The Impact of VUCA on Strategic Planning
“If I had an hour to solve a problem, I’d spend 55 minutes thinking about the problem and 5 minutes thinking about solutions.” Albert Einstein
Emerging needs of stakeholders, complex goals, quantifying value created, preparing for future challenges and the need for a single source of trust about strategy — these are the effects of the increasing complexity and uncertainty on strategic planning.
The VUCA acronym (volatility, uncertainty, complexity and ambiguity) describes the conditions any organization faces today well. When we do onboarding sessions with clients for our strategic planning software, the first question we ask is:
What are your challenges in strategic planning?
We rarely hear that “we are affected by VUCA and need a solution,” the answers come in different form:
- “We are looking for more accountability in strategy execution”
- “Senior stakeholders want to have better control over strategy”
- “There is a gap between strategy and execution that we want to address”
- “We need to align strategy across the organization”
- “We need to automate the Balanced Scorecard”
- …
Thinking from the first principles about the problems of our clients, we defined four typical challenges that organizations face in a VUCA environment:
- Challenge 1. Complexity of the goals
- Challenge 2. Measuring value created
- Challenge 3. Readiness for the future
- Challenge 4. Having a single source of trust about strategy
Understanding these challenges will help us during the implementation of strategic planning in complex environments.
Challenge 1. Complexity of the Goals
A typical business goal is a product of value-based decomposition of strategic ambitions of the stakeholders.
In a VUCA environment, the number of stakeholders and their needs increase.
Let’s take regulator stakeholders as an example. The complexity of legislation increased over the last decade. These days, organizations have to consider personal data treatment, remote job regulations, cross-border taxation, AI regulations, and other domain-specific policies.
We can say the same about the customer stakeholders. The types of the customers and the ways they interact with your product or service have changed dramatically.
The internal stakeholders are also affected. The requirements of talents are changing, for example, more future employees prefer to work remotely.
The increasing scale and complexity of the business environment, as well as the changing needs of the stakeholders imply that organizations need to dedicate more resources to address all those challenges. In practice, the resources of any organization are limited in time, budget, or personnel.
Affected by these factors, organizations respond with more complex strategies based on more complex goals.
Today’s goals include high-level goals, their decomposition into sub goals, they are quantified, there is risk assessment, initiatives, alignment between different parts of strategy, and so on.
Challenge 2. Measuring Value Created
As an effort to make the goals more specific and trackable, we quantify them with performance indicators that add an additional layer of complexity:
- There are leading indicators that quantify the success factors
- There are lagging indicators that quantify the outcomes
- We can convert any observation into numbers, but not all quantifications will make business sense
- We start measuring indicators in the context of the goals to be sure they have proper business meaning
- But even in the proper business context, indicators are not necessarily quantifying the value created for the stakeholders
In response to the increasing pace of change, the learning loops are getting shorter.
In the current business environment (VUCA + limited resources), organizations are forced to build strategies around constant experiments and constant learning rather than following a fixed 5-year plan. As a result, we don’t have 5 years to see if we actually created any value for the stakeholders, we need to know it in 1–2 weeks. That’s where the properly quantified value for the stakeholders is a must.
The alignment between the strategy and quantified value creation becomes a keystone of strategy execution.
Do you remember “The client actually needed…” picture. That’s exactly what happens when there is no alignment between the value for stakeholders and the actual decomposition of the strategy.
The alignment problem is not just about picking the right metrics, it’s about the way organizations deal with strategic ambitions of the stakeholders and split-up high-level goals into subgoals and initiatives.
Challenge 3. Readiness for Future Challenges
We are working with the strategies and goals that we have today, but our VUCA environment teaches us to be proactive and ready for future challenges:
- What will happen to the business conditions in 1–5–10 years? The time factor adds additional complexity to the strategies.
- We no longer think about the future as a straight line, we have to consider uncertainties and plausible scenarios.
- We no longer plan for our core business domain only, we have to care about logistics, cybersecurity, compliance, sustainability, governance…
The minimal requirement in the “after Covid” world is to have a business continuity scenario; the best practice is to scan trends, searching for plausible scenarios and develop prevention or adoption strategies.
In practice, it means more quantified goals, more risk assessments, and more connections between scenarios, sub-strategies, operations, and overall strategy.
Challenge 4. Having a Single Source of Truth About Strategy
With all the mentioned inputs, a strategy is no longer a product of just one strategist. The brightest minds of your organization contribute to the strategy in the form of diverse ideas. But there is a side effect:
All those strategy stakeholders will have their own understanding of the strategy.
It’s critical to dump those understandings, combine them and have a single workspace where all the stakeholders could consult what strategy is all about.
Here are the characteristics you should look for when organizing your strategy workspace:
- It should be easy to update and access strategies (100+ slides presentation is not an option — a specialized strategy automation tool is needed)
- It should support value-based strategy decomposition
- It should allow aligning strategy and operational scorecards with overall strategy
- There should be a strategy sandbox where different stakeholders can prototype their ideas and align them to the comprehensive strategy
It should adapt to the needs of stakeholders:
- The strategy team will need to see specifically formulated goals and how exactly they are quantified with KPIs.
- The operational team will need contextual information working on their area of responsibility.
- Senior management will need high-level dashboards/reporting.
Summary
Increasing complexity and uncertainty of the business environment impacts the way organizations plan and execute their strategies.
- The stakeholders and their needs change
- More complex strategies are required to satisfy the strategic ambitions of the stakeholders
- The quantification of the strategy shifts from measuring the performance to measuring the value created for the stakeholders
- The planning horizon of strategy changes to include plausible scenarios
- For effective strategy discussion and execution, internal stakeholders need to have a workspace where they can experiment with their strategies, do value-based strategy decomposition, and combine sub-strategies into a comprehensive strategy.
