Living in a VUCA World: Volatility

In the first article of this series, we looked at the megatrends that shape VUCA: technology, globalization, demographics and resource scarcity. Today, we’re diving into Volatility. What does it mean for businesses, and how can you master volatile environments?

Volatility: what does it mean?

The more volatile a market is, the faster it changes. Volatility refers to the speed of change and describes changes in demand and a short time-to-market need. In the context of supply chain management, it signifies the rate at which consumer preferences and trends change.

We are moving towards a more individualized world, and this changes customer demands and needs. Whereas in the heydays of Henry Ford’s assembly line, the mass production of identical goods enabled growth; nowadays, this is much less so. Let’s expand on this example: in the past, car brands used to maintain very few models, and each model was more or less the same. However, nowadays, cars are customizable up to the smallest details. As a result, nearly no car is the same: from the interior to the exterior; everything is adapted to individual taste.

This means that your supply chain strategy changes, as you adapt to these individualized demands. In a volatile world, customer demands are continually changing, which leads to new players in the market, that fulfil these new demands. For instance, the development of the iPad: whereas tablet computers have been introduced onto the market for decades with little success, it wasn’t until innovation in internet and telecommunications had reached a certain level that, shortly after, the wildly successful iPad was released, and demand created.

To adapt to Volatility, you need to make sure you have two questions answered: who are my customers, and who are my competition? In the past, this seemed to be a static fact – every business knew the ins and outs of their target group, and what competition they had. Nowadays, this is not that clear, and Volatility means constantly reevaluating these answers.

Managing in a volatile world

The marketplace is rapidly evolving, and to thrive in this fast-paced environment you need as much information as possible. Therefore, use smart technologies to collect data and anticipate customer needs to predict demand accurately. Analyzing this data and using it for customer segmentation via behavioural patterns allows operating a purpose-driven supply chain. With the right data, you can predict and anticipate demand, rather than reacting to it, and you can avoid incorrect planning when it comes to production or logistics.

All development needs to be customer-centric. Transform the way products are developed, using digital, agile processes to improve the customer connection and the speed at which you can introduce new products. Improving the time-to-market and the product-market-fit is essential when it comes to thriving in volatile environments. Speed to market is vital, so innovate fast. Because demands change frequently, a shorter time-to-market allows you to meet customer demands better.

For instance, Tesla can maintain high speed-to-market and continuous innovation, since so much of its innovations are software-based. In this case, introducing innovations is done via software updates, which is not a possibility at this high speed with updates in hardware.

Frequently reassess capital-heavy projects and portfolios. In a volatile world, flexibility is a strength. Therefore, it is crucial to rethink the way projects are executed, reevaluating whether projects and portfolios make sense and if the direction is right. Volatility in demand means that some products may not have the return on investment initially thought, and continuous feedback based on environmental changes and data is needed. Ask whether investments make sense and developments are moving in the right direction to avoid significant investments in the wrong products.

Briefly summarizing Volatility signifies the speed of change in markets and trends, due to increasing individualization and changing customer demands. To thrive in a volatile world, you need to know your customers and competition. Here, information is power: data can help you predict trends, supporting you in actual customer-centric production. In a VUCA world, Volatility works together with Uncertainty, Complexity, and Ambiguity. In the next article, we will cover Uncertainty.