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4 Leadership Tips on Managing Risk without Being Reckless

Dave Ulrich /

I have reported some of our proposed Leadership Code 2.0 competencies to be an effective leader in today’s changing world.

We discovered that navigating paradox has become one of the differentiating skills of leaders who deliver business results. Let me probe deeper into one of the thorniest paradoxes of leadership in the Execution domain of leadership and offer tips on its navigation: managing risk without being reckless. 

On the one hand, in a world of change, leaders have to take risks: to be curious, to foster creativity, to experiment, to try new things, to think outside the box, and so forth. Without risk taking, strategies flounder; execution focuses on the past not the future; people become passive; and organization cultures languish. Risk taking inspires people, creates a future, and defines new directions.

On the other hand, recklessness can be rash, careless, unlimited, foolhardy, and desperate. Reckless action often fails and creates a cynical vicious cycle that leads to employee despair and loss of confidence.  

So, what are some tips for risk without recklessness?

1. Focus outside in. 

In making a decision about how risky to be, make sure that the impact of the decision will create value for someone else. In an organization, choices can be riskier if they not only serve, but anticipate customer wants and needs And, even more risky, if they have the chance to move beyond gaining market share to creating market opportunity. With a line of sight to future customer value, riskier decisions are worth the gamble. Apple’s 10-year old move into iPhones was obviously a risk worth taking because of the enormous market opportunity it could (and did) create with over 1.2 billion phones sold in a decade. 

For individual choices, risks are more worth taking when the choice creates value for someone else. I may buy my wife a more riskier gift if I think it is something she would enjoy (value is defined by the receiver more than the giver).  A leader may be more risky in giving an employee a new career opportunity if the leader envisions the future benefit for the employee.   

Framing risk in terms of outcomes for others reduces recklessness.

2. Know strengths and limitations.

I cannot do an Ollie on a skateboard, nor a varial kick flip or even a Shuvit (frankly, I had to look them up to even know what they are!). Knowing my physical limitations, I am not prone to take a reckless risk or to even try. Likewise, every leader has strengths and limitations. One great leader I coached was not particularly eloquent or comfortable in public speaking. She was able to avoid her credibility risks by having one of her staff be the public face of her company while she used her strengths in crafting and executing her strategy. Wise risk taking expands strengths within the realm of possibility. Our aspirations should exceed our resources, but not by too much.

Organizations also have core competencies, or things they are good at doing. They have to let go of old and evolve those competencies to respond to market opportunities (e.g., Kodak moved too slowly from film photography to digital imaging; they were not risky enough). Shifting to new opportunities requires accessing talent to pursue those opportunities, either through acquiring (buy) new talent, developing (build) existing talent, or partnering (borrow) with others who have the requisite talent. 

Building risk on realistic and expandable strengths avoids recklessness.

3. Take baby steps and learn always.

 Recklessness would imply placing going “all in” without signals of early success. A friend of mine quit his reasonably successful business to become a consultant. He enjoyed the problem solving process and autonomy of consulting. Based on his professional success, he felt like he had a lot to offer as coach and consultant. But, as he got into his advising career, he found that he was not as commercially successful as he felt he would or could be. I have been asked by friends and colleagues, “should I pursue my dream” and go all in? My answer is a hesitant “maybe.” I would follow Whitney Johnson’s advice to date your dream and experiment to see if and how to make your dreams come true. 

Organizations also need to take baby steps. Dramatic innovations into unrelated markets may be reckless without early learning steps. For example, manufacturers (home appliances, cars, etc.) who moved into financial services generally were more reckless than risky. Organizations clearly need to pivot to new opportunities (see focus outside in above), but unrelated diversifications often become reckless without the capabilities to respond.

Managing risk by starting small enables learning and avoid recklessness.

4. Create a portfolio of risks 

When I grew up we put a string of lights on our Christmas tree. When one bulb went out, the entire string ceased to work. To repair the string of lights, we had to test each bulb independently. This “all or nothing” logic impairs risk taking. Today, Christmas tree lights are connected in parallel, not sequential circuits. Likewise, risk taking can be bracketed with parallel decision making rather than all or nothing. 

For individual investors, every portfolio manager recommends spreading risks by having an asset allocation strategy across multiple investments. Leaders who manage risks seek divergent opinions, but also know when and how to converge. One leader would randomly assign members of his team pro or con on key decisions and then encourage a public debate to ensure divergence of opinion. After this public and forced dialogue, the leader would then seek convergence on the most reasonable solution. 

Organizations avoid sequential Christmas tree bulb burnouts by creating constant experimentation. One senior HR leader was tasked with a clean sheet exercise to redesign the firm, from strategy to structure to systems to talent, and so forth --  after the most profitable year in its history.  Rather than be seduced by success, the CEO and head of HR encouraged risky thinking. 

Creating divergence then convergence makes risk less reckless.

Application:

So, how do you and your organization manage the challenge of risk without recklessness? 
 



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