Introduction
A core leadership capability universally applicable to all management strata, from CEO through to team leaders, is that of risk taking. In this month’s article we investigate risk taking and in particular detail how coaching can develop this organisational capability.
Core Leadership Capability: Risk Taking
Creativity plus application equals innovation. Innovation combined with leadership generates business results. The difficult part for leaders is to know when to risk innovation as there is no such thing as guaranteed success and the launch of every new initiative brings with it the chance of failure.
Leaders must take some risks if they are able to effectively lead their people and successfully grow their company. However, some risky ventures will fail and leaders get paid to produce results. So how are leaders to navigate this conundrum?
Gordon Forward the CEO of Chaparral Steel clearly illustrates the effect of not taking risks when he states, “if we’re not taking some calculated risks, we stop growing, and we may die”. In 1990’s the average cycle time to produce a ton of rolled steel was 5.3 employee hours in the USA, 5.6 employee hours in Japan and 5.7 employee hours in Germany…Chaparral’s average was 1.5 employee hours. Clearly Mr. Forward was able to effectively leverage risk to his company’s advantage.
Mr Forward was able to leverage risk successfully because he implemented systems to address and support risk taking in an effective manner. Specifically he:
- Designed and implemented a system to assess and quantify risk
- Tested riskiness of individual initiatives in the real world before unleashing them in full
- Created a culture where failure was accepted and rewarded
The first two of these responses seem logical but at first glance the third statement may seem out of place. Why on earth would anyone want to develop a culture that embraced failure?
If you want to increase initiative and innovation, you have to encourage and embrace failure. A culture that punishes less-than-ideal risk-related outcomes will stifle both initiative and innovation, and as stated earlier initiative and innovation are key ingredients to being successful in today’s marketplace.
An innovative and high initiative culture helps an organisation respond better to market signals. It can better exploit opportunities, get new products and services to market more quickly and more often capture first-mover advantage.
The difficult truth to accept is that with this required innovation, failure will also occur. What exceptional leaders and organisations are able to do is learn as much as they can about their failures and embed an ethos of knowledge seeking into their cultures.
Dorothy Leonard of Harvard Business School believes that Chaparral Steel used risk taking to generate knowledge in order to achieve a competitive advantage, “Chaparral managers avoid risk-less projects because a “sure thing” holds no promise of competitive advantage, no opportunity to out-learn competitors”.
The following steps have proven useful in the establishment of cultures that embrace successful risk taking approaches:
- Communicate the risk profile – ensure that the people you manage clearly understand the level of risk that you seek and why it is important to your organisation’s success
- Learn from mistakes – promote a sense that failure is ok and never allow an unsuccessful project to impair a person’s opportunity for advancement with the organisation
- Reward success and failure – create a method of rewarding successful ventures as well as unsuccessful ones. Promote the knowledge learned from failures as valuable strategic knowledge
- Communicate lessons – disseminate the knowledge learned from failures throughout the organisation
- Provide risk assessment tools - provide risk assessment mechanisms to help people make better risk-related decisions
Leadership, Risk Taking and Coaching
How can coaching help leaders take better risks? The answer lies in the results of the coaching process. Irrespective of the particular context of coaching, the coaching process seeks to attain increased insight and increased commitment to the achievement of peak potential.
With regard to risk taking, coaching can help leaders focus in on core strategic factors and overcome “analysis paralysis”. By assisting a leader to hone in on the key factors that will govern the success of any initiative, these factors can be placed under the microscope and examined thoroughly, rather than spending critical time and mental energy in the examination of components of a less critical nature.
In many cases the best way to test an initiative for success is to pilot the initiative in a limited offering. The use of a coach in the design of pilot tests is often beneficial as this can help leaders identify the key components that should be tested and help create effective ways of testing that will deliver the knowledge that they need.
While the piloting of an initiative is often useful it may not be practical in certain situations. If this is the case a coach can be used in a variety of ways to facilitate the risk assessment phase of a new initiative.
Conclusion
In order to excel, risks must be taken. However, some risks will result in failure and leaders are paid to succeed and achieve. In order to leverage risk failure must be accepted and viewed as a valuable mechanism for gaining valuable information. Coaching can help leaders assess risk and develop strategies to test for potential ramifications. Speak with one of our consultants if you would like more information regarding how to create a culture that successfully leverage risk and manage the consequences effectively.
