VUCA

It’s become a trendy managerial acronym: VUCA, short for volatility, uncertainty,
complexity, and ambiguity, and a catchall for “Hey, it’s crazy out there!” It’s also misleading:
VUCA conflates four distinct types of challenges that demand four distinct types of responses.
That makes it difficult to know how to approach a challenging situation and easy to use VUCA
as a crutch, a way to throw off the hard work of strategy and planning—after all, you can’t
prepare for a VUCA world, right?

Actually, you can. Here is a guide to identifying, getting ready for, and responding to events in
each of the four VUCA categories.

Volatility, uncertainty, complexity and ambiguity

VUCA is an acronym used to describe or reflect on
the volatility, uncertainty, complexity and ambiguity of general conditions and situations. The notion
of VUCA was introduced by the U.S. Army War College to describe the more volatile, uncertain,
complex and ambiguous multilateral world which resulted from the end of the Cold War. The
common usage of the term VUCA began in the 1990s and derives from military vocabulary. It has
been subsequently used in emerging ideas in strategic leadership that apply in a wide range
of organizations, including everything from for-profit corporations to education.
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. It
discusses systemic failures and behavioural failures, 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 Conditions

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.

GE-McKinsey nine-box matrix

is a strategy tool that offers a systematic approach for the multi business corporation to
prioritize its investments among its business units.

Understanding the tool In the business world, much like anywhere else, the problem of
resource scarcity is affecting the decisions the companies make. With limited resources, but
many opportunities of using them, the businesses need to choose how to use their cash best.
The fight for investments takes place in every level of the company: between teams, functional
departments, divisions or business units. The question of where and how much to invest is an
ever going headache for those who allocate the resources.

How does this affect the diversified businesses? Multi business companies manage
complex business portfolios, often, with as much as 50, 60 or 100 products and
services. The products or business units differ in what they do, how well they perform or
in their future prospects. This makes it very hard to make a decision in which products
the company should invest. At least, it was hard until the BCG matrix and its improved
version GE-McKinsey matrix came to help. These tools solved the problem by
comparing the business units and assigning them to the groups that are worth investing
in or the groups that should be harvested or divested.

In 1970s, General Electric was managing a huge and complex portfolio of unrelated
products and was unsatisfied about the returns from its investments in the products. At
the time, companies usually relied on projections of future cash flows, future market
growth or some other future projections to make investment decisions, which was an
unreliable method to allocate the resources. Therefore, GE consulted the McKinsey &
Company and as a result the nine-box framework was designed. The nine-box matrix
plots the BUs on its 9 cells that indicate whether the company should invest in a
product, harvest/divest it or do a further research on the product and invest in it if
there’re still some resources left. The BUs are evaluated on two axes: industry
attractiveness and a competitive strength of a unit.

Industry Attractiveness

Industry attractiveness indicates how hard or easy it will be for a company to compete in
the market and earn profits. The more profitable the industry is the more attractive it
becomes. When evaluating the industry attractiveness, analysts should look how an
industry will change in the long run rather than in the near future, because the
investments needed for the product usually require long lasting commitment.

Industry attractiveness consists of many factors that collectively determine the

competition level in it. There’s no definite list of which factors should be included to
determine industry attractiveness, but the following are the most common: [1]

 Long run growth rate

 Industry size
 Industry profitability: entry barriers, exit barriers, supplier power, buyer power, threat of
substitutes and available complements (use Porter’s Five Forces analysis to determine
this)
 Industry structure (use Structure-Conduct-Performance framework to determine this)
 Product life cycle changes
 Changes in demand
 Trend of prices
 Macro environment factors (use PEST or PESTEL for this)
 Seasonality
 Availability of labor
 Market segmentation

Competitive strength of a business unit or a product

Along the X axis, the matrix measures how strong, in terms of competition, a particular
business unit is against its rivals. In other words, managers try to determine whether a
business unit has a sustainable competitive advantage (or at least
temporary competitive advantage) or not. If the company has a sustainable competitive
advantage, the next question is: “For how long it will be sustained?”

The following factors determine the competitive strength of a business unit:

 Total market share

 Market share growth compared to rivals
 Brand strength (use brand value for this)
 Profitability of the company
 Customer loyalty
 VRIO resources or capabilities (use VRIO framework to determine this)
 Your business unit strength in meeting industry’s critical success factors
(use Competitive Profile Matrix to determine this)
 Strength of a value chain (use Value Chain Analysis and Benchmarking to determine
this)
 Level of product differentiation
 Production flexibility
The McKinsey 7-S Framework
Ensuring That All Parts of Your Organization Work in Harmony

How do you go about analyzing how well your organization is positioned to achieve its intended
objective?

This is a question that has been asked for many years, and there are many different answers.
Some approaches look at internal factors, others look at external ones, some combine these
perspectives, and others look for congruence between various aspects of the organization being
studied. Ultimately, the issue comes down to which factors to study.

While some models of organizational effectiveness go in and out of fashion, one that has
persisted is the McKinsey 7-S framework. Developed in the early 1980s by Tom Peters and
Robert Waterman, two consultants working at the McKinsey & Company consulting firm, the
basic premise of the model is that there are seven internal aspects of an organization that need to
be aligned if it is to be successful.

The 7-S model can be used in a wide variety of situations where an alignment perspective is
useful, for example, to help you:

 Improve the performance of a company.

 Examine the likely effects of future changes within a company.

 Align departments and processes during a merger or acquisition.

 Determine how best to implement a proposed strategy.

The McKinsey 7-S model can be applied to elements of a team or a project as well. The
alignment issues apply, regardless of how you decide to define the scope of the areas you study.

The Seven Elements

The McKinsey 7-S model involves seven interdependent factors which are categorized
as either "hard" or "soft" elements:

Hard Elements Soft Elements

Strategy Shared Values

Hard Elements Soft Elements

Structure Skills

Systems Style

Staff

"Hard" elements are easier to define or identify and management can directly influence
them: These are strategy statements; organization charts and reporting lines; and
formal processes and IT systems.

"Soft" elements, on the other hand, can be more difficult to describe, and are less
tangible and more influenced by culture. However, these soft elements are as important
as the hard elements if the organization is going to be successful.

The way the model is presented in Figure 1 below depicts the interdependency of the
elements and indicates how a change in one affects all the others.

Let's look at each of the elements specifically:

 Strategy: the plan devised to maintain and build competitive advantage over the competition.
 Structure: the way the organization is structured and who reports to whom.
 Systems: the daily activities and procedures that staff members engage in to get the job done.
 Shared Values: called "superordinate goals" when the model was first developed, these are
the core values of the company that are evidenced in the corporate culture and the general
work ethic.
 Style: the style of leadership adopted.
 Staff: the employees and their general capabilities.
 Skills: the actual skills and competencies of the employees working for the company.

Placing Shared Values in the middle of the model emphasizes that these values are
central to the development of all the other critical elements. The company's structure,
strategy, systems, style, staff and skills all stem from why the organization was originally
created, and what it stands for. The original vision of the company was formed from the
values of the creators. As the values change, so do all the other elements.

Also, the first version of this model, published in 1982, classified “systems” as “soft”.
Since 1982, very many processes in very many organizations have been meticulously
documented or automated, making them relatively easy to analyze and change. They
are therefore shown above as “hard”.

The Ansoff Matrix

Understanding the Risks of Different Options
(Also known as the Product/Market Expansion Grid)

Successful leaders understand that if their organization is to grow in the long term, they
can't stick with a "business as usual" mindset, even when things are going well. They
need to find new ways to increase profits and reach new customers.

There are numerous options available, such as developing new products or opening up
new markets, but how do you know which one will work best for your organization?

This is where you can use an approach like the Ansoff Matrix to think about the potential
risks of each option, and to help you devise the most suitable plan for your situation.

Understanding the Tool

The Ansoff Matrix was developed by H. Igor Ansoff and first published in the Harvard
Business Review in 1957, in an article titled "Strategies for Diversification." It has
given generations of marketers and business leaders a quick and simple way to think
about the risks of growth.
Sometimes called the Product/Market Expansion Grid, the Matrix (see Figure 1, below)
shows four strategies you can use to grow. It also helps you analyze the risks
associated with each one. The idea is that, each time you move into a new quadrant
(horizontally or vertically), risk increases.

Market Penetration

When we look at market penetration, it usually covers products that are existence and that are also
existent in an existing market. In this strategy, there can be further exploitation of the products
without necessarily changing the product or the outlook of the product. This will be possible through
the use of promotional methods, putting various pricing policies that may attract more clientele, or
one can make the distribution more extensive.

In Market Penetration, the risk involved in its marketing strategies is usually the least since the
products are already familiar to the consumers and so is the established market. Another way in which
market penetration can be increased is by coming up with various initiatives that will encourage
increased usage of the product. A good example is the usage of toothpaste. Research has shown that
the toothbrush head influences the amount of toothpaste that one will use. Thus if the head of the
toothbrush is bigger it will mean that more toothpaste will be used thus promoting the usage of the
toothpaste and eventually leading to more purchase of the toothpaste.

Product Development

In product development growth strategy, new products are introduced into existing markets. Product
development can differ from the introduction of a new product in an existing market or it can involve
the modification of an existing product. By modifying the product one would probably change its
outlook or presentation, increase the products performance or quality. By doing so, it can appeal more
to the already existing market. A good example is car manufacturers who offer a range of car parts so
as to target the car owners in purchasing a replica of the models, clothing and pens.

Market Development

The third marketing strategy is Market Development. It may also be known as Market Extension. In
this strategy, the business sells its existing products to new markets. This can be made possible
through further market segmentation to aid in identifying a new clientele base. This strategy assumes
that the existing markets have been fully exploited thus the need to venture into new markets. There
are various approaches to this strategy, which include: New geographical markets, new distribution
channels, new product packaging, and different pricing policies. In New geographical markets, the
business can expound by exporting their products to other new countries. It would also mean setting
up other branches of the business in other areas that the business had not ventured yet. Various
businesses have adopted the franchise method as a way of setting up other branches in new markets.

A good example is Guinness. This beer had originally been made to be sold in countries that have a
colder climate, but now it is also being sold in African countries. The other method is via new
distribution channels. This would entail selling the products via e-commerce or mail order. Selling
through e-commerce will capture a larger clientele base since we are in a digital era where most
people access the internet often. In New Product packaging, it means repacking the product in another
method or dimension. That way it may attract a different customer base. In Different pricing policies,
the business could change its prices so as to attract a different customer base or so create a new
market segment. Market Development is a far much risky strategy as compared to Market
Penetration. This is so as it is targeting a new market and one may not quit tell how the out come may
be.

Diversification

The last strategy is Diversification. This growth strategy involves an organization marketing or selling
new products to new markets at the same time. It is the most risky strategy among the others as it
involves two unknowns, new products being created and the business does not know the development
problems that may occur in the process. There is also the fact that there is a new market being
targeted, which will bring the problem of having unknown characteristics. For a business to take a step
into diversification, they need to have their facts right regarding what it expects to gain from the
strategy and have a clear assessment of the risks involved.

There are two types of diversification. There is related diversification and unrelated diversification. In
related diversification, this means that the business remains in the same industry in which it is familiar
with. For example, a cake manufacturer diversifies into a fresh juice manufacturer. This diversification
is in the same industry which is the food industry. In unrelated diversification, there are usually no
previous industry relations or market experiences. One can diversify from a food industry to a
mechanical industry for instance.

A good example of the unrelated diversification is Richard Branson. He took advantage of the virgin
brand and diversified into various fields such as entertainment, air and rail travel foods etc. Another
example is the easy jet which has diversified into car rentals, gyms, fast foods and hotels. Though
diversification may be risky, with an equal balance between risk and reward, then the strategy can be
highly rewarding. Another advantage of diversification is that in case one business suffers from
adverse circumstances the other line of businesses may not be affected.
 Grand Strategy.
Identification of various alternatives strategies is an important Aspects of strategic
management as it provide thealternatives which can be considered and selected
for implementation in order to arrive at certain result. At this stage, themanagers are able to
complete their environmental analysis andappraisal of their strengths and they are in a position
to identifywhat alternatives strategies are available for them in the light of their organizational
mission

GRAND STRATEGY MATRIX

1 |
Grand Strategy Matrix has emerged into a powerful tool in devising alternative strategies. This matrix is
basically based on four important elements:

• Rapid Market Growth

• Slow Market Growth

• Strong Competitive Position

• Weak Competitive Position

These elements form a four quadrant matrix in which all organizations can be positioned in such a way that
identification and selection of appropriate strategy becomes an easy task. Moreover, this matrix helps in
adopting the best strategy based on the current growth and competitive state of the firm. A large scale firm
segregated into many divisions can also plot its divisions in this four quadrant Grand Strategy Matrix for
formulating the best strategy for each division.

The key area of management is to suitably select the strategy cohesive with the firms’ market and competitive
position. The Grand Strategy Matrix makes it an easy going job. It helps in scientific analysis of firms‘current
position and selection of best strategy in accordance with the revealed competitive position and market place.

Broadly speaking four elements of the Grand Strategy Matrix can be described as two evaluative dimensions
namely market growth and competitive position. In each quadrant of the matrix the apt strategies are enlisted
in sequential order for each organization or division keeping in view the attractiveness in each quadrant of the
matrix.

QUADRANT I
The quadrant one of the Grand Strategy Matrix is meant for those firms which are in a strong competitive
position and flourishing with rapid market growth. Firms located in this quadrant are in excellent strategic
position and they need to concentrate on current markets and products. Concentration on current markets
reveals the adoption of strategies such as market penetration and market development and likewise
concentration on current products calls for adoption of product development strategy. These firms or divisions
should continue to ponder upon current competitive advantage and must avoid from loosing the focus from the
competitive advantage gained over the time.

[large]In case quadrant one firms have excessive resources, than, it would be wise to adopt the expansion
program and indulge in backward, forward, or horizontal integration. But and a careful thought process needs
to be done before assuming such integrations so that any meditation from the current competitive advantage
can be avoided. The quadrant one firm also requires identifying the risk associated mainly if it is committed to
a single product line. The best strategy to espouse in this case is related diversification because it can be
helpful in reducing the risk associated with the slender product line.

One of the main advantages to the quadrant one firms is that they can afford to exploit the external
opportunities and magnify the wealth in numerous areas of dealings.

QUADRANT II
Firms and divisions falling in quadrant two of the Grand Strategy Matrix are characterized with a weak
competitive position in fast growing market. The present market position of these firms must click in the minds
of the management and they need to weigh up the firms’ present market place critically. The opportunity
lagging here is that such firms are operating in a growing industry but the problem area is that they are
competing ineffectively. An in-depth analysis is necessary to identify the gray areas of incompetence and the
reasons behind such ineffectiveness. Moreover, adoption of counteractive measures is also indispensable so
that ability to compete effectively is strengthen and firm can find its space in the more competitive
environment.
[linkunit]Since quadrant two firms are in a rapid market growth industry, therefore, an intensive strategy, more
appropriately, can be classified as the first option to adopt. The dilemma in espousing the intensive strategy
arises when the firms is lacking distinctive competence or competitive advantage. In this scenario the most
enviable substitute is horizontal integration.

In case the quadrant II firm does not find any suitable strategy to adopt than divestiture of some divisions can
be considered as another option. Such an arrangement may avail the desired funding to buy back the shares or
to invest in the current venture in other divisions to strengthen the competitive position. Moreover, as last
resort, liquidation should be considered so that another business can be acquired.

QUADRANT III
The quadrant three firms are operating in a slow growth industry with a weak competitive position. These
firms are prone to further decline which may result possibly in liquidation. To avoid such situations quadrant
three firms needs introduce drastic changes in almost all the areas of managing the company. The management
has to change its philosophy and should necessarily adopt new approaches of governing the firm. The
management should be willing to incur some extensive costs in the overall revamp of the organization.

Strategically retrenchment (assets reduction) would be the best option to be considered first. Secondly
diversifying the overall business through shifting the resources should be evaluated as another choice (related
or unrelated diversification). The final option is again divesture or liquidation.

QUADRANT IV
The firms falling in quadrant IV are characterized as having a strong competitive position but are operating in
a slow growth industry. These firms have to quest for the promising growth areas and to exploit the
opportunities in the growing markets as they possess the strengths to instigate diversified programs in growing
industries.

Ideally quadrant four firms have limited requirements of funds for internal growth whereas they enjoy the high
cash flows due to the competitive position they are characterized for. Therefore, these firms can often hunt for
related or unrelated diversification fruitfully. Due to availability of excessive funds quadrant IV firms can also
pursue joint ventures.
 Porter’s Value Chain Analysis

This article explains the Porter’s Value Chain Analysis, developed

by Michael Porter in a practical way. After reading you will understand the
basics of this powerful management tool.

What is a Value Chain Analysis?

The value chain also known as Porter’s Value Chain Analysis is a business
management concept that was developed by Michael Porter.

In his book Competitive Advantage (1985), Michael Porter explains Value

Chain Analysis; that a value chain is a collection of activities that are
performed by a company to create value for its customers.

Value Creation creates added value which leads to competitive advantage.

Ultimately, added value also creates a higher profitability for an

organization.

Porter’s Value Chain Analysis

The strength of the Porter’s Value Chain Analysis is its approach.

The Porter’s Value Chain Analysis focuses on the systems and activities with
customers as the central principle rather than on departments and
accounting expense categories.

This system links systems and activities to each other and demonstrates
what effect this has on costs and profit.Consequently, it (Value Chain
Analysis) makes clear where the sources of value and loss amounts can be
found in the organization.
The Value Chain activities

Porter’s Value Chain Analysis consists of a number of activities, namely

primary activities and support activities.

Primary activities have an immediate effect on the production, maintenance,

sales and support of the products or services to be supplied.

These activities consist of the following elements:

Inbound Logistics

These are all processes that are involved in the receiving, storing, and
internal distribution of the raw materials or basic ingredients of a product or
service.

The relationship with the suppliers is essential to the creation of value in this
matter.

Production

These are all the activities (for example production floor or production line)
that convert inputs of products or services into semi-finished or finished
products.

Operational systems are the guiding principle for the creation of value.

Outbound logistics

These are all activities that are related to delivering the products and
services to the customer.

These include, for instance, storage, distribution (systems) and transport.

Marketing and Sales

These are all processes related to putting the products and services in the
markets including managing and generating customer relationships.

The guiding principles are setting oneself apart from the competition and
creating advantages for the customer.

Service

This includes all activities that maintain the value of the products or service
to customers as soon as a relationship has developed based on the
procurement of services and products.

Support activities of the Value Chain Analysis

Support activities within the Porter’s Value Chain Analysis assist the primary
activities and they form the basis of any organization.

In the figure dotted lines represent linkages between a support activity and
a primary activity.

A support activity such as human resource management for example is of

importance within the primary activity operation but also supports other
activities such as service and outbound logistics.

Firm infrastructure

This concerns the support activities within the organization that enable the
organization to maintain its daily operations.

Line management, administrative handling, financial management are

examples of activities that create value for the organization.
Human resource management

This includes the support activities in which the development of the

workforce within an organization is the key element.

Examples of activities are recruiting staff, training and coaching of staff and
compensating and retaining staff.

Technology development

These activities relate to the development of the products and services of

the organization, both internally and externally.

Examples are IT, technological innovations and improvements and the

development of new products based on new technologies. These activities
create value using innovation and optimization.

Procurement

These are all the support activities related to procurement to service the
customer from the organization.

Examples of activities are entering into and managing relationships with

suppliers, negotiating to arrive at the best prices, making product purchase
agreements with suppliers and outsourcing agreements.

Organizations use primary and support activities as building blocks to create

valuable products, services and distinctiveness.

Using the Porter’s Value Chain Analysis

Porter’s Value Chain Analysis: There are four basic steps that have to be
followed if you wish to use the Value Chain as an analysis model.
By following these basic steps the organization can be analyzed using the
Value Chain.

Step 1: identify sub activities for each primary activity

For each primary activity, sub-activities can be determined that create a

specific value for an organization.

There are three categories of sub activities, namely:

 Direct activities (for instance online sales from Marketing& sales)

 Indirect activities (for instance keeping the CRM up-to-date from
Marketing& sales or organizing a golf tournament for customers)
 Quality assurance (Proofreading and editing advertisements from
Marketing& sales).

Step 2: identify sub activities for each support activity

Here it concerns the idea how value support activities such as firm
infrastructure, human resource management, technology development and
procurement can create value within the primary activities.

Use the same distinction as in step 1 for direct and indirect activities and
quality assurance.

For example, consider how human resource management can create value
to inbound logistics, marketing & sales and service. This will also have to be
done for the other support activities.

Step 3: identify links

This is a crucial and time-consuming step because this is about finding the
links between the added value you have identified.
This part is of importance for an organization when it concerns increasing
competitive advantage from the value chain.

For example, a development within a CRM solution can have a link with
increasing production and sales volumes through certain investments.

Another example is the link between the complaints that have been recorded
within the primary activity and the increase of unfilled vacancies (human
resource management) within the primary activity outbound logistics.

Step 4: look for opportunities/ solutions to optimize and create value

After you have completed the value chain analysis it is important to

determine what activities are to be optimized in order to create added value.

This is about quantitative and qualitative investments that can eventually

contribute to increasing your customer base, competitive advantage and
profitability.

Creating business cases will help you give priority and return on investment
(ROI) to the possibly required added value creation of a primary or support
activity.

It’s Your Turn

What do you think? How do you apply the Porter’s Value Chain Analysis in
your work? Do you recognize the practical explanation or do you have more
additions? What are your success factors for the good Value Chain Analysis
set up?

Share your experience and knowledge in the comments box below.