Is Risk Always Something to be Avoided?
As a business leader it is natural that we should want to protect our business: to avoid risk and keep it from harm. Generally, risk is seen as a ‘bad thing’, and most material published tends to be about how we can avoid or mitigate risk. But what if there were a different way to frame it? Risk is inevitable, so instead of avoidance we should pivot our thinking, and be considering how we can use risk to our benefit.
Whilst a risk-free environment might sound ideal, avoiding risk entirely can lead to a stagnant business model, without opportunities for growth. There is definite wisdom behind the phrase ‘nothing ventured, nothing gained’. Added to this, a risk avoidance strategy can even put the business in a more precarious position. By planning only to avoid any challenges, leaders may then find themselves faced with chaos in a crisis, if the risk-avoidance strategy ever fails.
Organisations should instead be looking to assess and anticipate risks. Not only does this help leaders develop resilience, and a strong business continuity strategy, but it also contributes to the development and longer-term objectives of an organisation. By considering the possible risks and threats, leaders are better able to make informed decisions about business strategy and define business goals. Approaching risk in a strategic way can allow us to use it to develop new processes, systems, or entirely new ways of working.
Naturally, with any risk there is a chance of failure, but this does not have to be a bad thing. Ask yourself instead, how can failure be used as a tool for growth? In the tech industry, it is common to hear the phrase ‘Fail Fast’ – make your mistakes quickly and learn from them, using them as tools to innovate and develop. Risks and failures are inevitable, but reframing failures as learning opportunities offers leaders the change to improve and develop strategies in an agile way. These are often talked about as ‘productive failures’, that is, although the initial objectives were not met, other opportunities may have been discovered.
We must encourage and embrace failure if we are to succeed. But how can you do this in a controlled environment so as to make the most of the opportunities, but mitigate the impacts of any failures?
The principles of child development are not often used in a business context, but in this case they are a good place to start. We encourage children to expand out of their comfort zone because we know this is how they develop and grow: they learn by making mistakes. Children grow when they are allowed to take risks and fail in safe environments, whether physically – such as learning to climb trees or handle sharp objects – or intellectually, when approaching academic or logic-based tasks. Businesses can also take this approach. By using trial and error on a small or localised scale, business leaders can discover which processes, systems, and markets work, and rule out those that will not.
Risk taking helps children gain confidence, and learn persistence – initial failure should not mean the end of the experiment, rather it should serve as the impetus to try again until you succeed. Applying this to a business context, organisations can develop resilience and build a business model that centres around risk anticipation, resilience, and business continuity.
Mostly importantly, this is a great way to drive innovation. Children in a new or ‘scary’ situation are forced to make decisions and solve problems. Correspondingly when businesses are faced with pressure or a new challenge, they may be forced to think ‘outside the box’ and come up with new and innovative processes and strategies that will help drive business growth and create a more efficient operating model.
These are all exciting prospects for leaders, but how can this type of environment be created to allow learning through mistakes without damaging the business? The first step is to consider the possible outcomes of any situation, and how these can be managed. For example, you would not want to try out a new finance process with real sums of money, or gamble with customer data! Making trial scenarios on a small or localised scale can be a useful way of role-playing a new process, idea, or approach, before rolling out to the wider team.
The Model Office is a great example of a tool than can help here. It is a set up that enables testing of new systems and processes in an environment that does not impact the wider business. By weaving together the people, process, and technology components of a new proposed solution, the Model Office can test against real scenarios within a simulated work environment to evaluate the usefulness and effectiveness of the solution. This also encourages buy in from stakeholders and team members, as they are able to see in real time, the proposed changes and the associated benefits.
Predictive analytics are vital for any forward-looking strategy and decision-making, but they are particularly important when trying to anticipate risks. Using market research to gather information on the competition for example, or on the potential markets for a new venture, can help business leaders make more informed decisions. Couple this with business data, and the ever-evolving science of data modelling can help predict and anticipate challenges and opportunities.
In short, businesses that aim to avoid potential risks can also find themselves missing out on the benefits. Just as many plants grow better under some type of stress, so business should use risk in a controlled environment to learn, develop and innovate.