What is the biggest risk in your business? It's not making the wrong move, it's making no move at all.
The biggest risk - is risk aversion.
I'm a natural disruptor and don't speak status quo - which is one of the reasons my clients hire me at The Brand Audit .
Working with numerous brands like Microsoft, IBM, Cisco, Adidas and Disney throughout my career, I've found that the key to revenue generation and market competitiveness is having a growth mindset and being willing to take calculated risks. Risks can be classified in competitive, brand, financial, market, product or technology risks.
And on the flip side, risk aversion is one of the biggest barriers I've seen to growth. I've worked with brands in a spectrum of risk aversion - from fast-paced enterprise tech companies built on intelligent risks to a consulting firm exuding bureaucracy.
And this barrier to growth is particularly prevalent - with research demonstrating economic downturns, such as recessions, lead to an increase in risk aversion in people and businesses.
But risk aversion also occurs outside of recessions. So why do so many businesses stay in the safe zone? Well, it boils down to the humans within an organization and foundational psychology.
While I do not claim to be a psychologist, as a team leader invested in creating innovative and disruptive teams, I've taken a few courses to unpack the psychological reasons for risk aversion and here is what I have learnt:
- Status Quo Attracts Status Quo | Statistically speaking status-quo individuals attract more status-quo individuals. (1) This is because people tend to hire individuals whom they perceive to be like themselves, and who share similar values, beliefs, and attitudes. If a business leader is comfortable with the way things are currently done, they may be less likely to hire someone who suggests radical changes or has a different approach to problem-solving. Instead, they may be more inclined to hire someone who shares their perspective and is comfortable with maintaining the status quo. This tendency to hire people who share similar views and approaches can lead to groupthink, a phenomenon where a group of people conforms to the dominant perspective, even if it is not the best course of action (2). Groupthink can stifle creativity and innovation, as well as limit the potential for growth and change.
- Risk Aversion is Contagious | The degree of risk aversion is determined by the environment that you place individuals in: the more systematic risk that is in the environment, the more risk averse the people in it become. (1)
- Focus on Loss not Gain | Decision makers and executives place a disproportionate weight on loss prevention than potential equivalent gains. (3)
- Career incentive is Status Quo | We view individuals that keep the peace, are agreeable, hold in new ideas, and remain status quo as "more likeable". And likeability is liked closer to promotion than job performance (4). We often also write job descriptions and performance reviews for employees with the goal to maintain and keep things running smoothly rather than rewarding disruption, experimentation and ideation.
- Control is comfortable | We view things as risky to us because we believe we have no control over what happens. We like to feel in control of our situations and knowing what will happen makes us more comfortable. Uncertainty and lack of control can cause anxiety and fear. (5)
So as a leader what can we do to in a modern era to break these psychological barriers and create an environment of intelligent risk-taking? Here are my tips from experience:
- Identify the Why | Identify why the people in the business are risk adverse. The first step to overcoming risk aversion is to identify your fears and understand what is causing you to be risk averse. Once you know what you're afraid of, you can begin to address it and work on overcoming it.
- Hire divergent thinkers | Hire outside your norm. Look for culture adds rather than culture fits. Hire outside your industry. Hire outside of traditional skillsets and hire risk takers to shake up risk-averse environments. If no one sees anyone modelling intelligent risk taking at the top then it's highly unlikely employees will take risks.
- Embrace Failure | Failure is a natural part of taking risks. It's important to embrace failure as a learning opportunity and not let it discourage you from taking risks in the future. Reward those employees that take intelligent risks and try something new - even if the results are not successful. I've personally found in my career failures more informative than successes.
- Brainstorm without Boundaries | Ask team members to do a BHAG brainstorm session - assuming there was nothing holding you back from accomplishing these - resources, budget, time, etc. Removing the limitations can help remove the risk from the team.
- Foster a Culture of Experimentation | A culture of experimentation can encourage employees to take risks and test new ideas. By creating an environment where employees are encouraged to share new ideas, experiment with new products or services, and learn from failures, businesses can foster innovation and growth. (6)
- Focus on the long-term | It's important to focus on the long-term benefits of taking risks, rather than just the short-term consequences. Remember that taking risks can lead to business growth, new opportunities, and success.
Overall, taking risks can have many long-term benefits for businesses, including increased innovation, enhanced competitiveness, growth and expansion, increased resilience, and improved organizational culture.