Chicago Booth Review Podcast How to Navigate a Volatile World

Hal Weitzman: If you’re anything like me, when you hear business people saying the world is becoming more unpredictable and uncertain, you ask yourself what they’re trying to sell you. But while the world has always been volatile, the COVID-19 pandemic, the rise of AI, and the effect of climate change do seem to have put us in an unusual spot. However uncertain you thought things were, they may be about to get even more unpredictable. So how should we respond to a VUCA world, one characterized by volatility, uncertainty, complexity, and ambiguity? Welcome to the Chicago Booth Review Podcast, where we bring you groundbreaking academic research in a clear and straightforward way. I’m Hal Weitzman, and today I’m talking to Chicago Booth’s Greg Bunch, who teaches people not only to survive in a VUCA world, but to take advantage of the opportunities it offers.

You have a lot of executives, business people coming through your classroom, they are all facing these unpredictable situations. Situations that business environments that are changing extremely rapidly like you just talked about. How do you train them to deal with that unpredictability?

Greg Bunch: Training people to deal with unpredictable events is not easy, especially because most executives are trained to do positive, predictable cash flows. They're focused on efficiency, they're focused on continuous improvement. They don't like discontinuity, they don't like volatility with the exception of traders. And some entrepreneurs, they want steady state. They have thrived under steady state doing their jobs well, hitting their KPIs. I often joke with them, if your industry is steady state and you're hitting your numbers, you should just leave the class now and go shopping on Michigan Avenue because I don't have much to teach you about efficiency. In fact, my friend George Wu, who teaches psychology here at the university says that I add negative value in the part of the business cycle where all you do is sell it, make it and ship it, because there they need to optimize. And I thank God for optimization.

It's where we make our money. But the reality is it's not how you generate new business models and it's not how do you shake up a tired business model. So it's in the moments that are volatile, uncertain, complex, sometimes chaotic and ambiguous, that we have the greatest opportunity to create a new product or a service, a new business model, a new company, or to jumpstart a cash cow that may be dying, a need to be redesigned, rethought, or killed off. If an executive is succeeding under the current system, they simply won't change. So there's not much I can do with them. People have to be in pain before they're willing to change. So what I try to do if they're not experiencing pain is put them into pain. I show them how something like AI can make them irrelevant very quickly. I try to show them industries that were once the top of the world and are now at the bottom.

I used to show the chart that from 1950 to 2000, the newspaper business was one of the great investments in North America. And Warren Buffett loved newspapers. They had a natural moat. They tended to have natural monopolies in their local communities. It was a tremendous investment and it just rose and rose from a 50 year time period and fell apart in one decade with the rise of the internet. But it wasn't the internet as such that killed the newspapers. It was new business models built on the internet. In fact, the newspapers were some of the earliest adopters of the internet. They didn't adopt their business models, adapt their business models. And so I show those kind of industries that can fall off a cliff to try to create anxiety in people, but it really just starts with if they're not in pain, they're not going to change.

Hal Weitzman: And since most business people who come through your classroom are guessing, are not in pain, not yet. Well, how do they typically respond to unpredictability? Do they freak out?

Greg Bunch: Well, I've never seen anyone freak out in a classroom. What we do for them, and we've got a few case studies we use, but case studies where as smart as they are, they get everything wrong. We help them realize they have not got a good mental map of the current reality. The deeper psychological phrase for that comes from Herbert A. Simon who was a Nobel laureate from University of Chicago, but taught most of his career at Carnegie Institute now Carnegie Mellon. And he has a phrase, "representation is key to solving the problem." It's the area of knowledge representation. I think it's one of the most under observed areas of scholarship. And one of the most important. His second point is that patterns form a link to memory and allow us to solve problems. Good business people are good at pattern recognition, but not great at representing their market spaces, especially if the market space is changing.

They have this fixed mental model of it. And so I try to help them understand through putting them in cases where, yes, they're very smart executives, but get everything wrong because they haven't represented the market space effectively. That this is especially true if your market's changing and if your market's changing quickly. And the things that could change it are technological changes, geopolitical things. Most North American businesses that were north centric did not have to have much geopolitical insight over the last 40 or 50 years and can make a lot of money. We've seen in the last few years that everybody is connected to the global supply chain. Our colleague Randall Kroszner talks about, we always talked about just in time now we have to talk about just in case because the tail, the low probability, but high severity things that can happen in the supply chain can just throw your whole business off.

And executives are seeing that now. They saw how a pandemic could shut them down. They could see how a war in Europe could shut down their business. A war in the Middle East could shut down their business. Elections in this country or the polarization in this country have dramatic effects on even their brands and their advertising. And all of a sudden, I think executives are aware that we're in a much more volatile state and steady state. They can't depend on steady state the way they used to. And so they're much more interested in this VUCA world.

Hal Weitzman: So tell us what VUCA is.

Greg Bunch: So VUCA is volatile, uncertain, complex, and ambiguous. It's a military expression that recognizes that everyone plans until they get punched in the face, as Mike Tyson said. Or the American General. And later US president who was a famous planner said, "Planning is essential, but plans as such are worthless." We need to do planning. We need scenario planning. We need to think about successful outcomes. We need to think about failure outcomes. We need to assign probabilities to them. We need to think about weird outcomes and assign probabilities to these. So VUCA is simply a recognition that the world is changing and can change at a tremendously quick pace under certain conditions.

Hal Weitzman: So when does that term date from?

Greg Bunch: That's a good question. There's a debate in the literature about whether it was academics who came up with it and taught it to the military or whether the US Army taught it and academics brought it in-house. It's not a new term at all. I had probably heard it, but we were doing a project with PepsiCo many years ago, and Hugh Johnston is one of our graduates, was the CFO at PepsiCo and their vice chairman until just this week when he decided to accept the position as CFO at Disney. He wanted me to do a project with his high potential finance people and he said, "Greg, I want you to do your stuff, but General McChrystal just came and taught us this phrase VUCA, you've got to teach VUCA." And so I looked it up and I loved it because it's what the entrepreneur experiences every day.

We don't experience a steady state environment. We think we've developed a product the customer wants and the customer won't buy it. We think we've closed a round of funding and all of a sudden something changes and we don't have the money we thought we would have. So the entrepreneur, we don't like it, we're used to it. And I talk about the fact quite openly in class. I've dealt with anxiety and depression through my whole career, and I've been an entrepreneur my whole career. And those two sign waves come together in a really challenging way. And people don't want to hear you complain about your anxiety. They want to see you build a product, sell it, ship it, and make money for them. And that's where I talk to my executives about leadership is theater, that it doesn't matter what's going on in your limbic system, you talk to your therapist about that, it matters that you lead with a certain confidence even if you're not feeling it.

And I will tell you, a lot of executives respond well to this because most of us are at some level or another dealing with imposter syndrome. We're afraid we're not good enough. We're afraid that if people knew what we didn't know, we'd lose our job or our employees would panic. We know how important it is for us to stay calm and relaxed in moments when things are just flying apart. I want people to be honest with it. I want them to have places where they can talk openly about the challenges. And that's why I mentioned that I deal with anxiety and depression. People come up to me on the side sometimes, very senior people and say, "Oh, I've dealt with that for a long time. I've never wanted to say it in public," because there's a stigma attached to that. To me, it's not a stigma, it's a way of being and how do you cope with it?

And it actually in some ways can be a superpower because Andy Grove said, only the paranoid survive. And so I think only the anxious stay alert all the time. But I also know that it's important for us to project confidence. We are the people people look to on the stage for guidance, how are things going today? And I talk about we need to be honest. "Hey, we didn't close the round of funding we thought we'd get, or the product launched didn't go as..." Everyone knows that if you hide that, they really get nervous. But if you say, "Look, it didn't go the way we thought we can win." And then you think strategically and you show them "This is how we can win," or you get them together and say, "Look, I have some ideas, but I really need you." I have a whole concept called release the mind and release the mind says that if the leader is the only person coming up with strategic insights, then he or she is the choke point.

But if you train all of your people to think scientifically about business, strategically about business, to look at understanding customer needs and supply chain, they can bring ideas to you. So even though you may not see a way forward in the maze that's changing in this VUCA condition, someone else on the team might bring a spark to you and you'll go, "Oh, that's a great idea." You don't give up your authority as the leader. What you've done is release them to be involved in that decision making. And I think there the theater is you're the director now or the producer and allowing someone else to speak the line and maybe be the hero for the moment on the stage. So VUCA is always there. I believe that the world has always been volatile, uncertain, complex, and ambiguous. I honestly think the pace of change has accelerated with technology, geopolitics, climate change.

We are not going to have decades that are kind of just 6% compound annual growth rate in many industries again. So one of the skills of the successful executive going forward is to learn how to thrive in VUCA. I like to tell students that I learned to surf in my late forties and I learned to surf on Lake Michigan. And the first time I surfed, I was on a paddleboard and we were out on the second sandbar and my son had learned how to surf in La Jolla and he said, "Dad, I think you can surf on these waves, but you've got to do what I tell you." And the waves came in and he says, "There's a good set coming and I'm going to push you into the waves, and when I tell you to stand up, you've got to stand up." And he says, "Here comes a good set. I'm going to push you."

And he pushed me and he clapped his hand. He said, "Stand up, dad." And I stood up surfer style and I rode the paddleboard to the beach. And there were a lot of people on the beach who knew me, and they're all going "Shaka braka." They'll laugh. They've known me all their lives and it released this tremendous positive emotion. But I had a decision to make right before I stood up because if you get it wrong, you flip the board over and look like a fool or can hurt yourself or you miss the wave entirely. And one of the things you have to learn as a leader is in these VUCA times, there are waves coming that you can surf, get it wrong, and it wipes out your company, get it wrong, and you're too late. Somebody else gets the advantage. Get it right and it's awesome. So you have to have this balance of appropriate risk seeking and appropriate prudence. There are waves I won't go out in because I'm just not strong enough. I don't have the skills to go out in them.

So I laugh about that and I tell a whole, it's a comedy routine almost in the class, and people are laughing about it, but they relate to it because they know that there are times where if they just play it safe, they're going to miss the business opportunity. But also if they go too early or if they go without skill, it can destroy capital and destroy jobs. So part of the reason we teach them how to think strategically in addition to how to think more efficiently and to optimize systems and to manage well is the strategist is the person who sees the waves coming and sees the opportunity. Managers run the business today, and I thank God for that. They make the money today. The strategist runs the business tomorrow. She sees the future that's just right around the corner. They see the future that's already here, maybe in another market, another technology, and they adapt it to theirs.

And so part of what I teach them is in VUCA times continue to look up and out to see the opportunities and the threats, but also to look for the anomalies. Clay Christensen at Harvard had a sign outside of his office. As you probably know, Clay was sort of the dean of innovation theory around the world. And outside his office, he had a sign that said "Anomalies wanted." Now I would've had that sign too, except I've decided a long time ago to have no office. I'd rather wander the world looking for anomalies.

And so I have a practice called the intentionally non-linear search for New ideas. And this is the seeking out of anomalies or what the US Army calls exceptional information because it's in these exceptional pieces of information that there may be some signal that gives us a great business opportunity either to grow our business or protect it. I do a little game that in my class, I'll hide a $20 bill in plain sight. And our classrooms are identical. So students should notice this anomaly in the room, a $20 bill on the wall, but they almost never see it. And somewhere halfway through class, I'll say, "Has anybody seen an anomaly in the classroom?" And finally one will say, "Professor, there's a $20 bill on the wall." And I'll say, "It's yours."

Hal Weitzman: It's the classic economist thing, there can't be $20 on the wall because someone would've taken it.

Greg Bunch: That's exactly right. And I always worry, I put it there at the beginning of class that somebody will just walk by and pocket it and I'm out $20, but I won't be able to do this shtick. But I noticed, I thought about why don't they see it? These are the best embraced business students in the world, and you'd think if there was anything they'd see was money on the wall and maybe four or five students see it, and one gets it because she'll... This term was one of my women's students, "Professor is a $20 bill on the wall." And I give it to her and I realize they're not looking for it. They're thinking about the grade they're going to get. They're thinking about their friends. And to me, it's become a metaphor. There's money all around us and it's anomalous and it's especially available in VUCA conditions, but we're not looking for it.

We're thinking about hitting our KPIs, our key performance indicators. We're thinking about socialization, we're thinking about keeping things under control. And then in VUCA times we're thinking about survival, but it's exactly in that moment we need to look up and out and go, "What's the business opportunity here?" And it requires you to still your mind and your heart. And it goes back to when I talk about that I deal with anxiety. If you deal with anxiety and you've learned how to deal with it, you've learned things like cognitive behavioral therapy, how to just live in the moment and look around how to take a beat and go, "Crazy stuff's happening here. What's the opportunity for us?" The world is a dangerous place and there's so much opportunity. Kevin Kelly is one of the best thinkers about the future. He was a co-founder of Wired Magazine. I've read him my whole life.

He wrote a wonderful article in 2021 called The Case for Optimism, and in entity says, "Optimists shape the future." He says, "Of course, pessimists keep us alive and warn us about things that could kill us, and we need to be aware of that." But he says, "Pessimists, don't start new companies. Pessimists. Don't build bridges. Pessimists don't invent things. Optimists shape the future." So I'm very aware that technology may kill us. Climate change may kill us. Geopolitical things may kill us. I don't know what to do about that. I try to keep my family safe, myself safe, my society safe, but frankly, I'm very optimistic. I'm looking for the ways to build cool new things, build new tools, new companies. And at this point in my career, I doubt that I will be the founding manager of a new startup, but every class I get 65 new MBA students and I just can't wait to see what one, two, or five of them will do.

One of the great joys I have right now is the students who come back who've started businesses, and I remember many of them the day they walked into class, they were the ones with light in their eyes. You could tell they wanted to do something. And a few of them have said to me, "I didn't have light in my eyes when I got to booth, but various professors dropped a seed in my mind and I went, 'I could do that.'" This is what keeps me alive, thinking maybe I've planted a seed and sometimes it's an MBA student, sometimes it's an executive. There's a CEO we work with right now who was already successful in a high potential program in his company. He said, "When I came to Booth, I was a good manager, and I suddenly realized there was a world I had never imagined, and I looked up," and he gives credit to people like Harry Davis, asking questions he had never thought about before. And he's now leading a really good company to exponential growth. I'm very optimistic about the future.

Hal Weitzman: So Greg, that's all terrific stuff. Let me try and summarize what you talked about. You talked about projecting confidence in times of uncertainty. You talked about tapping the intellectual power of your team, managing risk or calculating risk, finding anomalies and being optimistic. If you do all those things, will you be successful in a time of uncertainty?

Greg Bunch: No, you won't be successful because success is a function of three things, strategy, execution, and luck. All three are always present to some degree. I can never promise you success. What I can tell you is if you work on process and good execution, you don't have to be that lucky.

Hal Weitzman: Okay, Greg Bunch, always a pleasure to speak to you. Thanks so much for coming on the podcast.

Greg Bunch: Thank you, Hal. It's so much fun.

Hal Weitzman: That’s it for this episode. To learn more, visit our website at chicagobooth.edu/review. When you’re there, sign up for our weekly newsletter so you never miss the latest in business-focused academic research. This episode was produced by Josh Stunkel. If you enjoyed it, please subscribe and please do leave us a 5-star review. Until next time, I’m Hal Weitzman. Thanks for listening to the Chicago Booth Review Podcast.