By now every reader drawn to articles like this will almost certainly have heard the acronym VUCA, so widely used these days. It was first used in 1987 and originates from the theories on leadership of Warren Bennis and Burt Nanus. It is also associated with use by the U.S. Army War College following the end the cold war. It describes the environment in which businesses and organisations operate as volatile, uncertain, complex and ambiguous.
In relation to management theory in particular, Russell L. Ackoff, a Wharton emeritus professor of management, said, “managers don’t solve simple, isolated problems; they manage messes.” And he defined a mess as “a system of constantly changing, highly interconnected problems, none of which is independent of the other problems that constitute the entire mess. As a result, no problem that is part of a mess can be defined and solved independently of the other problems”.
Whilst Ackoff described the problems as messy, Horst Rittel and Melvin M. Webber called them “wicked” in their 1973 treatise, and contrasted them with relatively “tame”, soluble problems. Wicked problems are said to be difficult or impossible to solve because of incomplete, contradictory, and changing requirements that are often difficult to recognise. And problems that cannot be fixed, or for which there is no single solution.
Whether we define the problems as wicked or messy, and whether we associate them with the VUCA features or not, one thing is certain. Everyone agrees these are the challenges management must address and they are growing in number, scope and scale. Other common features are that they are all external issues, they absorb a great deal of management time and cause increasing levels of anxiety. They are the most often analysed as sources of risk. And less often as sources of advantage.
Harvard Business School professor Francis J. Aguilar wrote Scanning the Business Environment in 1967 to include the economic, technical, political and social (ETPS) influences. They were later re-ordered into the more useful mnemonic PEST. This was then extended to PESTLE to include Legal and Environmental influences. Today it is referred to as a PESTLE Analysis.
Speaking at a recent conference, I gave a presentation titled “Undaunted: How Successful Business Leaders Face Wicked Problems”. A few weeks before, I had read American Icon, by Bryce Hoffman, which explained how Alan Mulally saved Ford Motor Company from itself, and then saw it through the impact of the global financial crisis. This followed his time as CEO of Boeing where he had turned that business around, then got it through the crisis the airline industry faced following the September 11 terrorist attacks on New York.
The global banking crisis and the September 11 attacks might be viewed as black swan events, to use the metaphor developed by Nassim Taleb to explain the disproportionate role of high-profile, hard-to-predict, and rare events that are beyond the realm of normal expectations in history, science, finance, and technology. However, these events were both predictable. Both had been predicted and ample evidence had been available to show that their likelihood was real. So, they were in fact grey swans as we now call them, potentially very significant events that are considered unlikely to happen but still possible. And, because there is a slight chance they will occur, they — and their impact — could, and should, be anticipated.
What fascinated me as I researched my presentation was the fact that these massive events, which destroyed several other businesses, presented challenges Mulally was able to overcome. He was not alone. Like others, the leaders that faced such challenges and overcame them had not seen them coming. They just made the right decisions when they did come. They were able to respond effectively.
Another book I read during my research for the presentation was Innovating Out of a Crisis, by Shigetaka Komori, former CEO of Fujifilm. I was able to compare his response to the impact of digital photography on the film industry with the response of Kodak Corporation. They were very different responses to the same disruptive force, which was a grey swan event because it was predictable and had been predicted. Kodak had even pioneered the first digital camera, but still went on to make strategic decisions that proved to be catastrophic to the business.
In contrast to their competitors, Komori and Alan Mulally knew what to do to survive the challenges they faced, and their responses were very similar. They understood they needed to focus on customer value creation, or what I called Valueism in a previous article.
They radically restructured the businesses, reallocating resources so they could also finance innovation. That meant product and service innovation, to add value to existing customers and attract new customers, often in new markets. And it meant innovation to re-design the business model and re-structure the business. Whilst they cut costs to ensure they had the financial firepower to make these changes, they did not only maintain the budget for innovation, they massively increased it.
Looking further into the nature and causes of corporate crises, I then found confirmation of what I believed to be true. Not only are most corporate crises predictable, they are usually self-inflicted. And whilst some may be caused by external factors, the vast majority are the result of bad management. In a crisis, innovation budgets are often cut, rather than increased, for example.
The PwC Crisis Survey 2019 of the leaders of corporations provides a breakdown of the most likely causes of a corporate crisis. It is clear evidence that whilst the business environment may be more VUCA, and problems may be more messy or wicked, failure is the result of the internal problems of poor decision making and management failings in the vast majority of cases.
This suggests the best way to manage risk is not to spend more time and resources on improving PESTLE analysis, but to invest instead in improving management capability and decision-making abilities. Which begs the question, does management education have the right focus? My research suggests the answer to this is no.
We are learning more about the reasons business leaders make bad decisions, with a growing body of evidence from a wide range of disciplines. Peter Senge explored several of the reasons in the Fifth Discipline. More recently Red Teaming by Bryce Hoffman, The Power of Active Thinking by Ulf Lowenhav and Critical Systems Thinking and The management of Complexity, by Michael C Jackson, explore other reasons.
Jackson sums up some of the challenges in a very powerful way, saying:
“What help can decision-makers expect when tackling the “messes” and “wicked problems” that proliferate in the age of complexity? They are usually brought up on classical management theory that emphasises the need to forecast, plan, organise, lead, and control. This approach relies on there being a predictable future environment in which it is possible to set goals that remain relevant into the foreseeable future; on enough stability to ensure that tasks arranged in a fixed hierarchy continue to deliver efficiency and effectiveness; on a passive and unified workforce; and on a capacity to take control action on the basis of clear measures of success. These assumptions do not hold in the modern world, and classical management theory provides the wrong prescriptions”.
- This blog post is based on the author’s presentation “Undaunted: How Successful Leaders face Wicked Problems and Avoid Predictable Surprises?” taking place on 9 March at the Royal Society of Arts, London.
- The post expresses the views of its author(s), not the position of LSE Business Review or the London School of Economics.
- Featured image by Natália Dudás on Unsplash
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Paul Barnett is founder and chief executive of the Strategic Management Forum, a membership organisation that exists to advance the professional practice of strategic management in the pursuit of sustainable and widely shared prosperity.