It seems that almost every day there’s a new book or article about risk-tolerant versus risk-averse organizations. These authors tell us how it is through taking risks that we change and grow, both as individuals and as companies. However, the most successful, entrepreneurial leaders don’t just tolerate risk. They embrace it. They create a safe and nurturing environment for people to take risks, to share ideas, to try new things, to step outside their comfort zones, and to learn every step of the way. That’s where innovation and meaningful change occur.
At the same time, business leaders must understand the boundaries associated with risk-taking, uniquely defined for their organization and its stage in the business lifecycle. This is often a delicate balancing act, but most companies I’ve worked with miss the mark by erring on the side of risk-aversion. As a result, their ability to remain competitive and grow is severely compromised.
So how do companies strike the right balance and create an environment that embraces the taking of the right amount of risk? While there is no one, textbook answer, I have found over the years that the following ten steps can have a significant impact.
It starts at the top. Every executive, from the CEO down, must be on board and actively support the plan.
Define the risk appetite that is right for you. Every company is unique. But test your assumptions about risk and push strongly on the boundaries that you believe define the risk you’re willing to take.
Define the boundaries. Once you understand your appetite for risk, define the boundaries that will be established at all levels of the organization, but, again, push yourself outside of what may be most comfortable to you.
Articulate the plan. Leaders should spell out for the entire organization their commitment to, and encouragement of, creativity and risk-taking as a part of the company’s commitment to growth.
Measure, feedback, reward, acknowledge. We perform the way we’re measured and rewarded. Put the right metrics and rewards in place that encourage and reward the taking of risks within the established boundaries. Publicly acknowledge when people do bold things.
Share ideas. Encourage the active and unabashed sharing of ideas, no matter how crazy they may seem, across the entire organization.
Create the right physical environment. Create space and time for people to get away periodically from the day-to-day, an environment that encourages creative thinking and the sharing of bold ideas, a time and place to tune out the distractions.
Lead by example. Show others that it’s OK to take risks, that it is encouraged, in the way you act.
Fund it. Make sure your company’s budget allows the organization’s members time, training and resources to extend their boundaries, be creative and take risks.
Dispense with old paradigms. Don’t revert back to your old habits and ways of thinking when it comes to implementing change. And never, ever, rely on committees to do the hard job of transformation.
This last point deserves a brief story from my past. Several years ago I was consulting for a large, bureaucratic organization. The company was challenged, losing market share and in need of a change if it expected to remain competitive and grow. I advised the CEO that part of the solution lay in transforming the business environment from one of risk-aversion to one of risk-encouragement. I shared some reading material with him and gave him some space of his own to digest my advice. Several weeks later I circled back only to find that he had indeed heeded my advice, by setting up a committee of his top, bureaucratic leaders, to formalize a step-by-step risk-tolerance program! The lesson here is to dispense with your old ways of thinking and doing things if you have any chance of success.
For over thirty years, Mike has been actively involved, as a coach, entrepreneur, scientist, business executive and management consultant, in the areas of executive leadership, organizational development and change management, strategic planning and execution, and financial analysis. He has provided strategic, operational and financial leadership to small and medium-sized firms, as well as Fortune 500 companies and large government organizations, in a broad range of industries. Mike holds BS and PhD degrees from the Georgia Institute of Technology and has had additional training in finance and accounting, strategic planning and management, leadership development, and succession planning, from various top-tier institutions.