I have recently observed a significant number of Tweets on Twitter and references on LinkedIn and other social media sites regarding leadership and risk taking. The general theme of a large number of these comments is that successful leaders have a “Damn the torpedoes, full speed ahead,” risk tolerance. One individual Tweeted, “If you’re not willing to risk it all, then you don’t want it bad enough.” On a personal level, I agree that to overcome obstacles one must be willing to risk failure, but I do not hold that good leadership means that you are willing to risk it all.
I am concerned that the terms “Leader” and “Leadership,” when promoting statements such as the one above about risk and risk tolerance, are too general and lead to a misunderstanding of risk taking and the leadership role.
Successful entrepreneurs are driven to achieve success. One of the more common characteristics among them is their willingness to risk everything to achieve their dreams. And when all that you risk is yours to lose, why not? Some entrepreneurs are also leaders in the sense that they attract and sustain followers. They have the ability to inspire, build aspirations, and convince teams to attempt the seemingly impossible. They can communicate the vision and optimism, and create the dream for others to follow.
There are many leaders who are not entrepreneurs, but who are charged through their positions to provide guidance and leadership within the bounds of prudent stewardship. In such roles, leaders are expected to take risks, but the risks they take must be bounded to avoid catastrophic outcomes. One need only look at the collapse of the large financial institutions during the last couple years to accept that boundaries are needed. They did risk it all and in the end they lost it all.
Business leaders are challenged to make decisions about growing the businesses they are chartered to run and that means that they must be able and willing to take risks. But, the decisions they make should be based on taking calculated risks. To do otherwise could lead to reckless investment and spending strategies that endanger the well being of their organization.
Calculated risks are quantified not only in terms of the probability of success or failure, but also in terms of the probable outcomes. If successful, what is the benefit? If unsuccessful, what is the cost? If unsuccessful, what is the recovery option, and what is its cost? Once the cost/benefit ratio is determined, the probability of success needs to be applied to determine the degree of risk that is being considered. Once quantified, it is easier to determine which risks should be taken.
What determines good leaders with respect to decision making is their ability to efficiently assess the available information, quantify the risks, and make a decision that has a high probability of being correct. With experience, the ability to assess the data and quantify the risk is nearly instantaneous because the risks and challenges are similar to issues the decision makers have already experienced.
The apparent instantaneous decision making ability should not be confused, however, with risk tolerance. Good leaders have a certain tolerance for risk or they could not perform their roles. That is not the same as the “Damn the torpedoes, full speed ahead” statements that are being promoted in the social media networks as good leadership. Wise leaders in stewardship roles take calculated risks which are bounded by formal or informal quantification combined with the learning of their own experience.
Entrepreneurs have the freedom to risk everything until such time as they accept investment partners and then they too are responsible for the stewardship of others’ funds.
Those who aspire to a career in corporate management are well advised to slow down their decision making, learn how to quantify and manage risk, and increase the probability of successful outcomes as a necessary step to becoming successful corporate leaders.
Here is a link to the post I promised.
http://wilrickards.wordpress.com/concepts/safety-is-a-way-of-thinking/
I hope you enjoy.
Wil
Thanks, Wil. Very nice article.
Thanks for the thought provoking post.
Talking of Jim Collins I immediately think of climbing and there is a climbing saying.
“There are old climbers and there are bold climbers but there are few old, bold climbers.”
You have inspired me to write about risk management from the outdoor industry’s point of view I think business has a lot to learn from this perspective. Here are a few applicable thoughts from what is to come.
Risk of gain vs. risk of loss – needs to be balanced
Risk is a measure of consequence & liklihood – if one or other is high then thought or mitigation is required – if both are high something needs to be changed immediately or it is not worthwhile.
Because of the above the same situation does not pose the same risk to different people. If my 5 year old son falls out of a tree he bounces, my 75 year old mother is a different story. I encourage students to think about consequences (how long in hospital) vs how likely (both can change very easily – for instance the liklihood of a slip increases if it is raining or you are tired.)
When teaching risk management I usually instigate a game of poker and have observers watch the different approaches to managing risk and create a discussion to when each is applicable – there is no one size fits all.
Again thanks for provoking thought.
Wil
Thank you for your comments, Wil. I read your post and I sincerely hope that others will take the time to do so as well. Risk taking deserves a bit more consideration that we often give it. Cheers, Gordon
There are at least three issues in the “no guts, no glory” and “growth is all that matters” leadership styles.
The first involves the number of casualties, including collateral victims, likely to result from an unreasoned charge.
A second is that the best biological analog to growth as a primary motivation is the cancer cell. Consider the fate of the host. Change and adaptability are not the same as growth.
Finally there are sustainability issues. Most people are not capable of sustaining an all out effort for the 40 plus years of a typical career. Sporadic periods of intense activity, punctuated by much longer periods of recuperation and training are sustainable in the intermediate term when talents and assignments are well matched. Consider professional athletes.
Comfortable survival is the most that most can hope to achieve. This is most readily accomplished by avoiding direct contact with the pathologically optimistic, those striving for best, soonest, and cheapest in every activity they attempt. Better, sooner, or cheaper is usually enough to stay in the game for the long run.
Ken, thank you for commenting on this article. I appreciate your insights as they lend the perspective of experience. Cheers, Gordon
I agree fully that risk taking has been made a great hype in the recent time in leadership. Without analysing and assesing the risk (both qualitative and quatative), the decisions taken might not result in the favorable outcome. may be in remote cases it might have resulted in favorable outcome, but most of the time it could cause a bad result.
Its always better to know the sitiuation and analyse the impact of the decision being made (both +ve and -ve) as per the situation.
It should not be like “taking risk for a risk”.
Arnand, thank you for taking the time to comment on this article. Your last sentence sums things up very nicely. We should not be taking risk for risk sake. Undesirable outcomes are often the result of high-risk decisions that have not been properly analyzed. I have another article coming later that will delve a little more into the need to slow the decision making process down to increase the probability of favorable outcomes. Cheers, Gordon
“Damn the torpedoes . . . ” is a catchy soundbite, but it hides as much as it reveals. Even the Admiral factored in a thorough evaluation of the situation and the goal to be achieved. His exclamation should be seen as a condensed expression of a carefully calculated risk. It reminds me of the attitude and level of commitment Jim Collins described in Good to Great, whenever he discussed “Level 5″ leaders in companies pursuing their “Hedgehog Concepts.”
Bob, your assessment of “Damn the torpedoes…” as a soundbite is right on. Admiral Farragut most certainly had done as you suggest a thorough evaluation of the situation and the goal to be accomplished. But it is the very nature of soundbites, that make them dangerous. A phrase, or piece of information taken out of context and touted as the whole or applied to situations that were never envisioned by the originator are often at the center if misinformation. Perhaps the premise for a book? Cheers, Gordon