We see it over and over again. A company’s performance is lackluster, so everyone is encouraged to take more risks. Apparently, taking more risks is often viewed as a way for companies to reignite their less than optimal performance.
A recent example appeared in the January 22, 2021 issue of the Wall Street Journal in the article “IBM Forecasts Growth Again After 2020 Fall” by Maria Armental. The article reports what IBM’s Chief Executive Arvind Krishna said about risk at a time when IBM is striving to improve its performance. According to the article, ”Mr. Krishna said IBM is encouraging more risk-taking to drive growth—and insuring a higher tolerance for failure across the business.”
As I see it, based on my 25+ years researching business success and failure patterns, merely taking more risks does not necessarily bring about successful business growth. What really matters is “Are they taking the right risks?” According to my research, high risk does not lead to high reward. If more risks are encouraged, but many of those additional risks are the kind of risks that do not pan out, then performance won’t improve. It is known that certain types of risks—the risks that are prudent rather than high—are what generally can be quite successful and can bring very nice rewards.
The problem with encouraging more risks is that it can result in too much high risk that not only doesn’t bring high reward, but also leads to major disaster. As a result of this, performance suffers instead of improving. This unfortunate situation can easily be avoided by encouraging employees to take the right kinds of risks. This can mean taking fewer risks, but picking those risks that are most likely to lead to high reward. Or, it means at least avoiding those high risks that are likely to fuel disaster, especially if the right risk mitigation is not in place. These crucial elements of successful risk taking can easily be missing when the emphasis is on taking more risks instead of on taking the right risks.
Yet, from time to time, we see companies encouraging their people to take more risks. For example, as I wrote about not too long ago in a past newsletter, Wal-Mart’s CEO had been encouraging its people to take more risks. However, if companies are to reap success from risk taking, they must recognize that taking more risks is generally not what’s needed. The important issue is Are they taking the right risks?
If you’d like help learning how to take the right risks, just contact us.
