Risk Management? Don't Forget to Accentuate the Positive!

Oops I Did It Again

I was recently redrafting a chapter of my new book. You've seen some of the sketches of that over the past couple of weeks. I've been focused on situation awareness in the context of taming wicked problems.

I observed that when originally writing the chapter suddenly stopped and thought, "Clive, you’ve done it again." What did I mean?

What I meant was that in describing the potential dangers foretold by weak signals of impending wicked problems and the essential vigilance we need to maintain through situation awareness, I was giving a skewed picture of risk management.

We're All Doomed (Not)

Leaders often tend to focus on negative risk, such as threats or hazards that can harm the organization, rather than positive risk, which can bring benefits or opportunities. This may be due to several reasons:

1. Fear of failure. Leaders may be afraid of taking risks that could lead to negative outcomes, such as financial losses or damage to the organization's reputation. As a result, they may focus on avoiding risks rather than taking them.
2. Inadequate risk assessment. Leaders may not have a clear understanding of the potential benefits and risks of different options. This can lead to a bias towards avoiding negative risk, as they may be more aware of the potential downsides than the potential upsides.
3. Limited resources. Leaders may have limited resources, such as time, budget, or personnel, which can make it difficult to take on new risks or initiatives. In such cases, they may focus on minimizing negative risks to conserve resources.
4. Organizational culture may also play a role in how leaders approach risk. If the organization has a risk-averse culture, managers may be less likely to take on positive risks.

Ignoring positive risk can also have negative consequences for the organization. Focusing only on negative risk can lead to missed opportunities and can limit the organization's ability to innovate and grow. It can also create a culture of fear and limit the motivation and engagement of employees.

Accentuate the Positive

To address this issue, managers should develop a balanced approach to risk management that considers both negative and positive risks. They should conduct thorough risk assessments that consider the potential benefits and risks of different options. They should also foster a culture of innovation and risk-taking that encourages employees to think creatively and explore new ideas. This can help the organization to identify and capitalize on opportunities that can lead to growth and success.

‘Risk' is not defined as something that Is specifically good or bad — It’s identified only as something that has the potential to affect people, business objectives or operations. Thus, counterintuitive though it may sound, some risks can positively affect your organisation and better help it to achieve its objectives. For some teams, the possibility of a positive result turns risk into a driver of future success.

An example of positive risk is investing in a new technology or expanding into a new market. While there is a potential for failure, there is also a possibility for significant growth and profitability. For instance, a company might decide to invest in developing a new product line that targets a new market segment. Although there is a risk of not selling enough products to cover the investment, the new product line could also lead to significant revenue growth and market expansion. By taking this positive risk, the company may achieve long-term success and gain a competitive advantage in the industry.

Netflix

One real-life example of a business taking a positive risk is Netflix's decision to pivot from DVD rentals to streaming services. In the mid-2000s, Netflix was primarily a DVD rental-by-mail service, competing with traditional video rental stores. However, as the internet became faster and more widespread, the company's leadership recognized the potential of online streaming as the future of media consumption.

In 2007, Netflix took the positive risk of launching its streaming service, initially as an addition to its DVD rental business. This decision required significant investments in technology, content licensing, and infrastructure. The shift to streaming was a calculated risk, as the technology was still relatively new and untested, and there was no guarantee that consumers would embrace the change.

However, the gamble paid off. Netflix's streaming service rapidly gained popularity, eventually becoming the dominant player in the industry. The company continued to innovate by investing in original content, which further solidified its position as a market leader.

What does taking a positive risk mean when it comes to wicked problems? Precisely that the better we learn how to spot their weak signals, the more capable we are of determining not only the potential damage they could cause us, but also the potential opportunities they offer.

Be well. Be wise. Look for the positive as much as the negative.

Clive

PLUS, when you're ready, here are four more ways you can develop your skills to tame wicked problems and take wicked opportunities:

1. Subscribe to this newsletter.
2. Take the Wicked Scorecard. What's your work-life like? Wicked or benign? Answer 18 questions and we’ll send you a personalised report. The Wicked Scorecard enables entrepreneurs, founders and leaders to assess the degree to which six environmental factors and challenges are prevalent in your work and personal life: (1) volatility, (2) uncertainty, (3) complexity, (4) ambiguity, (5) turbulence, and (6) contradictions.
3. Download and read my SORTED white paper.
4. Four times a month, I make two hours available for four individuals with a big vision of what they want or who can see an emerging leadership challenge. At the end of our conversation, you will have more clarity and confidence around your vision or challenge. Interested? Get in touch HERE.