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Strategic decisions in turbulent times:Lessons from the energy industry

Ferran Giones a,*, Alexander Brem a,b, Andreas Berger c

aUniversity of Southern Denmark, Alsion 2, Sønderborg 6400, Denmarkb Friedrich-Alexander-Universität Erlangen-Nürnberg (FAU), 90762 Furth, GermanycBBG Group, Menlo Park, CA, U.S.A.

Business Horizons (2018) xxx, xxx—xxx

Available online at www.sciencedirect.com

ScienceDirectwww.elsevier.com/locate/bushor

KEYWORDSBusiness strategy;Decision-makingprocess;Market turbulence;VUCA;Energy industry;Organizational change;Energiewende

Abstract Most of the firms currently in the S&P 500 probably will not be there in15 years. In times of great uncertainty, managers are called upon to make the rightstrategic choices, preserve core businesses, and prepare their organizations for thefuture. How can managers make these choices when the industry is under transforma-tion? Inthisarticle,weexplorehowthe popularVUCAframework canhelp tomakesenseof turbulent contexts and drive the decision making of managers. We study the case ofthe energy industry, in which traditional business models eroded quickly and dominantplayers lost their positions. Based on personal interviews with the CEOs of RWE(Germany) and NRG Energy (U.S.), we analyze how these executives led transformationof their organizations. We get immersed in their decision-making processes and depicthow the VUCA framework helps them to identify, map, and prepare their organizationsto respond to the volatility, uncertainty, complexity, and ambiguity in their industry. Wepropose a guide for executive managers to navigate through VUCA contexts, taking intoaccount the necessity to introduce short- and long-term responses that prepareorganizations and stakeholders for an uncertain future.# 2018 Kelley School of Business, Indiana University. Published by Elsevier Inc. All rightsreserved.

1. The consequences of unexpecteddisruptions

Much has been written about today’s fast-pacedenvironment, in which change occurs frequently

* Corresponding authorE-mail addresses: fgiones@mci.sdu.dk (F. Giones),

alexander.brem@fau.de (A. Brem), ab@humada.com (A. Berger)

https://doi.org/10.1016/j.bushor.2018.11.0030007-6813/# 2018 Kelley School of Business, Indiana University. Pu

and with more intensity than ever before. Changeis often linked to the effects of technologicaldisruptions (Nylén & Holmström, 2015)–—not onlythe recent wave of digitization across severalindustries that spawned new digital opportunities(Amit & Han, 2017) but also challenges, especiallyfor established firms (Porter & Heppelmann,2015). A symptom of the acceleration of changesis the uncomfortable perception that the business

blished by Elsevier Inc. All rights reserved.

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2 F. Giones et al.

environment in which we operate is increasinglyturbulent and difficult to understand (El Sawy &Pavlou, 2008). This necessitates that leaders makesense of what is changing and how it affects theorganization before introducing any further orga-nizational changes.

We analyzed the energy industry to make bettersense of the implications of this transformation.The energy industry has faced a sequence ofchange-accelerating events:

� Markets transitioned to digital platforms, chang-ing the trading and commercialization patterns ofenergy;

� The renewable energy technologies disrupted theprocesses of energy generation; and

� The centrally controlled distribution paradigm(power plants to users) is under pressure to be-come decentralized, smart, and responsive.

These changes have rocked the industry, creating asituation wherein decision making is embedded in anew level of uncertainty.

To illustrate the degree of change in the energyindustry in recent years, we revisit 2010. In thewords of then-CEO of RWE (Germany), Arndt Neu-haus: “Following the global financial crisis, weexpected to see a recovery in the wholesale pricesfor energy. [In the meantime], I had bought arooftop solar panel for my home. I quickly realizedthat it was not only a good personal investment,but also could represent a game changer for theindustry.” The solar panel saved energy costs andconcurrently challenged the central, controlledenergy grid paradigm that defined the industry:consumers could send/sell back energy to the util-ity company. “We moved away from a traditional,centralized grid to a fast-emerging, high-growth,distributed energy generation sector” said then-CEO of NRG Energy (U.S.), David Crane. CEOs stillmust make decisions and respond to (1) stayingahead of the competition while keeping the corebusiness profitable, and (2) leading a transforma-tive organizational change in this fast-changingcontext.

In the following sections, we introduce the dif-ferent dimensions that define this new context.Then, we provide insights regarding how two seniorleaders in the energy industry–—Arndt Neuhaus ofRWE and David Crane of NRG Energy–—responded tothese challenges in their organizations. Finally, wediscuss the CEOs’ experiences and suggestions topropose recommendations for decision making inturbulent environments.

2. Strategy in turbulent times

2.1. The decision-making challenge

If treated in isolation and with the necessary aware-ness, most of the market or technological changescan be traced and identified with enough time torespond, in particular, in predictable markets andmature industries. But because of the unpredict-able interactions between market and technology,sequences of change are occurring that escape theassumption that uncertainty could be convertedinto measurable risks. The ambition to make poten-tial business risks and uncertainty manageable andpredictable contrasts with the prominence of un-known unknowns in most industries (Huang &Pearce, 2015). The distinction between risk anduncertainty (Knight, 1921) was evident in the recentglobal financial crisis. The different actors involvedsaw how their risk models could not capture theuncertainty derived from an unexpected unknownsituation (Diebold, Doherty, & Herring, 2010).

It is the “large amount of unsystematic risk andconditions of evolving certainty around systematicrisk” (Huang & Pearce, 2015, p. 636) that puts us inunknown unknowns situations. In this context, man-agers are called to make decisions to respond toexternal changes and sustain or improve their com-petitive position (Damanpour, Walker, & Avellane-da, 2009); this often results in the introduction oftechnological innovations (Damanpour et al., 2009)or new management practices in their organizations(Mol & Birkinshaw, 2009).

We would expect that established organizationscan rely on their capability to identify, absorb, andintegrate new potential sources of innovation toconsolidate and improve their competitive position(Brem & Voigt, 2009). However, this might not beenough in turbulent and technology-driven contexts(Boulton, Allen, & Bowman, 2015); we have seenhow large and once-dominant organizations (e.g.,Kodak, Nokia, Research in Motion) fall victim totheir inability to grasp and respond to chains oftransformative events in their industry (Lucas &Goh, 2009). This is the motivation to introducethe VUCA framework in our research setup as apossible tool to help managers make sense of orga-nizational change in turbulent times.

2.2. What VUCA is and how it can help tounderstand change

Strategic decision making under uncertainty hasbeen a topic of great interest to both academicresearchers and practitioners. Difficulty in identi-

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Strategic decisions in turbulent times: Lessons from the energy industry 3

fying what lies ahead requires the introductionof combinations of strategic postures (Courtney,Kirkland, & Viguerie, 1997). In some cases, it mightmake sense to adopt a leadership role and aim toreshape the industry. In other cases, it might beadvisable to adopt a position of flexibility and agilityto respond to unexpected changes. In yet othercases, it might make sense to take a wait-and-seeposition, buffering resources and avoiding prema-ture commitments (Courtney et al., 1997).

As we aim to transpose decision making underuncertainty, we observe the diversity of situationsin which decision making is done within an organi-zation. It is about making decisions with high impacton the general future of the organization, including:

� How to transform the business model of theorganization;

� Whether or not to spin-off a business unit;

� Whether to acquire that new venture with apromising technology; and

� Whether to partner with existing startup compa-nies.

Each of these decisions requires a different ap-proach and specific understanding of the availableoptions, the future consequences of the actions,and the interests of the stakeholders. The risingawareness of substantial limitations in modelingreality using traditional management frameworkshas made the VUCA framework (Bennett & Lemoine,2014a) particularly relevant. VUCA stands for

Figure 1. Unpacking decision-making uncertainty using

Source: Bennett & Lemoine (2014a)

volatility, uncertainty, complexity, and ambiguity;the acronym was popularized by politics and mili-tary sciences to describe situations in which eachaction involves assessing multiple options with un-predictable consequences in a context with limitedand changing information (Mack & Khare, 2016).Each of the VUCA dimensions aim to capture adistinctive element that influences the decision-making context in turbulent environments.

We use the VUCA framework description byBennett and Lemoine (2014a) to get an overviewof each of the dimensions (see Figure 1):

� Volatility: In this scenario, we observe more-frequent shifts and unstable value of prices thatfluctuate sharply. Managers perceive the changes asunexpected and of unknown duration, but can un-derstand these changes and garner informationabout them and their evolution.

Example: Natural gas prices that increased vola-tility and deviation from historical trends havetranslated into less-stable stock prices for energycompanies and unexpected pressure from stock-holders.

� Uncertainty: In this scenario, it becomes moredifficult to predict the future; models that previ-ously were useful now show limited reliability. Ex-ecutives find it increasingly challenging to assess asituation and predict when and how events willunfold.

Example: Disasters like the Fukushima accidentin Japan created a situation wherein future regula-tion changes regarding nuclear energy went frompredictable to unpredictable.

� Complexity: In this scenario, we operate in aninterconnected and networked environment with

the VUCA dimensions

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4 F. Giones et al.

multiple options for each decision and multiplepossible outcomes for each action. The number ofinfluencing variables and the volume of informationto be processed can overwhelm managers.

Example: The transition from a centralized gen-eration model to a distributed energy model notonly affected future asset investment decisions butalso made management of the energy grid andcoping with market demand changes more complex.

� Ambiguity: In this scenario, there is a completelack of knowledge in an unprecedented context,wherein unknown unknowns are being faced. Deci-sion makers experience an absence of clear causalrelationships and struggle to interpret clues andorganize actions. Nonetheless, they face pressureto make decisions and act.

Example: Responding to institutional pressures,some nuclear and coal-based energy companiesdecided to enter the field of home solar systems,a high ambiguity move completely out of theircompetencies.

While distinct, these dimensions can and dooverlap; one dimension might also be a result ora precondition of the other one (Mack & Khare,2016).1 There can be an accumulative effect amongthe different dimensions: While complexity de-scribes the extent to which elements are intercon-nected and the portfolio of choices seems close toendless, uncertainty adds the lack of connectionand temporal visibility between causes and effects.Finally, volatility is an accelerator, which adds anadditional layer to the complexity and uncertaintydimension. As these three elements spin, the per-ception of absolute ambiguity becomes invasive,but not making decisions at all might not be anacceptable option. Thus, how do managers re-spond? Does the VUCA framework help to makedecisions in turbulent contexts? If yes, how? To findanswers to these questions, we turned to two CEOsof large energy companies that were exposed to therecent transformation of the energy industry.

3. How did the energy industrybecome a VUCA context?

3.1. One industry, two perspectives:RWE & NRG

As the energy industry grew for almost a century, acombination of events triggered a new scenario:

1 It is not only complexity or uncertainty that defines a con-text, but also a multilevel combination of all of them.

dramatic changes in energy-related technologies(e.g., extraction of shale gas), the distributionstructure (grid decentralization), renewable ener-gies, deregulation of energy markets across theworld, new CO2 emission limitations, and unpredict-able events like the Fukushima accident in Japan.These events rapidly changed the business environ-ment in unpredictable and radical ways. Thus, se-nior leaders of these companies recognized theneed for managerial innovation and concurrent pro-tection of the core business and risk avoidanceregarding new business opportunities. This obviousconflict of interests could be solved with differentstrategies with uncertain outcomes.

To make sense of the use of the VUCA frameworkin turbulent environments, we interviewed the for-mer CEOs of RWE and NRG Energy: Arndt Neuhausand David Crane. Before the in-depth interviews,we asked both Neuhaus and Crane to reflect on thechanges they experienced–—using the VUCA con-cepts–—during their CEO tenure. The interviewsserved as the central research method and werestructured as informal conversation, describing andreflecting on decisions made during the last decadeas leaders of RWE and NRG Energy. The interviewswere recorded, transcribed, and coded, with spe-cial attention paid to (1) decision structure in rela-tion to the VUCA concepts and (2) how theinterviewees’ perceptions of these dimensionsinfluenced their organizations in times of change-making.

3.2. The turmoil in a stable and profitableindustry

David Crane joined NRG Energy as it was coming outof bankruptcy in 2003. The company’s core businessat the time was generation of electricity using coal,gas, or oil. Only a few years later, in 2009, NRGEnergy acquired Reliant Energy (retail electricity).From that point on, David Crane led the transfor-mation of the company to become a green energyplayer (Pyper, 2016).

As CEO of RWE, Arndt Neuhaus was the leader ofan organization that had been a major player inEurope since the company was founded in the early1900s. While at some point RWE diversified itsbusiness into water utilities in the U.K. and U.S.,most of its business stemmed from the power plantsit manages. The Energiewende2 in Germany meantthat Neuhaus had to find an alternative to the

2 The legislative plan to move Germany to a low carbon econ-omy and shutdown nuclear plants.

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Strategic decisions in turbulent times: Lessons from the energy industry 5

nuclear power plants that had defined the core ofRWE’s generation and retail business.

For many years, the energy industry was a highlyregulated sector, considered to be of strategic in-terest for the development of countries. Predict-able cash flows favored large asset investments andlong-term strategic decisions. Tensions could arisewhen oil prices peaked and triggered temporalcrises, but these events never really threatenedthe energy industry’s strong business. In fact, ArndtNeuhaus noted that it is one of the “core skills of agood and large utility business . . . to cope withvolatile wholesale prices for oil, for gas, and forelectricity.” Similar to the banking sector beforethe financial crisis, the large infrastructure of utili-ties firms made them too big to fail, influencing howthey approached decision making and how otherstakeholders made decisions regarding the industry.At the risk of oversimplifying, it is helpful to high-light the four factors that set the industry on a pathof deep transformation:

1. Progressive implementation of measures for alow carbon economy, at a global and countrylevel, that sets controls on the environmentaland social impacts of the energy industry (Masini& Menichetti, 2012).

2. Technological development of solar andwind energy, which quickly evolved from anunclear promise to reliable energy alterna-tives. Subsidy programs boosted their develop-ment globally and affordable storage makesthese solutions independent from the currentinfrastructure.

3. Recent disruption in the pricing structure ofnatural gas and oil, alternative sources of energy(e.g., fracking shale gas), and new entrants inthe oil market broke price-fixing mechanisms(Gond, Barin Cruz, Raufflet, & Charron, 2016).

Figure 2. Corporate events at NRG and RWE during the

4. Digitalization of the demand side of energy con-sumption, including introduction of smart grids(that use sensors and batteries to adjust thedistribution of energy in the grid), peer-to-peertrading platforms, and–—more recently–—electricvehicles.

In addition to these factors, several governmentsdivested from their national utility players in thelast few decades, fostering intensified competitionand internationalization–—particularly in the Euro-pean context.

3.3. Finding competitive responses in anindustry under transformation

Prior to the global financial crisis (2000—2008),energy utilities faced competition and were underpressure to gain size and efficiency; during thistime, their key strategic decisions related to gen-eration of asset investments (power plants) withouta visible disruptive risk. Post financial crisis (2010—2017), energy companies have raced to react totechnology and market changes. The CEOs of RWEand NRG Energy followed different strategies asthey responded, and via interviews clarifiedthe decisions they made in a VUCA context (seeFigure 2). While NRG Energy’s CEO, David Crane,chose to shape the future aggressively by investingin what were considered risky green energy proj-ects, RWE’s CEO, Arndt Neuhaus, opted to adopt theposture of leaving options open. He aimed to tran-sition to a higher mix of possible energy sources andconsider new energy distribution models, all whilekeeping the core business running.

The responses of the CEOs were rather different,as were the starting positions of their organizations.While RWE was already a large organization with adiversified business portfolio, NRG Energy hadchanged ownership recently and was keen to growas a relevant actor in the U.S. energy market. The

tenure of the CEOs

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6 F. Giones et al.

response of NRG Energy was to use acquisitions tostrengthen its retail business, and thus rely less onthe energy generation business and aggressivelyinvest in green/renewable energy options. For itspart, RWE focused on increased efficiency by reduc-ing its costs and divesting from deteriorating busi-ness units, with the ambition of preparing for anuncertain future.

3.4. Leading in times of VUCA challenges:Responses from RWE and NRG Energy

The interviews we conducted with Arndt Neuhausand David Crane highlighted illustrative examples oftheir organizational responses when different as-pects of VUCA became prominent in their industry.In some cases, the responses of the CEOs weresimilar. Volatility was not perceived as a new chal-lenge for their strategy or innovation choices, al-though it was a source of additional pressure andscrutiny on their decisions and actions. As can beseen in Table 1, uncertainty, complexity, and ambi-guity were much more challenging.

While there had been uncertainty surroundingthe evolution of renewable energies in 2010, themain area of uncertainty a few years later was the

Table 1. VUCA concepts and illustrative examples from

VUCA dimension What type of challenge does it genera

Volatility � Lower natural gas price impacts negativelyshare price of the company, higher priceson production costs.� Volatility increases the overall risk of the init becomes less predictable.

Uncertainty � The centralized model of producing and deenergy becomes challenging.� The impact of new technologies from otherindustries.� The energy policy changes become more dto control (in the European context).

Complexity � Digitalization threatens to make classic dtion grid obsolete. Multiple options come inin the future model.� Different technological options are availaeach of the new renewable energies, mvariables should be taken into considerat

Ambiguity � Change in energy consumption trend affinancial crisis transforms economic modbody had a scenario with lower energy demtheir plans.� Home batteries change the grid mocompletely unknown situation.

speed at which consumers would adopt home sol-utions and how much regulation would support newenergy consumption options. Similar changes oc-curred with the ambiguity generated when thenuclear shutdown was announced, or still now whenthe variety of technology alternatives in wind orsolar energy make investment decisions very com-plex.

Both CEOs initiated responses to the differentVUCA challenges. Arndt Neuhaus concerned himselfprimarily with how to learn and build strategicoptions inside RWE. David Crane focused on acti-vating investments and getting NRG Energy closer tothe end consumer. Both men were very cognizantthat in retrospect, some decisions could look likemistakes. But as Arndt Neuhaus said: “It is moreimportant, especially in the area of innovation andtransformation, that people believe in your decisionand do it.”

4. Managing change in a VUCA context

Leading an organization as the industry transitionsto a turbulent and difficult-to-control playing fieldbecomes a personal quest. The CEOs’ insights

the study cases

te? What were the CEOs’ responses?

on the impact

dustry,

� NRG & RWE: Risk management and hedging strat-egies as a core competency for their organiza-tions, in addition, when possible, they transfervolatility to customers.

livering

fields/

ifficult

� NRG: Shape the market, move ahead of thechange, strong investments in green energy pro-jects and companies.� RWE: Build a portfolio of alternative options, hireskills even if not needed in the short term, avoidbig bets.

istribu-to play

ble forultiple

ion.

� NRG: Invest in companies in complementary busi-ness areas in the industry, let them run indepen-dently and explore options.� RWE: Invest in alternative technologies and acti-vate new instruments that help you to collectmore and better data. Use your internalresources to test different options in a controlledenvironment.

ter theel, no-and in

del, a

� NRG: Portfolio of investments in different busi-nesses, challenge the identity of the firm.� RWE: Run real parallel projects, even if they havecompeting business models, be ready for a diver-sity of outcomes, do not try to predict but takeaction.

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Strategic decisions in turbulent times: Lessons from the energy industry 7

suggest that managing strategy and innovativechange requires effort on the part of many stake-holders, wherein it is about not only the decisionsmade but also how these decisions are accepted andimplemented in the organization. From our conver-sations with the two CEOs, three key lessonsemerge: (1) build a shared understanding amongtop management, (2) create a culture of dedicationand discipline to address change, and (3) adopt andsustain a broader mindset.

4.1. Build a shared understanding amongtop management

Assessment of how the VUCA components affect theorganization’s strategy should be a shared exerciseeven if, as a CEO or top manager, you have a clearvision of the future. As David Crane recalled: “Inever ever had any doubt as to which direction theindustry was taking. The problem was all the ques-tions on how to get there from our unlikely startingpoint [big coal-fired energy generators].”

Perception of uncertainty or ambiguity can berather subjective, meaning that across your corpo-rate board or top management team, diverse viewsof the future may exist. Even in a decision-makingsetting rich with data and updated information, it isdifficult to avoid the biases and personal mentalframes that shape how we make sense of reality(Kahneman & Tversky, 1979). This can generatesurprising ex-post reconstructions of key decisionmoments. Arndt Neuhaus recalled a time when RWEmissed signals that should have triggered a fasterresponse to energy industry changes: “Even man-agement at the top did not believe the impact ofrenewable energies . . . all the people supportingtop management were creating data against it.”Building a shared understanding of opportunitiesand threats of future changes becomes a priorityfor top management, but this in itself is not enough.

4.2. Create a culture of dedication anddiscipline to address change

Construction of a shared understanding requires adisciplined approach to making sense of changes ina VUCA context. It requires dedication, as frequen-cy and intensity of the changes necessitates revisingand updating shared understanding of the organiza-tion’s opportunities and challenges. Embracing adiverse portfolio of initiatives–—even if they arenot big bets–—requires new mechanisms withinthe organization. According to Arndt Neuhaus:“You need a very vigorous process to cancel proj-ects.” Not introducing such mechanisms is a riskyproposition. “I definitely got NRG Energy involved in

too many things,” said David Crane. “I just didn’thave enough time to immerse myself in all theseareas. I should have been much more rigorous aboutit.”

It is not enough to introduce scouting tools,technology portfolios, or corporate entrepreneur-ship initiatives; an organization must also have thecapacity to manage these initiatives and keep themaligned with key drivers and strategy of the busi-ness. As leader, it is not enough to keep the rest ofthe company informed of what you are doing or areplanning to do. There is a clear risk, as both DavidCrane and Arndt Neuhaus experienced, that stake-holders–—in particular, shareholders–—might nothave the patience to see the outcomes of thedecisions the CEO is making. One option of avoidingantagonizing stakeholders entails highlighting theculture of dedication and discipline that underliesdecisions aimed at responding to organizationalchallenges.

4.3. Adopt and sustain a broader mindset

In addition to shared understanding among topmanagement and a culture of dedication and disci-pline, it is necessary to adopt and sustain a broadermindset. Often, the first reaction to sudden changeinvolves trying to slow the change down to what isconsidered a tolerable pace. For example, ArndtNeuhaus recalled: “Companies lobbied local politi-cians against regulation favoring renewable ener-gy.” Incumbents in the transportation industryreacted much the same toward disruptive entrantslike Tesla and Uber. Such foot dragging, however, isnot a sustainable position. Our interviews revealedthat CEOs David Crane and Arndt Neuhaus chose tobroaden the mindset of RWE and NRG Energy, re-spectively.

What is first perceived as a turbulent contextbecomes the ‘new normal,’ and thus, new optionsshould be brought to the table. This might requirebeing open to radical decisions, as David Cranesuggested: “I should have taken NGE Energy private,because I think you have more ability to makeradical change as a private company.” In this realm,Crane said that he regrets not having divested fromthe coal plants faster when they still had marketvalue, even if they served as the core business at thetime.

The ability to broaden the organization’s mindsetbecomes a priority. Otherwise, the organization isill positioned to adopt radical changes. The twoCEOs’ responses demonstrate how critical it is tohave a support net inside the organization. The netserves as not only a safety mechanism to protectagainst negative outcomes, but also as a support in

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Figure 3. Deciphering the sources of turbulenceusing the VUCA framework

8 F. Giones et al.

moving the organization out of its comfort zone.A recent example of such risky moves is MichaelDell’s 2013 decision to take the Dell ComputerCorporation private; this move allowed him to in-troduce organizational changes that acceleratedtransformation of the company into what now isDell Technologies.

4.4. Managing change in a VUCA context:Summary

Overall, the three aforementioned lessons point tothe importance of managing stakeholder expecta-tions. Without their complicity, it is unlikely thattop management can make and sustain the organi-zational changes needed to survive in a VUCA con-text.

5. Putting the VUCA framework towork

In addition to highlighting valuable lessons on howto navigate VUCA contexts, our interviews with theCEOs also emphasized how the VUCA framework canbe used to activate organizational change. Buildingon the conceptualization of the VUCA frameworkconstructed by Bennett and Lemoine (2014b) andthe insights from interview subjects Arndt Neuhausand David Crane, we propose a two-step approachto put the VUCA framework to work and thus sup-port managers in the position of making strategicchoices regarding how to respond to the VUCAchallenges in their industries.

5.1. Breaking down the perception ofuncertainty using the VUCA framework

The first of our recommended two-step processentails moving away from the perception of beingin an incommensurable situation. This is not be-cause we aim to convert reality into a dashboard ofindicators, but rather to decipher what is actuallyuncertain, what is volatile or complex, and what isambiguous. As depicted in Figure 3, the objective ofthis first step is to break down the sources of whatwe commonly call uncertainty. Unless we can un-pack factors that moderate our perception of thefuture from our current knowledge position on thesituation, we will not be able to establish what setof actions we should bring to the table.

This process requires a shared understanding,dedication, and discipline. Use of the VUCA frame-work offers a simple and structured approach to-ward making sense of the situation. It also offers thepossibility of engagement with the different agents

or stakeholders to agree in the assessment of whatactually triggers the perception of uncertainty orambiguity, and how much this might be a result of aninteraction with other factors (e.g., volatility).

5.2. Preparing the organization to takeaction: Choices and timing

The second of our recommended two-step processinvolves preparing the organization to take action.The interviews we conducted with Arndt Neuhausand David Crane suggest distinct approaches existwith which to address the challenges in a VUCAcontext. While David Crane of NRG Energy choseto take quick action and tried to anticipate thefuture, Arndt Neuhaus of RWE worked to transformthe organization to prepare it for the unknownfuture. Those two different strategic positions re-sulted in a combination of short- and long-termactions. In Figure 4, we synthesize their actionsand advice on each of the different VUCA dimen-sions. These represent a portfolio of responses thatmanagers in VUCA contexts can activate.

For instance, the actions to respond to volatilityare substantially different from the actions to re-spond to ambiguity. To address volatility, the focusis on isolating and creating mechanisms that canbuffer or compensate the effects (e.g., additionalunexpected costs). In the long term, actions relatedto changing the degree of vertical integration of thebusiness should also be considered. At the oppositeextreme, ambiguity requires actions that introduceinternal changes to the culture of the organization.The concepts of experimentation and businessmodel innovation (Andries, Debackere, & Van Looy,2013) require reintroduction of the evidence-based

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Figure 4. Using the VUCA framework to build short- and long-term actions

Strategic decisions in turbulent times: Lessons from the energy industry 9

entrepreneurial culture (Frederiksen & Brem,2017), which might be somewhat extinct inmature organizations. The idea of making afford-able bets and experiments can help to make deci-sions in the short term and open further options fororganizational change in the long term. Thesuggestions of ways to respond to complexity arelinked to the necessity of being able to understandand control the outcomes of the organizationalactions such that valuable knowledge of the situa-tion is created (e.g., corporate accelerators;Kohler, 2016) to help the organization broaden itsmindset regarding the situation and alternativefuture scenarios.

Finally, the response to true uncertainty hitsrather close to the strategic leadership choice ofthe CEO (Newark, 2018). Via our two interviews, wesaw a short-term focus to prepare the organizationfor an uncertain future (RWE) and a long-term focusto anticipate and–—if possible–—shape the future byinvesting in assets of organizational advantage (NRGEnergy). Unless managers welcome the risks inher-ent in disconnecting with the concerns and interests

of their stakeholders, they need to retain a dualperspective of both the short and long terms.

6. A call to action for managers inVUCA contexts

The energy industry suggests guidelines regardingwhat managers need to consider when leading or-ganizational change in times of high uncertainty.Even though the energy industry is special andunique in many regards, we believe that the lessonsculled from the two company examples can betransferred to other industries. VUCA is not anindustry-specific or regional phenomenon; it affectsbusinesses globally in real time. Moreover, socio-technical external shock (Geels & Kemp, 2007) canoccur in any industry and happens on a regular basisalready. The energy industry recently experiencedsuch a shock in the form of German Energiewende,but other mature and stable industries have alsobeen similarly exposed. In the real estate industry,shopping malls are under threat due to the online

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shopping phenomenon; Airbnb has changed howreal estate assets are used; and the owner of theleading real estate marketplace, Zillow, is nowacting as a buyer and seller. Another example couldbe the swift transformation of the movie and con-tent industry, in which the confluence of new tech-nologies and changing consumer habits is eroding–—at an accelerated pace–—the competitive positionsof media and telecommunications groups.

6.1. A counterintuitive option: Do nottake action

In times of exponential digital growth, new technol-ogies, radical advances, and industrial transforma-tion, we often overlook the possibility of notinnovating. Considering the cases of RWE and NRGEnergy, we cannot avoid raising the question of“What if?” What if the two companies had chosennot to engage in a process of change and focusinstead on slowing disruptions in the energy industryand in the organizations themselves? A noninnova-tion response is contingent on an organization’scapacity to control the introduction of new technol-ogies and on the influence the organization exercisesin the industry regulatory context (Mone, McKinley, &Barker, 1998). Can not taking action–—a rather coun-terintuitive response–—be a valid option in such con-texts? What if it is ok to accept de-growth, divesting,and returning to shareholders as much value aspossible as the company unwinds? Based on the in-sights provided by the two CEOs, if ambiguity is thedominant force that makes your situation a VUCAcontext, maybe this is a valid option. When little isknown of the situation and of the results of ouractions, it makes sense that rather than placingaggressive bets, leadership focuses on reducing ex-posure–—before the outcomes of turbulence becomevisible. Historically, conglomerates found a way tosurvive by investing and divesting ahead of markettrends (Davis, Diekmann, & Tinsley, 1994). Whatoften went unnoticed is that it was equally importantto invest right, as to divest before it was too late. Asimilar caveat could be shared from our energyindustry findings: Taking action will not guaranteesuccess unless you understand what VUCA dimen-sions define your challenge.

6.2. Final remarks: Stay connected to themanagement research that can help you

Management research on the effects of VUCA inorganizations is scant, especially regarding stake-holder management. More research is needed, butmany relevant insights for practicing managers al-ready exist.

From the individual’s perspective of the manag-er, making decisions in VUCA environments exposesindividuals to hazards such as goal conflict or ten-sions (Segerstrom & Solberg Nes, 2006), puttingnovel psychological research concepts such asself-discrepancy or self-concordance into use inthe management context (Kelly, Mansell, & Wood,2015). Managers need to make difficult choices, butthis does not imply that increasing the tensioninside organizations will result in better outcomes.

Stakeholder participation in decision making andstrategy implementation suggests that CEOs are notisolated agents. Furthermore, assessment of thequality of a CEO’s decisions is based on not onlythe company’s results but also its relative perfor-mance to other organizations in the industry. Share-holders pressure the company management todeliver short-term results, but they also expectthe management team to pursue long-term, fu-ture-oriented goals. The current discourse on re-sponsible research and innovation (RRI) mightinspire managers to strike a balance between short-and long-term options (Sarkar, 2016; Stahl et al.,2017) as they work to engage their stakeholders indeciphering what makes the situation a VUCA con-text and what actions they can trigger as responses.

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