2020

INNOVATION IMPERATIVE

CHANGE MANAGEMENT

Change in a VUCA World

Understand the impact of volatility, uncertainty, complexity and ambiguity before managing change

by Peter Merrill

Change is inevitable in today’s world of volatility, uncertainty, complexity and ambiguity (VUCA). This change is driven by the rapid increase in knowledge, which is, of course, the fuel of innovation. Rapid advances in technology facilitate a rapid increase in knowledge. In turn, technology has enabled advances in healthcare and life expectancy, but also negative impacts of pollution leading to degradation of the planet and even degradation of our own bodies. 

The advances in technology and increases in knowledge have led to a global market. China, for example, is now home to more General Motors employees and more Kentucky Fried Chicken eateries than the United States.1 This global market is increasingly volatile, and a major element in the complexity we face, with denial of the need for a global market increasing the uncertainty. Ambiguity is a consequence of all of this. VUCA is the world we live in, and we must understand its impact on change before we can manage change. 

External forces creating VUCA

No organization is an island entire of itself. We must understand the many forces influencing an organization’s direction and how it operates, and influence the change to be managed. The environmental scan is the technique for finding these external forces. Social media and big data are increasingly providing insight into market change, and social media is moving ahead of websites for market feedback. External forces include changes in legislation, technology, the economy and social activities.

Charles Darwin once said: “It is not the strongest of the species which survive nor the most intelligent, but the species most responsive to change.”2 Today, if we don’t respond to change, we will fade away. The question, therefore, is how to use the knowledge from this environmental scan. There is a long list of issues we will find from the scan. Figure 1 offers some examples. We must analyze these issues to identify which affect us most and drive change in our organizations. The first tool to use is strengths, weaknesses, opportunities and threats (SWOT) analysis.

Figure 1

SWOT analysis

SWOT analysis is credited to Albert Humphrey, a researcher at Stanford who led a project that analyzed why corporate planning failed.3,4 I have populated this example with typical business issues, but the issues will be different for every organization.

  • Strengths examines what you do better than others. What are your unique competences and resources?
  • Weaknesses examines the opposite. Where do you do a poor job? Where are you being beaten in the marketplace?
  • Threats forces you to think about what worries you. Where is the competition attacking you and what weaknesses are creating business risk.

A quality system focuses on mitigating the risks from these issues. As these issues are addressed, they will drive more change.

Innovators are interested in new opportunities. The social change from retail to online shopping has meant retailers have to rethink their entire business strategy. Burberry, for example, changed its stores’ look to replicate its website. The high-end clothing retailer understood that consumers still wanted to touch and feel product, even though they might purchase online. They created customer experience.

General Electric (GE) used a combination of executives and outsiders to analyze changes in its healthcare sector. Both groups had limited connection to recent GE history to avoid bias. They asked:

  1. Which new technologies will open new opportunities?
  2. Which major social changes are likely?
  3. Which new regulations are likely?
  4. Who are your future customers and what will they want?
  5. Who will be your future competitors?
  6. Will your approach to the market change?

The future will have areas you can predict and control, and other areas you cannot. For example, Hasbro could not predict how quickly the internet would develop, but it could see the convergence of the TV and computer.5

From SWOT analysis, key issues are analyzed using the VUCA tool. The following example describes a business looking at the possibility of changing to after-school child care within schools instead of at day care centers.

Typical questions include:

  • Will parents accept the proposition? This is probably low risk.
  • Will the school accept that proposition? This has higher risk.
  • Is the school limited by regulations?
  • Will the school board accept the proposal?
  • Will the children want to stay in school after some of their friends have gone home?

We analyze the questions for:

  • Volatility, or is it liable to change rapidly? Regulations are slow to change, but children are fickle.
  • Uncertainty, or are there aspects that are unknown. We know the parents will like it, but what about the school board?
  • Complexity, or how intricate or complicated is it? Parents are a diverse body and we may not reach all of them.
  • Ambiguity, or is it open to more than one interpretation? We must fully understand regulations, and the school board may see something we have missed.

Not surprisingly, the outcome is that children have far more influence on this change than might be expected (see Table 1).

Table 1

Strategy

A strategic plan addresses external and internal forces. Market changes can be addressed using Michael Porter’s five forces model. His model is simple, and Porter identified the forces shaping every market: suppliers, customers, new entrants, substitutes and rivalries.6

The internal factors that influence strategy are issues such as culture, values, knowledge levels and business performance. The internal forces influence the ability to address that external opportunity. The strategy will contain plans to make assumptions into hard facts—and the strategy must be flexible.

The strategy document must explain how strategy will tighten as uncertainty is reduced. Strategy must emphasize this is a venture into uncertainty. As we reduce ambiguity, we will pivot and the strategy will change. One of my favorite quotes comes from Sun Tzu’s The Art of War: “No battle plan ever survives first contact with the enemy.”7 This is especially true when it comes to innovation strategy.

An agile structure

One of the biggest obstacles to change is the organization itself. A flatter organization enables leaders to be closer to the action. Flatness gives people more opportunity to make decisions, but flatter organizations can be more difficult to lead. So clear priorities and direction are necessary. Amazon and Google, for example, have very strong leaders who are close to the action and involved.8

A good example of a flat and networked organization is Haier Group Corp. in Qingdao, China. The world’s largest appliance maker has 75,000 employees globally and 27,000 outside China. Everyone is directly accountable to customers. The business model is like the internet with small elements joined flexibly. There is limited central direction, but there is common goal setting, contracting and coordination between units:

  • Business units are either market facing or units selling design, manufacturing or HR.
  • Metrics include user involvement in product development and unique customer value.
  • Every unit can buy services from other units or from outside vendors.
  • New products are developed through open innovation to find customer pain points.
  • Suppliers who contribute to the early design are preferred in the vendor selection.9

When I worked with quality guru Philip Crosby, he adopted much of this approach at Philip Crosby Associates Inc.’s campus of self-managed teams. But the real magic came in the time invested in building the culture. People had amazing relationships, loved their work environment and would go that extra mile without being asked. Your culture must embrace change, but you also may need to change your culture.

Culture 

Quality thinker Peter Drucker is quoted as saying, “Culture eats strategy for breakfast.”10 Culture, however, must be aligned with strategy. Cultural change is difficult. It is like breaking an unwritten promise. Some new behaviors are easily accepted. People love freedom, and consensus removes accountability. But accountability is necessary. The various behaviors are all interlinked and cannot be developed one at a time.

Culture often has unwritten rules, is based on shared behavior and develops over time as a result of how people respond to events. Leaders take the initiative in these events and are primarily responsible for the way people respond. Hence, the leaders’ behaviors greatly influence the organizational culture.11

Leading change

There are several issues that will create resistance to the change to an innovative culture. Resistance will be especially strong if you have a history of success. The process for handling change can follow this approach, and the business leader plays a key role:12

  • Create a sense of urgency. Identify a falling revenue item or market share with a key product or service or customer. This is John Kotter’s “burning platform.”
  • Create a change team. A change agent team must include people outside management. The team’s mission is to quickly create a critical mass of believers.
  • Win early. This is a product, service or customer opportunity with high benefit. Wins must be created and not just based on hope. The win must be publicized.
  • Communicate vision. The change team must draw in people by focusing on the two or three most important successes from the early win. These successes must be communicated easily with “one-minute messages.”
  • Enable action. Leaders must find the obstacles and remove them.
  • Don’t declare victory. The short-term win creates danger, as people relax. Significant culture change must be ensured before moving on to bigger issues.
  • Anchor new approaches. Changes must be explained and participants recognized.
  • Recognize successes. Building trust reinforces new behaviors when they are based on the new values. Recognition and reward are aligned.

The early win is vital because successful change is going to come by using your innovation process to identify a new offering.13 Settle on a product that is fading or a process that is constantly failing, but don’t be overambitious. You need a diverse cross-functional team of people familiar with the issue you are going to address. This is familiar territory for a quality professional.


References

  1. Chuck Todd interview with Pete Buttigieg, mayor of South Bend, IN, “Meet the Press” NBC News, Oct. 20, 2019, https://tinyurl.com/nbc-meet-press-102019.
  2. The Friends of Darwin, “The Not the Strongest Meme,” http://friendsofdarwin.com/memes/not-the-strongest.
  3. Kwamena Nyarku and Gloria K.Q. Agyapong, “Rediscovering SWOT Analysis: The Extended Version,” Academic Leadership Journal, January 2011.
  4. Peter Merrill, “Be Ready: Develop Your People Skills to Be a Part of Quality 4.0,” Quality Progress, March 2019, pp. 54-56.
  5. Paul J.H. Schoemaker and Philip E. Tetlock, “Superforecasting: How to Upgrade Your Company’s Judgment,” Harvard Business Review, May 2016, p. 72.
  6. Merrill, “Be Ready: Develop Your People Skills to Be a Part of Quality 4.0,” see reference 3.
  7. Sun Tzu, The Art of War, 5th Century BC.
  8. Gary P. Pisano, “The Hard Truth About Innovative Cultures,” Harvard Business Review, January-February 2019.
  9. Gary Hamel and Michele Zanini, “The End of Bureaucracy,” Harvard Business Review. November-December 2018.
  10. Andrew Crave, “Culture Eats Strategy For Breakfast. So What’s For Lunch?” Forbes, Nov. 9, 2017,
  11. Boris Groysberg, Jeremiah Lee, Jesse Price and J. Yo-Jud Cheng, “The Leader’s Guide to Corporate Culture,” Harvard Business Review, January-February 2018, p. 44.
  12. John B. Kotter, Leading Change: An Action Plan From the World’s Foremost Expert on Business Leadership, Harvard Business Review Press, 2012.
  13. Merrill, “Be Ready: Develop Your People Skills to Be a Part of Quality 4.0,” see reference 3.

Peter Merrill is president of Quest Management Inc., an innovation consultancy based in Burlington, Ontario. Merrill is the author of several ASQ Quality Press books, including Innovation Never Stops (2015), Do It Right the Second Time, second edition (2009), and Innovation Generation (2008). He is a member of ASQ and founding chair of the ASQ Innovation Division. Merrill also is head of delegation for his country to ISO Technical Committee 279 on innovation management.


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