Making Sense of Current VUCA Levels: Carlota Perez

Among colleagues around the world at the moment, there’s a definite recognition that VUCA is increasing.  One of more interesting theories about why this is happening comes from the work of academic Carlota Perez who has studied long-wave change theories for three decades.  In a nutshell, she believes that we’re currently transitioning from what she calls the “installation period” (where technology is developed) to the “deployment period” (where economic booms occur).  Perez believes that the levels of VUCA we are seeing now are reflective of the transition.

So how do you know when you’re in the gap between the two?  Here’s one metric that she uses to support her view:

During Installation, there is always strong asset inflation (both in equity and in real estate) while incomes and consumption products do not keep pace. This creates a growing imbalance in which the asset-rich get richer and the asset-poor get poorer. When salaries can buy houses again, we will be closer to the golden age.

In many countries around the world there is a profound disconnect between average income and the ability to buy a house. For example in Canada the average home price was $480,743 for July 2016 while the average Canadian employee makes just over $49,000 a year. 

In parts of the UK such as Trafford (and it’s important to note that this isn’t London) house prices are now 8.9 times higher than average wages and 7 times higher in Stockport. In Manchester, the number has risen to 5.1 times in 2015.

In New Zealand the average house price is now six times the annual household income.

One of the other key changes Perez points to as an indicator, is the birth of new economic instruments:

…there need to be innumerable investments and business innovations to complete the fabric of the new economy. Here’s one small example: Millions of self-employed entrepreneurs work from home with uneven sources of income. Where are the financial instruments to smooth out their money flow so they can work and live without anxiety?

This sounds remarkably like the innovations surrounding the deployment of blockchain, where one of the best quotes that I’ve heard about this technology is that:

If the Internet is a disruptive platform designed to facilitate the dissemination of information, then Blockchain technology is a disruptive platform designed to facilitate the exchange of value.

Perez quotes two other indicators that can be used to spot the transition: the first is more financial regulation at a global level.  However the complexity at play here is that in a world that is heading away from globalisation, it’s very difficult to bring nations together to agree on these types of initiatives.  It may take another severe financial crisis to induce a global agreement.

The final indicator is increasingly stable industry structures, and I’d argue that currently this is harder to discern.  However one signal may be in the form of  digital consolidation of internet traffic by Google, Apple, Microsoft, Facebook and Amazon.  Most of the world’s internet flows through one of these organisations and they also act as enablers – for example the creation of a store front with Amazon with promotion via Facebook/Google.

Whichever way you look at the current macro global situation, it’s clear we’re not in what Perez calls the “Golden Age.”  Perez herself notes that the Golden Age might not even eventuate, and that patterns from the past might not foretell the future:

Historical regularities are not a blueprint; they only indicate likelihood. We are at the crossroads right now.

McKinsey on foresight in Boards

Although it dates from 2014, this McKinsey article is full of gems for organisations seeking to connect foresight, strategy and innovation at the highest level. It’s a solid five minute read but I’ve culled the absolute highlights below:

Governance suffers most when boards spend too much time looking in the rear-view mirror and not enough scanning the road ahead. Directors still spend the bulk of their time on quarterly reports, audit reviews, budgets, and compliance—70 percent is not atypical—instead of on matters crucial to the future prosperity and direction of the business.
The alternative is to develop a dynamic board agenda that explicitly highlights these forward-looking activities and ensures that they get sufficient time over a 12-month period.

“Boards need to look further out than anyone else in the company,” commented the chairman of a leading energy company. “There are times when CEOs are the last ones to see changes coming.”

Complexity and technology

This is an insightful piece from the NY Times about the rise of American tech giants, but it also touches on an issue which increases the VUCA score of the world (my emphasis in bold below):

“What’s happening right now is the nation-state is losing its grip,” said Jane K. Winn, also a professor at the University of Washington School of Law, who studies international business transactions. “One of the hallmarks of modernity is that you have a nation-state that claims they are the exclusive source of a universal legal system that addresses all legal issues. But now people in one jurisdiction are subject to rules that come from outside the government — and often it’s companies that run these huge networks that are pushing their own rules.”

Ms. Winn pointed to Amazon as an example. The e-commerce giant sells both its own goods and those from other merchants through its marketplace. In this way, it imposes a universal set of rules on many merchants in countries in which it operates. The larger Amazon gets, the more its rules — rather than any particular nation’s — can come to be regarded as the most important regulations governing commerce.

Source: Why the World Is Drawing Battle Lines Against American Tech Giants

The implication for macro scale innovation cycles

This is a fascinating and long read about where the world is going to in regards to the next wave of innovation.  It’s also insightful when considering where innovation will focus in the coming years:

Intrapreneurship and skunkworks are replaced by internal innovation processes which, while ineffective at producing radical innovations, allow controllable and measurable sustaining innovation. Money that would have been spent financing external innovation is redirected back to corporate development and, perhaps, even corporate controlled research labs.

These sorts of controllable and measurable innovation processes are already taking hold, both inside and outside the corporate world. It’s no coincidence that the buzzwords in innovation the last few years have been ‘lean’ and ‘customer development.’ While these both claim to be new discoveries, they are actually old practices that fell out of favor during the installation period because they aren’t suited to radical, fast-moving innovation; they only work when innovation is slower and more predictable: Steve Jobs could not have used customer development to create the Apple computer; Henry Ford’s quip that if he asked his customers what they wanted they would have said “a faster horse” are both acknowledgements of this.

The hallmark of a new technological revolution is that the innovation trajectory is unknown: lean doesn’t work on early adopters because they will use anything novel (i.e. the Altair as an MVP was pretty well useless in predicting what mainstream customers would want in a personal computer); customer development doesn’t work when you’re developing a general purpose technology. In general, you can’t iterate your way to radical innovations, almost by definition.

Source: The Deployment Age | Reaction Wheel

Economist on the relevance of the blockchain

 

 

 

 

If you are not familiar with the BlockChain, the Economist has an excellent primer on it which goes beyond the simple first-mover of BitCoin.

The graphic below is a good explanation about how the chain is built, and how it’s kept unique.

Towards the end of the article is a section that nails why it’s important beyond currency:

One of the areas where such ideas could have radical effects is in the “internet of things”—a network of billions of previously mute everyday objects such as fridges, doorstops and lawn sprinklers. A recent report from IBM entitled “Device Democracy” argues that it would be impossible to keep track of and manage these billions of devices centrally, and unwise to to try; such attempts would make them vulnerable to hacking attacks and government surveillance. Distributed registers seem a good alternative.

The sort of programmability Ethereum offers does not just allow people’s property to be tracked and registered. It allows it to be used in new sorts of ways. Thus a car-key embedded in the Ethereum blockchain could be sold or rented out in all manner of rule-based ways, enabling new peer-to-peer schemes for renting or sharing cars. Further out, some talk of using the technology to make by-then-self-driving cars self-owning, to boot. Such vehicles could stash away some of the digital money they make from renting out their keys to pay for fuel, repairs and parking spaces, all according to preprogrammed rules.

 

Source: The great chain of being sure about things

strategy and business article: 20/20 Foresight

strategy and business have published a very readable article with specific tips for developing foresight capability, and it’s well worth the five minute read:

Many business leaders need to improve their perceptual acuity. Here’s how you can develop the ability to look around corners — and become a catalyst for change.

Source: 20/20 Foresight

McKinsey article: The four global forces breaking all the trends

There’s a concise piece on McKinsey that sums up four macro trends that are coming down the line:

  1. The age of urbanization

  2. Accelerating technological change

  3. Responding to the challenges of an aging world

  4. Greater global connections

Each of these topics has a wealth of information written about them, but this short piece is a useful primer if you are unfamiliar with where the world is heading.

Admittedly the list would be more complete if it included something about bioengineering, but that’s probably able to be captured in point three…

Source: The four global forces breaking all the trends

Biohackers develop night vision eye drops to see in the dark

Expect to see a lot more of this in the future, as the cost of biohacking falls significantly, and interest picks up from students, tinkerers and makers:

A biohacking group in California has managed to develop eye drops that temporarily give a human being powerful night vision. The chemicals used are still very much at the experimental stage – this isn’t something you’d want to try at home just yet – but the first trial has been very successful.

Source: Biohackers develop night vision eye drops to see in the dark

Strategy article on megatrends and opportunity

 

This is a five minute read which is well worth the time.  It outlines some collisions between megatrends that are already in plain sight and makes the point that:

If you are a leader in government or a company, you still have time to build the necessary strategies and capabilities for a robust and effective response.

The challenge with this is always how to focus a board or executive team on the long term, and in my experience this is challenging at the best of times.  For further context about this, I recommend reading about the three-box model in an HBR article from 2011.

Essentially this points out that most leaders focus on operational efficiency today, when they should actually be thinking about creating more value by inventing the future.  From left to right, Box One is operational, Box Two is Change and Box Three is the future.  Most value comes from Box Three, but nearly all leaders focus on Box One.  In a world of accelerating change, this is not the value to endure organisational longevity.

For the megatrend piece, go here: How to Seize the Opportunities When Megatrends Collide.