You may have heard the term VUCA in relation to challenges that businesses face. But what does VUCA really mean and what’s the best approach to dealing with changeable, challenging situations. We break down the concept and outline the ways that payment service providers can help merchants to manage a VUCA environment.
The insights in this article are based on our recent podcasts on the topic of VUCA, discussed by Fibonatix CEO Tal Miller. Listen to the first VUCA episode of our Pay Attention podcast via the player below or scroll down to continue reading.
Table of Contents
What is VUCA?
The term VUCA stands for volatility, uncertainty, complexity and ambiguity. The concept originated in the US Army War College at the end of the Cold War, in response to what was perceived as a changing landscape with new threats emerging, rather than just the USSR. Learn more about VUCA’s origins.
VUCA has since been applied to business and strategic leadership, where organisations assess changeable situations and markets and implement a system for managing a VUCA environment. A good way to view a VUCA model is as a practical code for awareness and readiness to address, predict and react to changes, issues and opportunities.
Many people see today’s fast-changing digital landscape, brought about by technological advances, as the primary VUCA environment. But dealing with change is part of what makes us human – adapting, fighting against stronger forces and coping with things out of our control. It’s not just tech advances that throw up VUCA situations, it’s behavioural changes, new consumer demands and unforeseen challenges, such as the pandemic. Breaking these scenarios down into volatility, uncertainty, complexity and ambiguity helps us to understand the best approach for dealing with and preparing for them.
How can a VUCA environment impact my business?
The four types of VUCA situations mentioned impact businesses in different ways, posing different threats and challenges that require varied approaches. From a fast-changing volatile situation to an unforeseen event that presents ambiguity, due to a lack of experience in dealing with a similar situation.
Let’s look at each of the main categories and how to manage VUCA situations.
What is a volatile situation in business?
Volatility stands for situations that rapidly change. Usually a small number of variables. Price change, for example. In certain industries, the price of something can vary a lot. The stock market is a good example of where we deal with such a dynamic. In terms of specific events, the recession and the pandemic caused volatility in various industries, with the price of certain materials or commodities changing quickly according to new demands and consumer needs.
How to manage volatility
Have a long-term vision. This keeps you focused. Look for things that are predictable, constant and don’t change. Have a clear vision for your business that can be reflected and embraced by your employees, customers and suppliers. But within this vision, there should be understanding that there will be change and a plan to futureproof your business to accommodate and combat volatility. Risk management and a contingency plan are vital.
Check out our podcast on business risk management.
What is an uncertain situation in business?
Uncertain situations in VUCA are where we can’t predict the causal effects of things. Familiarity and experience of a situation and environment breeds certainty. If you’ve done something long enough, you can confidently predict the likely outcome. With uncertainty, you can’t accurately predict the outcome due to lack of experience, unstable conditions or because fundamental changes make it different from a more familiar situation.
Consider when entering a new market or launching a new product. This inevitably brings new challenges and uncertainty due to less experience in this new market or business area.
How to manage uncertainty
Experience and time will bring more certainty and predictability, but research, analysis and recruitment can prepare you and set expectations. You need to define who you are as a business, your value to customers and the key characteristics of your products/services. Proactively carrying out analysis and market research to discover your key competitors, learn more about your new audience and gain as much knowledge as possible will reduce your uncertainty level and enable you to better predict situations and their outcomes.
What is a complex situation in business?
With complexity in a VUCA environment, you can see all the moving parts but there are so many variables that it’s very difficult to keep track of everything. Changes might be slower but because the changes will affect so many variables, they have a huge impact across the board. With volatile or uncertain situations, changes might happen fast but you can move swiftly to deal with them. Dealing with complexity requires a lot of planning and resources.
Regulatory issues are a good example. They’re often complex in application, with long deadlines for meeting compliance, requiring businesses to adapt to accommodate new rules – which vary in different regions and across industries. So, keeping up with regulatory change, especially if your business operates in multiple jurisdictions, is extremely complex.
How to manage complexity
The most important thing to manage complexity is clarity. Break things down into manageable pieces and different variables, to understand how each one works and how they fit into the bigger picture. This will make it less daunting. Remember, it’s ok to have gaps in knowledge, but consult with appropriate parties and experts to plug these gaps. With regulations, we might understand certain elements but without genuine legal expertise within your business, it’s best to reach out to legal consultants to get clarity around what’s required to meet compliance.
What is an ambiguous situation in business?
The main difference between uncertainty and ambiguity is that with ambiguity, everything is unknown. In an uncertain situation, maybe you have a successful product in one country and want to start selling it in another. You know the product, your USPs and how you operate but the unknowns are the new region, customer base and competitors. When entering a new market, you’ll research the region, customer characteristics, competitors and regulatory and cultural differences. With ambiguity, you don’t even know the unknowns, so it’s extremely difficult to prepare for ambiguous VUCA situations.
How to manage ambiguity
The key to dealing with ambiguity is agility. You need to be prepared for unforeseen circumstances, risks and threats. So, how can your business reach this agile state? By not having too rigid a business structure or trying to control what you can’t control. Think about a member of the military or a samurai – people who have to always be ready for a myriad of situations, threats or challenging circumstances. They have a state of preparedness to rapidly adapt to what’s thrown at them. Businesses need to build a framework for fluidity and agility. In our risk management podcast episode, we mention that trying to eliminate risks is a flawed approach – it’s restrictive. You must mitigate and manage risk, not avoid it.
What PSPs can do to support merchants with VUCA situations
Having an effective payment infrastructure is vital. Therefore, a VUCA environment that impacts your ability to accept payments will have huge ramifications for your business. You need a plan to deal with volatile, uncertain, complex and ambiguous situations. Stability and certainty around your payments help to form stability and certainty for your business as a whole. A good payment service provider (PSP) can help you manage VUCA. Let’s look at how PSPs can support merchants within a VUCA environment.
Combating volatility by establishing a clearly-defined vision
You need a clear business vision. A good PSP will help enable, realise and fine-tune your vision. Using them as a sounding board helps to formulate your vision. They can highlight issues if your vision is unfeasible, unrealistic or not clearly defined, and help you make adjustments to maintain the course, whilst tackling volatile situations. Their main role is ensuring that payments can be accepted, but as a regulated entity they’re a tethering force to keep merchants’ feet on the ground.
Utilising experience to reduce uncertainty
Often businesses come across situations they’ve not dealt with before. A PSP can reduce uncertainty if it’s a market they’ve had experience in or a product type with which they’re familiar. They can offer statistical information or bench-marking, such as average ticket size for a particular market, typical chargeback volumes, where SCA is required or general declines, approval ratios, etc. This intel will help you identify and manage risk and better predict outcomes and make more informed decisions.
Breaking down complexity with expertise and structure
PSPs can help to simplify complex situations and educate merchants on things that are outside their comfort zone, knowledge base or require technical expertise. And they’re regulated entities that work with legal teams to stay on top of regulatory changes in the payments space and across various industries, so they know what’s required to meet compliance and ensure merchant processes are aligned.
Building agility to deal with ambiguity
A PSP’s knowledge, expertise and tech can steer you through murky waters and help you achieve agility and preparedness, whilst offering visibility, solutions and peace of mind. They can minimise ambiguity and stress by arming you with data and insights about how other businesses have overcome similar situations. The pandemic has caused a lot of ambiguity around how to combat restrictions and changing consumer behaviours. Your PSP can enable you to pivot, make quick decisions and implement procedures that empower you to navigate ambiguous circumstances.
We hope this article has helped you to understand more about VUCA, how to manage VUCA environments and the role PSPs can play in helping you to better prepare for, adapt to and overcome challenges that come from changeable situations.
Why not listen to our VUCA podcasts or explore other Pay Attention episodes? As an experienced payment service provider, we offer merchants advice, best practices and strategic insights to improve their payment experience. We also provide a range of payment solutions and support services to help merchants grow – check them out. Or get in touch with our team.
Fibonatix is a global payment service provider offering bespoke payments solutions and supporting services for merchants of all kinds. We’re FCA regulated, with offices in the UK, Germany and Israel. We empower businesses with cutting-edge payments processing tools and our vast experience in payments consultancy to drive business growth. Our experts also advise on elements such as risk management, regulatory compliance and business intelligence.