This blog post clarifies what I said last month in my previous post about women and risk.
In my last blog post, I explained why new research did not negate the premise that women executives tend to be better risk takers than their male counterparts. It is said that female executives perform better than men because women are less likely to take high risks than their male counterparts. Women seem more likely to take prudent risks that have a good chance for success, rather than taking high risks that generally lead to failure.
That said, sometimes women CEOs at the helm of prominent corporations do take big risks by steering their companies in new directions that lack a strong strategic fit. IBM is an example. With a woman CEO (Ginni Rometty) at the helm, IBM pursued a new strategic direction. The company put emphasis on its AI system called Watson, which attained great publicity when it beat humans playing Jeopardy. IBM then pursued Watson Health, its AI system that provided answers about health topics.
Watson Health did not perform as well as expected and was eventually sold. At the same time, IBM was slow to compete in cloud computing, an area that would have been a far better strategic fit for IBM than was answering health questions with Watson. But, up against formidable competitors like Microsoft and Amazon’s AWS, IBM was no longer in a position to thrive with the late entrant strategy that IBM had successfully used years ago to beat less prominent competitors. Eventually, IBM’s female CEO stepped down, after disappointing growth and weak financial results. She had taken big risks changing the strategic direction of IBM and, as typically happens with high risk, it brought weak results, not high reward.
So, yes, this is a case where a top female executive did, in fact, take high risk. And, in cases like this, the female executive is not more risk averse than her male counterparts. Thus, on the surface, IBM’s situation appears to support the premise of recent research which concluded that women executives are not less likely to take big risks than men because women take bigger risks in social situations, including in interacting with customers and serving customer needs. IBM’s female CEO was said to rely too heavily on responding to requests from individual customers, which led to overemphasizing Watson Health and underemphasizing better fitting areas such as the cloud. Based on this, it is said that her more socially oriented customer focus was a big risk that did not bring high reward.
However, I have a different take on this based on my 25+ years researching business success and failure patterns, as well as on my experience conducting sessions on risk for association and alumni groups. I would say the big risks taken by IBM’s female CEO were strategic risks, not social risks. IBM’s female CEO appears to have spent much of her time at the company in its consulting area and in the consulting business it acquired from Price Waterhouse Coopers. Responding to the project needs of individual clients is typically a critical strength for driving success in the consulting sector. But, elsewhere in IBM’s hardware and software related business, additional strengths beyond a socially oriented focus on individual customers’ project needs are more crucial for success. In other words, IBM’s female CEO had strengths for competing with the big name consulting firms, but she wasn’t used to leading in areas that competed with tech powerhouses like Microsoft and Amazon, where a very different set of strengths is required.
What IBM experienced is not unusual during turnarounds or transformations. To transform a company, a CEO may be brought in who has experience ln the new area the company aspires to pursue. But, the new CEO may lack expertise in the older business that represents the company’s roots. As a result, the business that was once the company’s strength may be neglected, yet the new area may not take off as hoped. Some time ago, this happened at Barnes and Noble when the newly recruited CEO focused upon the Nook ebook reader without a suitable background for also running the retail aspects of the book business. The Nook struggled, yet Barnes and Noble’s retail book business fared more poorly than many independent book shops. This seems much like what happened at IBM, which emphasized the ways of the newer consulting sector at the expense of areas more like the company’s roots.
So, yes, some women executives do take big risks, as was the case at IBM. But, it is not necessarily due to women’s tendency to take more social risks. I would speculate that it may be that women who are in ”glass cliff” turnaround situations face pressures comparable to what males experience under such dire conditions. Both male and female executives in dire turnaround situations are under pressure to make big changes and take more risks. In the business world, there is still a tendency to perceive taking more risks as the solution to overcoming business difficulties. There is not enough emphasis on the fact that high risk does not lead to high reward. Prudent risks that are more likely to succeed are what brings high reward. And, in many situations, studies have shown that women are better, more prudent risk takers than men. That may very well still be true even though some women, such as those in “glass cliff” turnaround situations, may end up taking as big a risk as men.
Thus, that’s why I am not convinced that the new study I discussed in my previous blog post provides adequate evidence to negate the premise that women are better risk takers than men. In most situations, they still may be.