HBR identified six risk environments:
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Collapse: change from within or outside the industry renders the firm’s business model obsolete
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Contagion: shocks in one part of the economy or business ecosystem spread rapidly to other parts
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Fat-Tail: rare but large shocks such as natural disasters, terrorism and political turmoil
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Discontinuity: the business environment evolves abruptly in ways that are difficult to predict
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Obsolescence: failing to adapt to changing consumer needs, competitive innovations or altered circumstances
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Rejection: participants in the ecosystem reject the company as a partner
The dynamics and complexity of the business environment will remain strong for the foreseeable future. A paradigm shift in managerial thinking is needed: how can we win this game? And how can we extend the game? Companies must monitor the changing dynamics of their environment on a 24/7 basis and align their strategies with the threats they face. Does your organization have a company radar in place?
“There will be always someone, some company, some organization that will take over your position and your customers”
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