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Strategy

The LACE framework: How to effectively respond to a rapidly changing business environment

Published 29 November 2021 in Strategy ‚ÄĘ 9 min read

The COVID-19 pandemic has accelerated many of the trends driving a volatile, uncertain, complex and ambiguous (VUCA) business environment. This framework and checklist will help you future-proof your organization so that it can adapt at the increasing speed of change. 

When the World Health Organization (WHO) announced the COVID-19 pandemic in March 2020, I was just finishing up an assignment in Oman. On the way to the airport, seeing the news, I bought a mask for the flight home to Switzerland.

My colleague on the trip was somewhat surprised by this ‚Äď after all, I was probably the only person on the plane wearing any protection. Of course, I felt a little self-conscious, but, as a trained biologist, I had some sense of what was to come, and I was ready and able to adapt my behavior in response. Three months later, the WHO updated its own guidance to recommend the wearing of face masks to tackle the rapid spread of the virus.

Being ready to react to disruption goes beyond having the right knowledge at hand; it requires developing certain traits that allow us to continuously put that knowledge into practice and to adapt. For organizations, it means fostering a specific kind of culture biased towards action.

The pandemic may have transformed the way we work, consume and live, but, in reality, this shock to the system only served to turbocharge forces that were already reshaping our world. COVID-19 was the ultimate stress test for the ability of companies and leaders to navigate, adapt, survive and seize opportunities in a VUCA world.

How did you fare? I’m sure most executives would say they could have done better. Perhaps you didn’t react quickly enough, or failed to see certain trends emerging. Did your organization lack the agility, creativity and leadership necessary to pivot? Were you well prepared to turn trends into opportunities? Did you ask the right questions early on? Maybe you had failed to nurture an active ecosystem to co-create solutions for the unprecedented challenges posed by the pandemic.

It is possible, but not easy, to learn how to react to rapid change. Over time, we can train ourselves and our teams with the culture and attributes needed to continuously adapt and prosper, rather than drown, in uncertainty and the fear of the unknown. In this article, I would like to propose a helpful and battle-tested framework and checklist to assess and then strengthen your own VUCA world readiness. 

We are living in a VUCA world 

The¬†term VUCA ‚Äď used to describe the ever-changing and unpredictable nature of the global economy ‚Äď dates back to 1987.¬†While the pandemic¬†sent global uncertainty soaring to record levels in 2020,¬†uncertainty¬†has¬†in fact¬†been trending upwards for decades.

Lace timeline
 
Checklist to help executives respond to a VUCA business environment
  • How do you embrace new ways of thinking and doing?¬†
  • How do you¬†train¬†the curiosity muscle¬†to identify and act on opportunities?¬†¬†
  • What systems are in place for active and continuous learning?¬†
  • Can you¬†transform¬†at the speed of change?¬†¬†
  • How does your organization engage in rapid adaptation and increase its flexibility?¬†¬†
  • How focused are you on customer centricity?¬†
  • How are you striving to be a partner of choice?¬†
  • How do you foster a common purpose in your organization?¬†
  • Do you co-create with partners in a way that offers shared value?¬†
  • Does your organization learn by doing?¬†¬†
  • How often do you rethink your value creation strategy?¬†
  • Do you engage in ‚Äúsense-making‚ÄĚ ‚Äď interpreting and seeing potential in new ideas, trends and technology?¬†

Although the global uncertainty measures from the World Uncertainity Index have eased to pre-pandemic levels (Fig 1.), COVID-19 drew hard battle lines between those organizations that could handle rapid change and those that could not. From my observations, the big winners were already primed with an ability to transform, pivot and innovate at speed, while not completely abandoning their existing or traditional offerings. 

Take, for example, music streaming firm Spotify. As advertisers cut budgets during the pandemic, the company’s free user/advertisement model came under fire. In response, Spotify leveraged its existing streaming service and customer base to move into offering its own original content with exclusive, in-demand podcast deals.

How can more organizations follow this kind of example? The concept of VUCA has been influencing the role of leadership for decades, but there has been limited help for executives to directly address and overcome it.

Based on my work and research helping organizations navigate change over the past year, I have created the following framework and checklist to help executives and their teams more effectively respond to a rapidly changing VUCA business environment. It is built on four key pillars of action: learn, adapt, collaborate, experiment (LACE).

1. Learn 

Checklist questions:  

  • How do you embrace new ways of thinking and doing?¬†
  • How do you¬†train¬†the curiosity muscle¬†to identify and act on opportunities?¬†¬†
  • What systems are in place for active and continuous learning?¬†

 

By training the ‚Äúcuriosity muscle‚ÄĚ, organizations must embrace new ways of thinking and doing by adopting active and continuous learning. Innovation is a social phenomenon that can be learned, and cultures of curiosity can be developed.

Encourage and empower people to challenge the status quo, ask questions, connect and interact meaningfully with many diverse people, seek out answers, take risks and, yes, also fail. Make curiosity a core value for your company and take concrete steps to create a culture of continuous learning. Swiss pharmaceutical firm Novartis, for example, allocates 5% or 100 hours a year of employee time to curiosity and learning. To encourage staff to train their curiosity muscles, the American multinational pharmaceutical company Merck launched the Curiosity Initiative in August 2016 and published an annual State of Curiosity Report ever since which gauges the company’s level of workplace curiosity. 

2. Adapt 

Checklist questions:  

  • Can you¬†transform¬†at the speed of change?¬†¬†
  • How does your organization engage in rapid adaptation and increase its flexibility?¬†¬†
  • How focused are you on customer centricity?


Organizations must be able to transform at the speed of change in a way that develops long-term resilience, not just short-term survival. This means developing increased flexibility and a deeper focus on customer centricity to evolve the core business to create new growth.

Look to align your company with one or more of the long-term trends that have intensified during the pandemic. Take for example, farmers and local stores who have harnessed digital platforms such as Shopify to enhance their direct-to-consumer offerings. Tapping into the rapid evolution of digital technologies and the importance of sustainability as a megatrend, drinks maker AB InBev has deployed blockchain to create a secure monitoring and audit system for ingredients in its supply chain to safeguard standards and improve the way its management of natural resources.

Don’t reinvent the wheel. Look to the lateral extension of your company’s capabilities that cement, rather than undermine, your existing strategy. However, ensure that you target future growth and profitability through sustainable activities to preserve and enhance your brand value among all stakeholders, particularly customers.

Customer centricity should guide how you adapt. Ask yourself: What challenges or needs do our customers have? How can we help them solve their problems? How can we better understand them? Customer expectations have also changed through the pandemic, so map out a detailed, end-to-end user journey for your customers to foster empathy and improve your understanding about what the issues really are.

Fintech has led the way in helping the financial services sector adapt at speed, with firms such as Ally Bank and PayPal developing digital tools from e-wallets to blockchain payment systems that add value by enhancing customer experience and improving their lives. 

3. Collaborate 

Checklist questions:  

  • How are you striving to be a partner of choice?¬†
  • How do you foster a common purpose in your organization?¬†
  • Do you co-create with partners in a way that offers shared value?¬†


Complexity calls for collaboration. In the increasingly complex business environment, where talent is a scarce resource, no one actor can even dream of having all the answers, all of the time. To create competitive edge in the hunt for ideas and solutions, organizations must strive to be the partner of choice and focus on shared value creation by tapping into their entire ecosystem of stakeholders, including suppliers, customers, players beyond their industry and even competitors.

During the pandemic, UPS collaborated with CVS to ensure the pharmacy firm‚Äôs older customers could still receive their prescription medications on time ‚Äď thanks to the use of drone delivery. The race to create effective and safe COVID-19 vaccines triggered partnerships between competitors united around a common purpose, such as Sanofi/GSK as well as private and public organizations including the University of Oxford and AstraZeneca. These, and similar efforts, produced multiple vaccines, with different mechanisms of action, providing a range of weapons in the fight to contain the virus.

Technology offers impactful ways to collaborate and co-create ideas and solutions, through initiatives such as virtual hackathons, where thousands of people from diverse backgrounds can work together on different projects.

4. Experiment 

Checklist questions:  

  • Does your organization learn by doing?¬†¬†
  • How often do you rethink your value creation strategy?¬†
  • Do you engage in ‚Äúsense-making‚ÄĚ ‚Äď interpreting and seeing potential in new ideas, trends and technology?¬†

 

Being prepared to take risks by experimenting, rethinking value creation, making sense of what is available such as data, learning by doing, embracing new technology to create value and looking at problems through different lenses is crucial to success in a VUCA world.

Take Marriott International. To counter the loss of income from restrictions on business travel and tourism, the global hotel giant offered alternative and hygienic workspaces in its rooms with daytime rates.

Razorpay experimented with the concept of virtual hackathons during its 2020 Payments Innovation Week, with 200 employees working in 50 teams producing more than 100 new ideas. The firm said it would implement more than 80% of those new ideas. 

By¬†asking the right questions and actively¬†working¬†to develop¬†these four¬†pillars, you¬†will¬†gradually¬†nurture and acquire¬†the¬†culture¬†and tools¬†to¬†‚ÄúVUCA-proof‚Ä̬†your organization.¬†This¬†emerging new¬†culture will, in turn,¬†foster¬†individuals and¬†teams¬†capable of¬†withstanding¬†the¬†increasing¬†speed of change¬†and the unknown on¬†a¬†daily basis.¬†

Vuca world, Lace framework

Authors

Louise Muhdi

Louise Muhdi

Affiliate Professor of Innovation and Strategy at IMD

Louise Muhdi is Affiliate Professor of Innovation and Strategy. She helps organizations adapt to uncertain and fast-changing business environments, drive innovation and growth, and sustain value creation for the long term. She has an MSc in biology and a PhD in technology and innovation management from ETH Z√ľrich, Switzerland. Prior to joining IMD in 2019, Muhdi was Head of Innovation Strategy and Portfolio for Global Science and Technology at Givaudan International where she developed the global innovation strategy and implemented multiple strategic initiatives to drive short, mid, and long-term growth. She also spent several years in the pharmaceutical industry.

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