After having explored the paradoxical demands put on strategy by the first element of VUCA (volatility) in my previous article, in this article I examine what its second element means for your strategy making: uncertainty.
Uncertainty refers to the extent to which we can confidently predict the future. Part of uncertainty is perceived and associated with our inability to understand what is going on. We often feel uncertain when things are out of our control or too hard to grasp. This is the subjective part of uncertainty.
Uncertainty, though, is also a more objective characteristic of an environment. Truly uncertain environments are those that don’t allow any prediction, also not on a statistical basis. Such uncertainty is the result of unexpected events, unpredictable human reactions and the vast complexity of our world that makes it impossible to reliably predict the effects of something happening. In short, the more uncertain the world is, the harder it is to predict. This can be summarized with the following picture:
High and Low Uncertainty
For your strategy approach to be effective in an uncertain environment, this means that you have to rely on other mechanisms than only prediction. ‘Control’ or ‘shaping’ is such mechanism. It refers to focusing on what you can control, shape, or get done within your own sphere of influence. An organization, for example, can take certain actions, deploy its resources, or establish partnerships without having to make strong predictions about them. By relying on those factors within your control, you reduce the need to predict, and thereby your dependency on prediction. This is the essence of what is sometimes called an ‘effectuation‘ approach to strategy, entrepreneurship and business in general.
On the other hand, prediction always remains an important basis of strategy, even in uncertain environments. Especially when you need to make large investments or radical changes to your organization, you want a reasonable degree of confidence before you take action. To some extent, confidence can be achieved by gathering detailed and relevant data. This has been the foundation of traditional strategy approaches and is reviving now with big data analytics, artificial intelligence and algorithmic approaches to strategy, focusing on the processing of detailed behavioral data as basis for making predictions.
Reliable data will often be lacking, though, especially if your organization is venturing in the unknown: into a new industry with a new product or a new business model. Data are by definition based on something existing in the past and therefore not always a reliable basis for making predictions for something new in the future. Furthermore, the fact that much of your organization’s success relies on the preferences and decisions of key people – particular customers, leaders, or other stakeholders – that often don’t behave rationally or as expected, makes the outcomes of a strategy hard to predict.
This makes people’s intuitive judgments an important complementary source of predictive knowledge. I don’t mean blind gut feeling, because that can be notoriously unreliable. What I mean is informed intuitive judgment that is made after serious consideration of relevant information but without trying to fully and rationally analyze that information. So, you do gather relevant information to base your judgment on, but let your subconscious play an important role in making the actual judgment in an intuitive way. As research shows, such judgment is most valid and accurate when made ‘intersubjectively’. This means in interaction between a heterogeneous group of people with different views and backgrounds.
Accordingly, a second demand for a strategy approach in a VUCA world is that it effectively combines an action-orientation focused on control with confident decision-making that is both data-driven and based on intersubjective judgment. Up next: Strategy in a complex world.
This post was published earlier here on my forbes.com page.
Image credit: Getty