This is part two of a series of blogs I will write about the Gartner Supply Conference in Scottsdale on Jun 1-3, 2011. Check out my first thoughts on event here. I’m still mulling over the implications of the Top 25 list, so that will have to wait for the next blog. The theme of the conference was Back to Basics: The New Fundamentals for Growth, Agility and Competitive Advantage, but agility seemed to highest in the agenda of both the Gartner analysts and the attendees. Very early on in the first keynote Jane Barrett introduced the acronym VUCA, which is used by the military and means Volatility, Uncertainty, Complexity, and Ambiguity. There is nothing better than agility to address VUCA.
Jane, as can be seen from the slide above, used VUCA to describe the current business environment and its impact to the supply/value chain. Jane said that companies are thinking about how they cope with this volatility and uncertainty in the supply chain so that they can respond profitably. Doing so means not only product innovation, but supply chain innovation too; focusing on how new products are brought to market. I could not have scripted the message better to match with my perspective. I almost feel that we should be shouting “Vuka” which in Xhosa (one of the South Africa languages) means “wake up.” Wake up to the new reality that VUCA is a new norm. But let us parse the term, because in my opinion volatility is the active ingredient and uncertainty, complexity, and ambiguity are largely effects, though complexity can add to the volatility, uncertainty, and ambiguity. Globalization is the driving force of demand volatility… which is in turn driving product complexity… which, coupled with outsourcing, is driving supply chain complexity. By product complexity, I mean the concepts embodied in the terms “mass customization” and “the long tail” in which companies need to develop product variants specific to markets which, assuming a near zero-sum situation, means that there is less demand for each variant. This all leads to a great deal of demand uncertainty. On the supply side, multi-sourcing and outsourcing has led to longer and more variable lead times, and associated costs. Ambiguity arises from not having the appropriate processes and systems in place to respond profitably to actual demand. Another key concept that Jane mentioned is that of allowing frontline people to make decisions. This is because the time it takes to escalate an issue and have someone at HQ analyze it and propose a solution exceeds the time allowed for a response. What Jane didn’t state explicitly is that of course the front line people need tools that allow the front line people to perform rapid "what-if" analysis so that they can understand the consequence of their actions on corporate metrics, both financial and operational. Without these tools you may be providing a short term response that is far from profitable and may only lead to complexity and uncertainty. I say embrace VUCA. Accept that it is the new norm. Resistance is futile. Far too many analysts and advisors are telling you that you need to reduce VUCA. While not having anything against this approach in principle, and definitely not advocating that you increase VUCA through poor processes and management, I believe that you have to learn to operate in a VUCA environment and that this requires different skills and tools than those required in a more stable environment. There is a recent Harvard Business Review article titled “Leading Effectively in a VUCA Environment: A is for Ambiguity” in which the author, Col. Eric G. Kail, states that:
Whereas the frustration we experience from volatility, uncertainty, and complexity might leave us feeling overwhelmed and exhausted, ambiguity leads primarily to inefficiency and missed opportunities. Toleration of either will leave us surviving at best, and we want to lead our organizations to thrive.
This is an approach common amongst experts that run counter to what I believe. It is also counter to an example that Jane gave of an electronics distributor finding that in the recession they had to devolve decisions on inventory to people in the field. Jane said that:
They had to make a drastic change to their strategy around inventory policy. They were very bureaucratic traditionally about who could change inventory policies and make decision on inventory. But it was taking too long and as they went into the recession and started coming out of the recession they recognized that they had to empower people far lower down to make decision about inventory. These were fairly major decisions. This was totally against their DNA.