Take risks to manage uncertainty
Professor Venkatesh Shankar talks about devising strategies, nurturing leadership and, disruptive ideas faced by Indian companies
New Delhi: VUCA, the acronym for volatility, uncertainty, complexity and ambiguity, is what concerns companies all over the world. The real issue is how to address these concerns in terms of developing leadership. Venkatesh Shankar , professor of marketing, the Coleman Chair in marketing and director of research at the Centre for Retailing Studies, Mays Business School, Texas A&M University, has been helping companies through executive training to reshape strategy. He has worked with Colgate-Palmolive, GlaxoSmithKline, Hewlett-Packard, HSBC, IBM, Intel, PepsiCo, Philips, and Volvo. In an interview, Shankar talks about a five-step framework to devise a VUCA strategy, nurture leadership and manage uncertainties faced by Indian firms. Edited excerpts:
What should companies do to navigate through a VUCA environment?
I would recommend the five-step framework, which begins with identifying all sources of uncertainties, then moving on to anticipating scenarios and then creating broad strategies so you have different paths where things can move about. Put a lot of emphasis on high-probability scenarios like the ones which are most likely to happen. And also come up with a contingency plan or hedge for high-impact, but low-probability scenarios. It is critical to develop contingency plans to minimize the downside uncertainty.
What should companies keep in mind while devising strategies?
First of all companies should be very proactive. They have to get their blinders off. They have to think out of their comfort zone or think “out of bubble”. They have to be very open and willing to invest time and effort on this because it can’t be done as an afterthought or with the existing staff, demanding their time.
What can companies do to ensure smooth transition from one strategy to another?
The problem with most companies today is that the strategic planning or business strategy formulation itself is an activity that is not entirely done totally correctly. Even if it is done, they do not have space for planning for uncertainties. To transition from current business strategy formulation, where companies are typically formulating plans for the next one or two years, they have to go beyond that. Take that existing one-year plan, the next year plans, plus move a little bit further in the horizon and use this framework to recognize all possible scenarios. Take the existing ones and expand it a little bit. But also keep in mind a lot of different fresh thinkers in the company. It should not be entrusted to one individual, but it should be a combination of a lot of cross-disciplinary executives.
What are some of the uncertainties Indian companies face?
There are a lot of uncertainties faced by Indian companies. It is four dimensional: political, economic, social and technological. Political is around the upcoming general election. It is not clear which party will come to power or what policies will be changed or retained. People are worried about the economic rate of growth. It has become slower now, 5% is something everyone is willing to settle for. The inflation issue is still at large. The exchange rate has just barely stabilized. So, economic uncertainties at macro level are very high. Even at micro level they are high as even industries themselves are not clear as to how the economics of each industry will evolve. There are social uncertainties as we know demographically 50% of India’s population is under 25 years and 70% under 35 years. They are gradually evolving in their aspirations and preferences. There is also the role of women in society, which is unfortunately lagging behind, which needs to be uplifted in many areas starting from security, safety, equal opportunities and education. Technological uncertainties are a big uncertainty everywhere in the world, including in India. In India, particularly, it has a lot of significance because the population being very young, they are agile in terms of adoption of new technology. There’s uncertainty as (to) how fast it will evolve. For example, the mobile penetration rate may be 5%. These devices are going to be increasingly fundamental to this population. So how does that technological evolution take place. All these combined together will create a significant set of uncertainties and that’s what companies have to start putting on the paper and start creating plans, even if they aren’t completely sure of the probability of these occurrences.
What sectors are the most vulnerable to such uncertainties?
Typically sectors where the pace of change, not just technology change, but pace of general change like in customer taste or environmental infrastructure happens very fast. Those are the industries you have to worry (about) the most. Obviously, the companies in the tech space will have to worry because technology is changing fast. We know of so many examples from tech companies which used to be winners 10 years ago, but are no longer on the horizon. Nokia, BlackBerry and Kodak are some of the great cases. But I won’t say any sector is immune. It is just the rate of pace that you have to worry about. But also, some of the sectors that may be slow to change, they may be increasingly slow to also put plans in place. Even if change has happened slowly, but if you start putting an uncertainty plan in place, it will take long to execute. So it works both ways, like oil and gas are slower industry, but it takes more time for you to make some big changes in that industry.
How should companies nurture leadership for the future?
Companies should first create a culture. The culture of developing strategy under uncertainty, that starts right from bottom to top. So they have to identify talent willing to think outside the box, and take risks. To be able to manage uncertainty, you have to be able to take risk and be able to fail, and the culture has to allow it. So, most of the leadership is created in this culture and the people who have done well in this culture will evolve to the top. Leaders have to be trained because this is an area where companies do not have adequate expertise. They’ll have to actually send people for higher education to master the skills and then they have to give them opportunities. And then succession planning at the end is very, very critical. Most of the times when we see uncertainties, they transcend generations. So a leader today should be able to anticipate what the next generation is going to have and the next generation leader has to pick. The governance has to be good because the boards have a lot of say in how these leaders are picked and retained.
What are some of the challenges executives face while implementing these strategies?
They’ll have to go an extra mile to be able to convince the top management or the board. And for that they’ll have to go through the rigor of going through the exercises that this framework can create and then showing them through examples. So you have to think of novel ways to really appeal to them to understand what it means for the next generation. Even if it is outside your comfort zone today it is for the benefit tomorrow. So that extra effort companies will have to make and typically companies don’t do that because they stop at the very first resistance.
What are the disruptive ideas Indian firms should watch out for?
Indian companies should follow the trend overseas, especially in the West, where disruptions have taken place and the models have been disrupted very quickly. In India, it could even be leapfrogging. If two overseas disruptions have taken place, in India they could leapfrog to the third disruption. The other thing is when you look at India, what are the ways in which things can get disrupted very easily. One is technology, of course, and the other disruption is consumer demand. Because of the changing needs and aspirations of consumers, right from politics all the way to goods and services, customers have a lot of power now. So when companies think about disruptions, they have to think can I disrupt my existing business or can I disrupt somebody else’s business in a way that I create immediate value to the customer. So I look for pain points that are really particularly painful for people and try to plug those. If you focus on this opportunity, that will become hugely disruptive. You should follow that and show it works. Once you show that it works, and then it is a matter of fine-tuning the model and getting it right.
How should a company market a disruptive idea?
It is always a marketing challenge for start-up and entrepreneurial firms. But the advantage and beauty of a disruptive idea or innovation is that you are marketing that innovation mainly because you have identified growing customer pain. So already you should resonate with the customer. You really don’t have to spend enormous sums of money on marketing. In fact, a customer will become your advocate if he really likes that idea. Politics, for example, today AAP (Aam Aadmi Party) is very popular mainly because it struck a chord with the people and they started becoming champions of the party. So think of any disruptive model even in business that strikes at the very fundamental chord of a customer’s need and that will be your marketing vehicle.
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