Decision-Making Under VUCA Conditions
What the pandemic has demonstrated most clearly is the reality of living in a business environment defined by VUCA (Volatility, Uncertainty, Chaos, and Ambiguity). The acronym VUCA was first coined by the U.S. Army War College to define an external environment which is rapidly changing, unpredictable, interconnected, and confusing, leading to difficult decision-making scenarios.[1] The COVID-19 pandemic certainly checks all those boxes.
Chaos Is Not Rational: Flaws of the Rational Model
The pandemic has clearly proven that the rational decision-making model, business schools’ ideal and its theoretical definition of how decisions should be made, is not valid under conditions of VUCA. Under the rational decision-making model, business leaders follow these logical steps:[2]
- Define the problem
- Identify the decision criteria
- Allocate weights to the criteria
- Develop alternatives
- Evaluate the alternatives
- Select the best alternative
Unfortunately, this model has many assumptions that are not valid under VUCA conditions. Some of these assumptions include problem clarity, known options, clear and constant preferences, and no cost or time constraints.[3]
Examples of Intuitive Decision-Making During the Pandemic
The pandemic has provided numerous examples of the invalid nature of the rational decision-making model and the necessity to make intuitive business decisions. Following are three examples of businesses forced to make quick, intuitive decisions under pandemic-induced conditions of VUCA.
Example 1: Shake Shack—Take the Loan & Return the Loan
Shack Shake, a publicly traded restaurant chain (NYSE: SHAK), learned the importance of intuitive decision-making in the early days of the pandemic. As the restaurant industry experienced a wave of shutdowns, layoffs, and bankruptcies with no end in sight, Shake Shack, like most other restaurant chains, applied for a Paycheck Protection Program (PPP) loan, which it was fully qualified to receive under the rules of the CARES Act. As their stock price fell by over 50 percent, Shake Shack was awarded a $10 million PPP loan. Unfortunately, the SBA’s PPP loan funds were quickly exhausted, leaving many small businesses without funding, and large restaurant chains like Shake Shack were faced with a major public relations crisis as they appeared to be taking money away from “mom-and-pop” establishments.[4] Within a few hours of the loan disclosure, Shake Shack began to face a massive public backlash.
Moving quickly, Shake Shack made a public announcement via an open letter that they were returning their loan money and would arrange for other funding to sustain their business.[5] Other large companies quickly followed their example. By making a quick intuitive decision, the PR crisis was abated, Shake Shack’s stock price soon recovered, and the company was praised for taking a “first-mover” position in returning the PPP funds.
Example 2: The Grand Ole Opry—Pivot to Save the Streak
Few industries have been devastated more by the pandemic than the live entertainment sector. In mid-March 2020, the entire live entertainment industry came to an abrupt shutdown. One iconic live performance show and venue confronted by this shutdown wave was the Grand Ole Opry in Nashville, Tennessee. Often referred to as the “centerpiece” of country music, the Grand Ole Opry had not missed a live Saturday evening show in nearly 95 years. However, when the pandemic rapidly hit Nashville, the show’s management had less than 48 hours to decide if they would let the near century old Saturday evening show streak come to an end.[6] Thinking and moving quickly and leveraging a new company asset, the Circle Network, the Grand Ole Opry rolled out a new live-streamed and cable show without an in-house audience. The new format required massive operational changes, strict and evolving safety protocols, and the acquisition of new sponsors.
As the new show format continued for many months through the pandemic, the company was able to capture new audiences globally through the live streaming format while promoting the new Circle Network asset, becoming one of a very few entertainment companies producing new content during the pandemic and enhancing the iconic brand image through preserving the 95-year continuous show streak.[7] Through bold, intuitive decision-making, the Grand Ole Opry leadership was able to turn “pandemic lemons into entertainment lemonade.”
Example 3: Zoom—Becoming the World’s Social Platform
Every crisis creates new opportunities for some businesses to grow; and no company experienced more growth opportunity from the pandemic than Zoom (NASDAQ: ZM). The pandemic pushed Zoom into everyday usage for many people as “zooming” quickly became a verb. Headquartered in San Jose, California, Zoom was designed to be a basic, un-flashy, enterprise communication platform to support virtual business conferencing.[8] As the pandemic hit, businesses instantly sent their workforces home to work remotely and Zoom accounts exploded. Zoom founder Eric Yuan never dreamed that his company would become a household name and critical pandemic infrastructure as the public began to use the platform for virtual classrooms, family reunions, church services, yoga classes, and even memorial services. By April 2020, the platform was serving 300 million daily users, an increase of more than 30 times the pre-pandemic usage.[9]
This sudden exponential growth presented many challenges for Zoom’s leadership as they had to make immediate critical decisions under pandemic VUCA conditions. First, Zoom decided to remove the 40-minute time limit on the free version of the product for educational institutions, a decision made to facilitate virtual learning, which also introduced much of the U.S. population to their product. Moving quickly, Zoom decided to expand their cloud computing bandwidth capacity and add new data centers to meet the surging demand, despite not knowing how long the increased demand would last. In the early days of the pandemic Zoom had to address many security problems with their platform to prevent “zoom bombing” and other serious privacy issues. Yuan acknowledged that the security challenges were both a function of explosive growth and its new types of users that the platform was not designed to serve. “We built this as a platform for knowledge workers,” Yuan said while acknowledging that the new Zoom customer had never even been considered in their platform development.[10]
Despite not being the intended strategy for Zoom, the company’s pandemic emergent strategy has resulted in Zoom becoming the leader in video conferencing, outperforming their many tech giant competitors. Yuan admits the new Zoom business model is not what he had strategically intended to build, but he also notes, “You can’t go back…. We have to embrace this new paradigm and figure out how to make it work.”[11] Ultimately, Zoom’s pandemic growth success has been accomplished by making many quick intuitive decisions under crisis conditions.
Developing Intuitive Decision-Making Skills
If the rational decision-making model is not robust enough to support decision-making under conditions of VUCA, then how should business leaders process difficult decisions in this context? The answer lies in developing intuitive decision-making skills.
Intuitive decision-making is more than just a “gut” feeling. It involves both a process (intuiting) and an outcome (intuitive judgment), which are often described as a holistic, subconscious, experiential, complex, inductive, innate way of personally knowing the right choice.[12] [13] Both proponents and critics of intuitive decision-making agree that some individuals are simply better at making intuitive decisions.[14] [15] Part of what complicates intuitive decision-making is that good “intuits,” as those individuals with strength in this skill are called, usually cannot articulate how they know their decision choice is correct.[16] Ultimately, research shows that most executives value and rely heavily on intuitive decision-making, but they also prefer to keep this practice a secret for fear that colleagues would not be supportive.[17]
The dangers and pitfalls of intuitive decision-making are well documented by the “heuristic and biases” (HB) scholars who contend that intuitive decision-making suffers from inconsistency, numerous biases, illusions of validity, inferior choices, and ultimately poor outcomes.[18] [19] In short, critics of intuitive decision-making argue that its successes are mostly publicized outliers while the real result of this practice is frequent bad business outcomes.[20] [21] Yet even critics acknowledge that in some scenarios, intuition is all leaders have available to work with.
Considering the necessity and the potential pitfalls, how should business leaders and organizations make good intuitive decisions? The following suggestions represent best practices for making strong intuitive decisions both individually and as an organization.
Understand the Decision Context
Framing an intuitive decision in the right context is important because intuitive decision-making has been found to be most appropriate when time is critical, information is scarce, the decision impact is high, and a decision can bring calmness to organizational change and chaos.[22] In fact, contingency scholars suggest that chaos scenarios call for an “act-sense-respond” decision pattern consistent with intuition.[23] [24] The three business examples previously discussed all qualify as chaotic situations suitable for intuitive decision-making. As leaders, we should ask what type of decision context we are operating under, and does the context fit with an intuitive model?
Rely on Expertise & Know Your Intuits
Intuition and expertise are tightly intertwined and most intuits operate from complex, domain specific, subconscious frameworks derived from years of experience to make judgments.[25] For this reason, it is important for organizations to have a human capital inventory of expertise. Does the organization know who its best intuits are, and do they engage those individuals in VUCA decision scenarios? This question is critical for developing organizational intuitive decision-making capacity in VUCA environments. In addition, the use of multiple intuits helps to mitigate the previously discussed biases to increase decision integrity. Organizations should pursue an “all-hands-on-deck” approach to intuitive decision-making that relies on the company’s collective internal expertise.
Practice Intuiting
Leaders and organizations that consistently practice intuitive decision-making are better equipped to handle VUCA scenarios.[26] Intuition should be disciplined. In addition, intuition ideally utilizes a probing approach that is conducive to organizational learning. Good intuits explore their intuitive judgments in limited and controlled ways to test the validity of decisions with fast feedback loops.[27] The organizational practice of intuiting should become a norm. Organizations that suppress intuition in decision-making will find it difficult to use this skill when they need it.[28] Therefore, developing the organizational capacity to use intuitive decision-making should be an ongoing effort so that when VUCA scenarios arise, the company is accustomed to exercising the intuitive muscle. When it comes to intuitive decision-making, practice improves performance.
Have Courage and Be Proactive
Intuitive decisions require proactive management and a certain degree of courage. One of the strengths of intuitive decision-making is the speed of the model.[29] But speed does not mean sloppy decision-making; it means efficient decision-making. Strong intuits make “courage calculations” by structuring their intuitive decisions into deliberate goal-specific contingencies.[30] Finally, to increase the efficacy of implementing intuitive decisions, it important to be transparent about how the decision process occurred and to also shape an inspirational story regarding the value of intuitive decisions to encourage commitment to what may be perceived as a risky, unvalidated decision.[31] Ultimately, intuitive decisions should be framed as proactive experiments to confront organizational challenges and not as reckless decisions made with little forethought. Intuition should complement rational analysis and fill in the gaps when that model is not capable of handling the complexity of the decision environment.
Conclusion
Decision-making in business is challenging under the best of circumstances, but when the environment turns to chaos and uncertainty, such as a global pandemic, making sound business decisions can seem impossible. In these scenarios, all assumptions of rationality are void, and leaders are left to act on intuition. Having experience at making, and a framework to process, intuitive decisions is critical during these times. Ultimately, leaders are evaluated by the quality of their decisions, specifically the quality of the outcomes of their decisions, and not by the process. Developing intuitive decision-making skills can help leaders and organizations navigate the difficult realities of a VUCA environment.
