Finance:Volatility, uncertainty, complexity and ambiguity

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Short description: Concept in leadership studies

VUCA is an acronym coined in 1987, based on the leadership theories of Warren Bennis and Burt Nanus, to describe or to reflect on the volatility, uncertainty, complexity and ambiguity of general conditions and situations.[1][2] The U.S. Army War College introduced the concept of VUCA to describe the more volatile, uncertain, complex and ambiguous multilateral world perceived as resulting from the end of the Cold War.[3] More frequent use and discussion of the term "VUCA" began from 2002 and derives from this acronym from military education.[4][need quotation to verify] It has subsequently taken root in emerging ideas in strategic leadership that apply in a wide range of organizations, from for-profit corporations[5][need quotation to verify] to education.[6] [7]

Meaning

The deeper meaning of each element of VUCA serves to enhance the strategic significance of VUCA foresight and insight as well as the behaviour of groups and individuals in organizations.[8] It discusses systemic failures[9] and behavioural failures,[9] which are characteristic of organisational failure.

  • V = Volatility: the nature and dynamics of change, and the nature and speed of change forces and change catalysts.
  • U = Uncertainty: the lack of predictability, the prospects for surprise, and the sense of awareness and understanding of issues and events.
  • C = Complexity: the multiplex of forces, the confounding of issues, no cause-and-effect chain and confusion that surrounds organization.
  • A = Ambiguity: the haziness of reality, the potential for misreads, and the mixed meanings of conditions; cause-and-effect confusion.

These elements present the context in which organizations view their current and future state. They present boundaries for planning and policy management. They come together in ways that either confound decisions or sharpen the capacity to look ahead, plan ahead, and move ahead. VUCA sets the stage for managing and leading.

The particular meaning and relevance of VUCA often relates to how people view the conditions under which they make decisions, plan forward, manage risks, foster change and solve problems. In general, the premises of VUCA tend to shape an organization's capacity to:

  1. Anticipate the Issues that Shape
  2. Understand the Consequences of Issues and Actions
  3. Appreciate the Interdependence of Variables
  4. Prepare for Alternative Realities and Challenges
  5. Interpret and Address Relevant Opportunities

For most contemporary organizations – business, the military, education, government and others – VUCA is a practical code for awareness and readiness. Beyond the simple acronym is a body of knowledge that deals with learning models for VUCA preparedness, anticipation, evolution and intervention.[10]

Themes

Failure in itself may not be a catastrophe, but failure to learn from failure definitely is.{Andrew Porteous} It is not enough to train leaders in core competencies without identifying the key factors that inhibit their using the resilience and adaptability that are vital in order to distinguish potential leaders from mediocre managers. Anticipating change as a result of VUCA is one outcome of resilient leadership.[9] The capacity of individuals and organizations to deal with VUCA can be measured with a number of engagement themes:

  1. Knowledge Management and Sense-Making
  2. Planning and Readiness Considerations
  3. Process Management and Resource Systems
  4. Functional Responsiveness and Impact Models
  5. Recovery Systems and Forward Practices
  6. Systemic failures[9]
  7. Behavioural failures[9]

At some level, the capacity for VUCA management and leadership hinges on enterprise value systems, assumptions and natural goals. A "prepared and resolved" enterprise[5] is engaged with a strategic agenda that is aware of and empowered by VUCA forces.

The capacity for VUCA leadership in strategic and operating terms depends on a well-developed mindset for gauging the technical, social, political, market and economic realities of the environment in which people work. Working with deeper smarts about the elements of VUCA may be a driver for survival and sustainability in an otherwise complicated world.[11]

Psychometrics[12] which measure fluid intelligence by tracking information processing when faced with unfamiliar, dynamic and vague data can predict cognitive performance in VUCA environments.

Social Categorization

Volatility

Volatility is the "V" component of VUCA. This refers to the different situational social-categorization of people due to specific traits or reactions that stand out during that particular situation. When people react/act based on a specific situation, there is a possibility that the public categorizes them into a different group than they were in a previous situation. These people might respond differently to individual situations due to social or environmental cues. The idea that situational occurrences cause certain social categorization is known as volatility and is one of the main aspects of the self-categorization theory.[13]

Sociologists use volatility to understand better how stereotypes and social categorization is impacted based on the situation at hand as well as any outside forces that may lead people to perceive others differently. Volatility is the changing dynamic of social-categorization in a set of environmental situations. The dynamic can change due to any shift in a situation, whether it is social, technical, biological or anything of the like. Studies have been conducted, but it has proven difficult to find the specific component that causes the change in situational social-categorization.[14]

There are two separate components that connect people to social identities. The first social cue is normative fit. This describes the degree that a person relates to the stereotypes and norms that others associate with their specific identity. For example, when a Hispanic woman is cleaning the house, most of the time, people connect gender stereotypes with this situation, while her ethnicity is not concerned, but when this same woman eats an enchilada, ethnicity stereotypes surface while her gender is not concerned.[13] The second social cue is comparative fit. This is when a specific characteristic or trait of a person is prominent in certain situations when compared to other people. For example, as mentioned by Bodenhausen and Peery, when there is one woman in a room full of men.[13] She sticks out because she is the only one of her gender compared to many others of the opposite gender. However, all of the men are clumped together because they do not have any specific traits that stands out among the rest of them. Comparative fit shows that people categorize others based on the comparative social context. In a certain situation, specific characteristics are made obvious due to the fact that others around that individual do not possess that characteristic. However, in other situations, this characteristic may be the norm and would not be a key characteristic in the categorization process.[13]

People can also be less criticizing of the same person during different situations. For example, when looking at an African American man on the street of a low-income neighborhood and when looking at the same man inside a school of a high-income neighborhood, people will be less judgmental when seeing him in the school. Nothing else has changed about this man, other than his location.[13] When individuals are spotted in certain social contexts, the basic-level categories are forgotten and the more partial categories are brought to light. This really helps to describe the problems of situational social-categorization and how stereotypes can shift the perspectives of those around an individual.[13]

Uncertainty

Uncertainty in the VUCA framework is almost just as it sounds: when the availability or predictability of information in events is unknown. Uncertainty often occurs in volatile environments that are complex in structure involving unanticipated interactions that are significant in uncertainty. Uncertainty may occur in the intention to imply causation or correlation between the events of a social perceiver and a target. Situations where there is either a lack of information to prove why a perception is in occurrence or informational availability but lack of causation are where uncertainty is salient.[13]

The uncertainty component of the framework serves as a grey area and is compensated by the use of social categorization and/or stereotypes. Social categorization can be described as a collection of people that have no interaction but tend to share similar characteristics with one another. People have a tendency to engage in social categorization, especially when there is a lack of information surrounding the event. Literature suggests that there are default categories that tend to be assumed in the absence of any clear data when referring to someone's gender or race in the essence of a discussion.[13]

Often individuals associate the use of general references (e.g. people, they, them, a group) with the male gender, meaning people = male. This instance often occurs when there is not enough information to clearly distinguish someone's gender. For example, when discussing a written piece of information most people will assume the author is a male. If an author's name is not available (lack of information) it is difficult to determine the gender of the author through the context of whatever was written. People will automatically label the author as a male without having any prior basis of gender, placing the author in a social category. This social categorization happens in this example, but people will also assume someone is a male if the gender is not known in many other situations as well.[13]

Social categorization occurs in the realm of not only gender but also race. Default assumptions can be made, like in gender, to the race of an individual or a group of people based on prior known stereotypes. For example, race-occupation combinations such as a basketball player or a golf player will receive race assumptions. Without any information of the individual's race, a basketball player will be assumed to be black and a golf player will be assumed to be white. This is based upon stereotypes because of the majority of race in each sport tend to be dominated by a single race, but in reality, there are other races within each sport.[13]

Complexity

Complexity is the “C” component of VUCA, that refers to the interconnectivity and interdependence of multiple components in a system. When conducting research, complexity is a component that scholars have to keep in mind. The results of a deliberately controlled environment are unexpected because of the non-linear interaction and interdependencies within different groups and categories.[14]

In a sociological aspect, the VUCA framework is utilized in research to understand social perception in the real world and how that plays into social categorization as well as stereotypes. Galen V. Bodenhausen and Destiny Peery's article, Social Categorization and Stereotyping In vivo: The VUCA Challenge, focused on researching how social categories impacted the process of social cognition and perception.[13] The strategy used to conduct the research is to manipulate or isolate a single identity of a target while keeping all other identities constant. This method creates clear results of how a specific identity in a social category can change one's perception of other identities, thus creating stereotypes.[13]

There are problems with categorizing an individual's social identity due to the complexity of an individual's background. This research fails to address the complexity of the real-world and the results from this highlighted an even great picture about social categorization and stereotyping.[13] Complexity adds many layers of different components to an individual's identity and creates challenges for sociologists trying to examine social categories.[14] In the real world, people are far more complex compared to a modified social environment. Individuals identify with more than one social category, which opens the door to a deeper discovery about stereotyping. Results from research conducted by Bodenhausen reveals that there are certain identities that are more dominant than others.[13] Perceivers who recognize these specific identities latch on to it and associate their preconceived notion of such identity and make initial assumptions about the individuals and hence stereotypes are created.

On the other hand, perceivers who share some of the identities with the target become more open-minded. They also take into consideration more than one social identity at the same time and this is also known as cross-categorization effects.[15] Some social categories are embedded in a larger categorical structure, which makes that subcategory even more crucial and outstanding to perceivers. Research on cross-categorization reveals that different types of categories can be activated in the mind of the social perceiver, which causes both positive and negative effects. A positive outcome is that perceivers are more open-minded despite other social stereotypes. They have more motivation to think deeply about the target and see past the most dominant social category. Bodenhausen also acknowledges that cross-categorization effects lead to social invisibility.[13] Some types of cross-over identities may lessen the noticeability of other identities, which may cause targets to be subjected to “intersectional invisibility,” [16] where neither social identities have a distinct component and are overlooked.

Ambiguity

Ambiguity is the “A” component of VUCA. This refers to when the general meaning of something is unclear even when an appropriate amount of information is provided. Many get confused about the meaning of ambiguity. It is similar to the idea of uncertainty but they have different factors. Uncertainty is when relevant information is unavailable and unknown, and ambiguity where relevant information is available but the overall meaning is still unknown. Both uncertainty and ambiguity exist in our culture today. Sociologists use ambiguity to determine how and why an answer has been developed. Sociologists focus on details such as if there was enough information present, and did the subject have the full amount of knowledge necessary to make a decision. and why did he/she come to their specific answer.[13]

Ambiguity is considered to be one of the leading causes of conflict within organizations.[17]

Ambiguity leads people to assume an answer, and many times this leads assuming ones race, gender, or sexual orientation, and can even lead to class stereotypes. If a person has some information but still does not have the overall answer, the person starts to assume his/her own answer based on the relevant information he/she already possesses. For example, as mentioned by Bodenhausen, we may occasionally encounter people who are sufficiently androgynous to make it difficult to ascertain their gender, and at least one study suggests that with brief exposure, androgynous individuals can sometimes be miscategorized on the basis of gender-atypical features (very long hair, for a man, or very short hair, for a woman). Ambiguity leads to the categorization of people without further important details that could lead to untrue conclusions.[13]

Sociologists believe that ambiguity can lead to race stereotypes and discrimination. In a study undertaken in South Africa by three sociologists, the researchers had white citizens of South Africa look at pictures of racially mixed faces and they had to decide whether these faces were European or African. Because these test subjects were all white they had a hard problem defining these mixed-race faces as European and deemed them all to be African. The reason they did this was attributed to ambiguity. The information that was available was the skin tone of the people in the pictures and the facial qualities they possessed, with this information the test subjects had all of that information available but still did not know the answer for sure. They overall assumed because they did not look exactly like them, then they could not be European.[13]

Responses and Revisions

Levent Işıklıgöz has suggested that the "C" of VUCA be changed from Complexity to Chaos, arguing that it is more suitable according to our era. This is still discussed in sociology society.[citation needed]

Bill George, a professor of management practice at Harvard Business School, argues that VUCA calls for a leadership response which he calls VUCA 2.0: Vision, Understanding, Courage and Adaptability.[18]

German academic Ali Aslan Gümüsay adds "paradox" to the acronym, calling it VUCA + paradox or vucap.[19]

See also

References

  1. ↑ U.S. Army Heritage and Education Center (February 16, 2018). "Who first originated the term VUCA (Volatility, Uncertainty, Complexity and Ambiguity)?". The United States Army War College. http://usawc.libanswers.com/faq/84869. 
  2. ↑ Bennis, Warren; Nanus, Burt (1985). Leaders: Strategies for Taking Charge. ISBN 9780060152468. https://archive.org/details/leadersstrategi00benn. 
  3. ↑ "Who first originated the term VUCA (Volatility, Uncertainty, Complexity and Ambiguity)? - USAHEC Ask Us a Question". https://usawc.libanswers.com/faq/84869. 
  4. ↑ Stiehm, Judith Hicks; Nicholas W. Townsend (2002). The U.S. Army War College: Military Education in a Democracy. Temple University Press. p. 6. ISBN 978-1-56639-960-9. https://books.google.com/books?id=sEkp6GlK19cC&dq=VUCA&pg=PA34. 
  5. ↑ 5.0 5.1 Wolf, Daniel (2007). Prepared and Resolved: The Strategic Agenda for Growth, Performance and Change. dsb Publishing. p. 115. ISBN 978-0-9791300-0-7. 
  6. ↑ "Fingertip Knowledge". Converge Magazine: 34. June 2007. http://media.centerdigitaled.com/Converge_Mag/pdfs/issues/CON_June07_lorz_PDF.pdf. Retrieved 2018-06-01. 
  7. ↑ Rouvrais, Siegfried; Gaultier Le Bris, Sophie; Stewart, Matthew (July 2018). "Engineering Students Ready for a VUCA World? A Design based Research on Decisionship". Proceedings of the 14th International CDIO Conference, KIT, Kanazawa, Japan: 872–881. http://www.cdio.org/. Retrieved 2019-04-25.  Alt URL
  8. ↑ Johansen, Bob (2007). Get There Early: Sensing the Future to Compete in the Present. San Francisco, CA: Berrett-Koehler Publishers, Inc.. pp. 51–53. ISBN 978-1-57675-440-5. https://archive.org/details/getthereearlysen00joha/page/51. 
  9. ↑ 9.0 9.1 9.2 9.3 9.4 Suhayl Abidi, and Manoj Joshi (2015). The VUCA COMPANY. Mumbai, India: Jaico Publishing House. ISBN 978-81-8495-662-7. 
  10. ↑ Satish, Usha and Siegfried Streufert (June 2006). "Strategic Management Simulations to Prepare for VUCAD Terrorism". Journal of Homeland Security. http://www.homelandsecurity.org/journal/Default.aspx?oid=145&ocat=1&AspxAutoDetectCookieSupport=1. Retrieved 2008-10-29. 
  11. ↑ Johansen, Bob (2007). Get There Early: Sensing the Future to Compete in the Present. San Francisco, CA: Berrett-Koehler Publishers, Inc.. p. 68. ISBN 978-1-57675-440-5. https://archive.org/details/getthereearlysen00joha/page/68. 
  12. ↑ "What is psychometrics? | Psychometric Society" (in en). https://www.psychometricsociety.org/content/what-psychometrics. 
  13. ↑ 13.00 13.01 13.02 13.03 13.04 13.05 13.06 13.07 13.08 13.09 13.10 13.11 13.12 13.13 13.14 13.15 13.16 13.17 Bodenhausen, Galen V.; Peery, Destiny (2009-03-01). "Social Categorization and Stereotyping In vivo: The VUCA Challenge" (in en). Social and Personality Psychology Compass 3 (2): 133–151. doi:10.1111/j.1751-9004.2009.00167.x. ISSN 1751-9004. https://compass.onlinelibrary.wiley.com/doi/10.1111/j.1751-9004.2009.00167.x. 
  14. ↑ 14.0 14.1 14.2 Schick, Axel; Hobson, Peter R.; Ibisch, Pierre L. (2017-04-01). "Conservation and sustainable development in a VUCA world: the need for a systemic and ecosystem‐based approach" (in en). Ecosystem Health and Sustainability 3 (4): e01267. doi:10.1002/ehs2.1267. ISSN 2332-8878. 
  15. ↑ Vescio, Theresa K; Judd, Charles M; Kwan, Virginia S.Y (2004). "The crossed-categorization hypothesis: Evidence of reductions in the strength of categorization, but not intergroup bias". Journal of Experimental Social Psychology 40 (4): 478–496. doi:10.1016/j.jesp.2003.09.005. 
  16. ↑ Purdie-Vaughns, Valerie; Eibach, Richard P. (2008-09-01). "Intersectional Invisibility: The Distinctive Advantages and Disadvantages of Multiple Subordinate-Group Identities" (in en). Sex Roles 59 (5–6): 377–391. doi:10.1007/s11199-008-9424-4. ISSN 0360-0025. 
  17. ↑ Kail, E. G., Leading Effectively in a VUCA Environment: A is for Ambiguity, Harvard Business Review, published 6 January 2011, accessed 5 May 2023
  18. ↑ George, B., VUCA 2.0: A Strategy for Steady Leadership in an Unsteady World, Forbes Magazine, published 17 February 2017, accessed 3 September 2019
  19. ↑ "Leading through vucap | Ali Aslan Gümüsay" (in en-US). 20 August 2019. https://guemuesay.com/2019/08/20/leading-through-vucap/. 




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