Risk should be ridden, not removed, write Chemsi Bennis, Emma Gavala, Ilgaz Meydan, Hubertus Reinprecht and Lulu Wang
What’s the first thing that comes to your mind when you hear ‘risk management’? A finance employee offering expensive advice to a company? A captain commanding his crew and his ship in the middle of the ocean? Or yourself, at the beginning of your career, trying to minimize the risk of failing your courses and maximizing your chance of finding a job? Risk creeps across all boundaries of our daily, academic and professional lives. In a sense, we are all de facto risk managers – we have no choice but to manage risk.
So how can you become a risk leader? A straw poll of our peers at the London School of Economics (LSE) revealed that a minority considered risk a positive concept. However, we think it is both positive and negative. If most people consider risk an unsettling state of affairs, why do they engage in activities that are inherently risk-prone? Consider the following scenarios. Why would a consultant quit her stable, well-paid job to launch a startup? Why would a leading corporation expand internationally or launch a new product in uncharted territories? Why would you choose to invest in a master’s degree at LSE, where tuition fees are among the highest in Europe? All these cases have one thing in common: risk is endured, handled and even instigated when there is the expectancy of reward that will outweigh the ambiguity associated with deviating from the status quo. Focusing on positive risk and looking out for opportunities, rather than fearing negative risk, is crucial.
Turning to the corporate level, the five-step risk model – identify, analyse, map, mitigate, monitor – is a good, yet oversimplified, tool to approach risk. This is particularly true in the complex and chaotic world of the 21st century.
Thus, the managerial challenge is to deal with the hidden risks pertaining to all managerial activities. One way to do so is to harmonize the polyphony of ideas existing within an organization. Hence, the manager should listen to the creativity concerns of the designer; obedience principles of the regulator; novel theoretical views of the academic; and competition threats and growth prospects of the consultant. It is precisely this ability to integrate complementary views and utilize them to scan the firm’s environment for threats that distinguishes risk leaders from risk managers.
However, when the element of risk remains we should devise ‘out of the box’ strategies to detect it. Here, the concept of weak signals comes into play. A weak signal is nothing more than a subtle hint, such as an unexpected natural disaster with massive corporate implications – a black swan event. There is strong human tendency to ignore these signals or underestimate their significance. And that is exactly the managerial challenge – get trained to detect and address them on the spot. Although the weak-signals approach provides an interesting view to mitigate risks and detect opportunities, we still retain our doubts due to its retrospection; it mentions what should have been identified as a signal, rather than providing a concrete methodology for how to distinguish noise from weak signals.
In this context, it is crucial to be not only a risk manager but also a risk leader. Good leaders are capable of distinguishing the right teachable moments to make their points and creating the right amount of ‘I am watching you’ feeling. However, it’s not just the personality of the leader that shapes the organization’s risk attitude, but also the organizational culture. So, does culture influence you, or do you
Naturally, culture is important in shaping people’s behaviour towards risk. Take Google. By creating a friendly and relaxing workplace where employees can wear flip-flops and bring their pets, the search giant enhances employees’ motivation and creativity, boosting the firm’s performance. On one hand, this might increase the occurrence of mistakes, compared to a more conventionally hierarchical company like IBM, with its more traditional sense of discipline. On the other hand, the Google atmosphere might enhance employees’ ability to detect risks, and most notably encourage them to report them and creatively tackle them.
The managerial challenge, then, is not only to insulate the firm against risk, but to create value from it too. A risk leader is like a skilled captain that drives his ship out of the waves and commands his crew in discipline and harmony. A captain that is farsighted enough to prevent disasters from arising, while leading his ship through new, unexplored waters that might conceal hidden treasures… but also hidden risks.
Risk is more than a beast to be tamed. It is an opportunity to create, innovate and differentiate. If you still lean towards a traditional risk-management approach, consider how you might captain a sinking ship. It will convince you, or rather force you, to feel comfortable with the idea of leading in chaos.
Leading in uncertainty is not a talent, but a prerequisite of the current and future generation of risk leaders.
I challenged the students to consider how they might become a risk leader, converting a traditional risk-management session into a storytelling adventure containing captains, designers, architects, police officers, consultants and – finally – black swans. I asked them to consider whether risk is a positive or negative term. Only a minority of the audience saw it as a positive, yet the winners of the blog award regarded it as both.
Andrew Griffiths. Director of Coral Leadership.