How to Operate in a VUCA Environment

Does market and cultural volatility and uncertainty, the complexity of making business decisions, and ambiguity about the future worry you? Small business owners don’t have an easy job in running their businesses when dealing with the present economic environment, which is often referred to as VUCA, an acronym for volatility, uncertainty, complexity and ambiguity. Therefore, entrepreneurs need to develop strategies to use in their businesses to effectively operate within a VUCA world.

Originally a military leadership term from the 1990s, VUCA now describes the normal economic roller coaster small business owners ride. Instead of being overwhelmed by a crazy VUCA world, let’s examine each part of this environment and identify strategies in which you can survive and thrive in VUCA conditions.

Volatility

We live and operate in a culture of change. As a business owner, you may face unexpected challenges or unstable situations, and you may not know how long these conditions will last. For example, a supplier may experience an unexpected disaster which forces them off-line for some time. Therefore, you must scramble to find new vendors, which can cause fluctuating supply costs.

Strategies: Preparation can help you endure during volatile times. Financial management can be the critical determining factor in your continued success. Stockpile inventory and assets to tide you over in times of volatility. Adjust your budget, and cash flow, to operate leaner and save money. By becoming more prepared and efficient, you can weather the ups and downs of the economy.

Uncertainty

You encounter an event, trend, situation or issue in which you lack basic information about it and what it will mean to your business in the short and long term. For example, a competitor is launching a new product. You’re uncertain about how it will affect the future of your business and the market in general.

Strategies: Gather and examine information to better understand your business and the business climate. Work with mentors, industry experts and other entrepreneurs to gain insight about trends and other performance and market indicators. Build relationships to take advantage of unexpected business opportunities. Always have an eye on your profit and loss statement so you know where you stand when opportunity comes along.

Complexity

A situation you’re experiencing has multiple, interconnected parts and variables, which can cause chaos and confusion within your business. For example, your business provides products to different industries that must conform to varying standards within each industry.

Strategies: Know and understand your business and what is important to you. Get rid of options that don’t fit with your overall mission and goals. For other opportunities, work with specialists to develop resources and processes to address the complexities. Accurate and timely bookkeeping is essential to understand the implications of complexities in your business on your bottom line. With lots of moving parts, accounts receivable and accounts payable get even more complicated, too, and can create problems with cash flow.

Ambiguity

You want to launch your products and/or services in an emerging market, however, you face many unknowns since you’re outside your area of expertise.

Strategies:  Take reasonable risks and experiment to see what works and what doesn’t. Partner with others to learn more about the market/situation and spread the risk. Know when to change to a better plan or quit altogether. Be sure you are tracking expenses and continually measure ROI.

Generally, to survive and thrive in a VUCA environment, you must stay informed within your business and understand your company’s financial situation to handle any challenges that arise.  Bookkeeping takes on an even greater priority in a VUCA environment. At The Payroll Department, our long-time bookkeeper, Grace Walker, can help you develop a budget for your company and ensure your company’s financial records are in order. Therefore, when faced with VUCA situations, good financial management means you can make knowledgeable decisions based on accurate financial data to tackle these conditions with greater confidence. Contact The Payroll Department to learn more about our bookkeeping services, so you’re better prepared for a VUCA world.

-Ariane of The Payroll Department Blog Team