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VUCA Decoding Chaos Series Part 2: Volatility

Updated: Nov 28, 2020

In our introduction to Conquering Chaos we learned about the acronym VUCA, developed by the US Army War College in the 1980s. VUCA stands for Volatility, Uncertainty, Complexity, and Ambiguity, and it helps us better understand the chaos we are facing.


To understand how each element of VUCA is distinct from the others we can lay them

out in a two by two grid.


Complexity Volatility

Ambiguity Uncertainty


With this matrix we can quickly assess our situation. As we move from left to right along the X axis our knowledge of the situation is increasing. As we move from the bottom to the top of the matrix along the Y axis our ability to predict the results of our actions increases - in other words, our ability to control the situation increases. Though don’t get caught sleeping - you can never control chaos.


Thus, in simple terms, a volatile situation is a form of chaos that we have a (relatively) good understanding of and control over. Conversely, ambiguity is a form of chaos in which we have no preconceived notion of and a complete lack of control.


What are the hallmarks of volatile situations?


Volatile situations are unexpected and unstable, but not difficult to understand. Specifically, we often understand the variables that influence volatility, but we can’t directly control them.


Think about the stock market. Generally speaking, we understand what variables drive a particular stock price (earnings, profitability, new product launches, etc) and the broader macro market (interest rates, liquidity, etc). As investors, even though we understand these variables and their standard impact on prices, we cannot control them - nor can we predict them.


Sometimes we see major shocks that spin a stock, industry/sector, or the broader market into total chaos. The collapse of Lehman Brothers, a decision by Saudi Arabia to enter into a price war for oil with Russia, or a global pandemic - we cannot predict or control these things. But that doesn’t mean we have to fall victim to them.


The good news is that volatile situations often have lots of information - though the news isn’t always good - that we can sift through for insights and correlations. Though, again, unless your a Crown Prince or the Treasury Secretary there’s a good chance you can’t control the variables contributing to the volatility. However, armed with information and an understanding of how the variables interact, you can make informed decisions that increase your chances of winning.


The key here is keeping the big picture in mind. Those that tend to lose in volatile situations are those that fail to focus on their vision. It’s easy to lose sight of long-term strategies and objectives when we hit choppy waters. In the stock market scenario, people become consumed by short-term losses - even though those losses aren’t even realized unless the person overreacts and sells low! On the flip side, people that conquer volatility are the ones that look at the short-term churn and see opportunity - to buy more at low prices, to outlast a competitor who can’t weather the storm, to test teammates who haven’t yet experienced a professional challenge and needs to grow. These people stay focused on the long-term vision and while others flounder, they flourish.


A few things to remember to conquer these volatility storms:


  1. If vision is critical to success you need to HAVE a vision. That vision is what will guide you and your team through the short-term churn. Ever been seasick on a boat? You’ll often hear experienced boaters tell you to look at the horizon line to settle your stomach. Suddenly, with your focus on the horizon your body and mind can make sense of the rolling waves immediately underneath you.

  2. What is your long-term strategy? Does your team know it? Do they buy into it? Make sure you have a plan. And a back-up plan. And a back-up to that back up.

  3. Get comfortable being uncomfortable. Chaos isn’t fun, but winning is. Find ways to challenge yourself mentally, emotionally, and physically before chaos hits and all your chips are on the table.

  4. Tough times don’t last, but tough people do. Volatile situations can persist for long stretches. Dig in and be ready to endure.

  5. If volatile situations can last long stretches then you better you better have the capacity to endure them. Ever notice how the rich get richer in economic downturns? It’s because they have liquid capital they can deploy when markets are low, allowing them to ride the returns all the way back to the top.

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