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Managing in a VUCA World

Managing in a VUCA World


Application of Business Theory to the Energy Sector

5th January 2020


Managing in a VUCA World


Introduction

One of a series of articles about applying business theory to the Energy Sector.

In this article I will apply VUCA theory to my consulting company, Syntillica which offers a range of technical and non-technical services to the Energy Sector. I invite your comments and ideas on how to apply the theory in your own situations.

The theory of a VUCA world is an interesting one because it is not quite as weird or as vague as it sounds.

First of all, VUCA stands for Volatility, Uncertainty, Complexity and Ambiguity. It is used to describe the far (macro) economic environment outside the skin of organisations and in which we all swim (like it or not). It was invented in the U.S. Army to describe the post-Cold War world (U.S. Army Heritage and Education Center, 2019). Despite its non-commercial origins, VUCA is now becoming a popular means to characterise the business macro-environment for strategic analysis too. 

Second, by seeing its effects and then accepting the theory as realistic, it’s possible to move to doing something practical to manage it. For this purpose, I will be using my company Syntillica as a case study example. Naturally, you will be able to think of your own practical actions for your own unique circumstances. 

So, I am going to begin with the effects I see of the VUCA world in the Energy sector.



 
VUCA Theory In Brief

Volatility Theory
  • This occurs when we have information about something and can understand it but change is frequent and it cannot be predicted accurately. 
  • The price of oil is a good example of something volatile which affects everyone in the Energy sector. 

Uncertainty Theory
  • This occurs when we have a lack of knowledge about whether a particular event will have any significant implications. The greater the uncertainty about an event, the less we can know about its impact and cause and effect breaks down. 
  • The assassination of General Qasem Soleimani is an example of an event with unpredictable consequences. No one involved in the Energy sector had prior knowledge and whilst its effects will be felt by it, the exact consequences are unknown. 

Complexity Theory
  • This occurs when we have to make sense of a situation where many interconnected parts are integrated into an elaborate network of information and procedures. Complexity does not necessarily involve change over time.
  • For complexity, consider the network of business relationships in the supply chain between providers and consumers in the Energy sector in a single country let alone the world. 

Ambiguity Theory
  • This occurs when there is a lack of knowledge about the rules of the game. Cause and effect links are not clear and there is no precedent to make predictions on what to expect. 
  • For an example consider the change caused the release of U.S. shale oil into the Energy market. The rules of oil supply were thrown out because the OPEC cartel which previously controlled half of the world’s oil production; was relegated to being responsible for less than a third. 

So if it all seems plausible and realistic, here are some practical management responses to the VUCA world from the point of view of Syntillica, a consulting company which delivers value based on the experience and skills of its consultant group.  



VUCA Theory Applied

Volatility Applied
  • In the consulting world the price of oil affects demand for technical subsurface consulting. Anyone involved in that market will know that market has been slow since the summer of 2014. However, changes in the market can lead to rapid changes in demand that can create a bull-whip effect in the supply chain, amplifying its effects
  • Variable demand like this requires resources on tap in the short-term to be able to manage the bull-whip effect. For Syntillica, this means building a large group of consultants available in different disciplines, able to pick up work as it appears, often at short notice. 

Uncertainty Applied
  • The consequences of a serious geo-political event are clearly impossible to predict. In the absence of being able to predict the effects it is necessary to settle for up-to-date news in the Energy sector. 
  • For Syntillica, this means keeping up to date on the news and events in the sector. Fortunately, there are plenty of news feeds available which collect and collate events in the Energy sector (e.g. “news now”). This way, as the effects of uncertainty become certain, it is possible to manage them. 

Complexity Applied
  • The complexity of the global Energy supply chain is an almost impenetrable web of relationships between individuals, businesses, governments and interest groups. Accepting this and remaining outward-looking is a world-view requiring a culture of flexibility. 
  • For a business such as Syntillica, finding a niche (or niches) to fit into in this market requires both flexibility and adaptability; the capability to retain sufficient control to restructure and to review/revise strategy on an ongoing basis. Syntillica is a set up as a private limited company with minimal management politicking for this reason. 

Ambiguity Applied
  • Not knowing about how the rules of the game have changed in the Energy sector can be a major hindrance to any business. All businesses have been affected since OPEC lost its control of the market and with so many new oil producers, no business can base strategy on watching them or on a hoped-for return to sustained $100+ prices any time soon.
  • For Syntillica, experimentation is the key. Being able to try out new ideas to see what works and what doesn’t is of critical importance. Minimising unnecessary overheads is key here. For instance, the business is not based on the traditional idea of being office-based. Instead, consultants work from home, from the client office or anywhere in the world in fact, using cloud-based IT, with an office-base planned only as a meeting location. 


 
Conclusion
  • I do hope you enjoyed reading this article as much as I enjoyed writing it and found it interesting. I would love to hear from you and am very interested to know what you think and/or how you might apply VUCA theory in practice. 
  • This article has described the theory in brief and I used Syntillica as an example with just a few examples of how to manage a VUCA world.
  • If you would like to do some more in-depth analysis that produces practical plans for your business but don't have the time then let me know. Being a consultant, I'm always available for hire :-)



Author

Max J. Harper MSc MBA MA

Syntillica Managing Director

Email: max.harper@syntillica.com





References

U.S. Army Heritage and Education Centre (2019) Q. Who first originated the term VUCA (Volatility, Uncertainty, Complexity and Ambiguity)? [Online]. Available at http://usawc.libanswers.com/faq/84869 (Accessed 5 January 2020).
 
Email to: max.harper@syntillica.com
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