No one can deny that risk exists. It’s the potential to lose something of value. It would be irresponsible to ignore it. The question becomes, what kind of decisional practice and behaviors are operationally and economically effective when it comes to risk in organizations?
Operating from fear
A recent article in Mashable about Google+ is a telling tale when it comes to fear of risk. The motivation for developing a social network as a rival to Facebook was the fear “Facebook is going to kill us.” In other words, this decision was not an integral part of Google’s vision for itself and the development of the Google+ product was plagued with false starts.
The real risk is fear
When fear is a predominant motivation for action, or lack of action, it leads to underperformance at best. At worst, it suffocates real potential. Canadian companies today are sitting on over $500 billion of uninvested cash. The former central bank chief of Canada, Mark Carney, has referred to these funds as “dead money”. He makes a dramatic point. By not investing sufficient amounts in training and expansion of operations, these companies are artificially limiting the economy. Presumably they are waiting for “better times”. The irony is that they themselves could be the catalysts of better times by “risking” and investing cash where it can produce results instead of hoarding the money.
Fear: only half the story
The fact is that fear is only half the story. We are not just made of fears and no enterprise can survive by operating on a fear only basis. People create enterprises because they have a vision, either for something that does not exist or something that can be done better, or at least as well as, other existing products and services. Over the years of working with organizations and the individuals who are the decision-makers, a clear pattern emerges in the way people approach their decisions: they may have fears and concerns, but they are driven by a vision or desire to achieve their goals.
A Thinking Tool for decisions and dilemmas
The Theory of Constraints provides a set of Thinking Process Tools. One tool in particular frames decisions and dilemmas in the form of a “conflict” and then helps people dig deeper for the real needs behind the conflict. These needs inevitably fall into two categories which are basic drivers in our human experience: fear and vision. Every one of us is driven by a set of fears but also a set of desires that make up our vision for ourselves in the world. Robust and productive decisions must embrace both needs. If we choose to make our decisions mainly on the basis of fear, then not only do we block ourselves from achieving our potential, we run the real risk of emulating the costly experience of Google+.
Managing risk in a systemic way
On a much wider basis, how can whole organizations assess risk and operate in a way that is not artificially crippled by fear of risk? We would argue that risk can be managed through knowledge, productive collaboration and robust procedures. Understanding how and when to act has to be based on real knowledge of what is happening inside an organization and this requires:
- a systemic understanding of how an organization works
- systemic methods and tools for strategy, planning and communication
- statistical knowledge of processes
- analyzing root causes instead of reacting to ‘symptoms’
Risk, like change, is something we have to learn to live with. Our best defence is not reactive but understanding how our organizations work and what are the implications, system wide of managerial decisions. We will be looking at an intelligent management of risk in more detail from a Deming and Goldratt perspective in future posts.
About the Author
Angela Montgomery Ph.D. is Partner and Co-founder of Intelligent Management, founded by Dr. Domenico Lepore. Dr. Montgomery’s new business novel+ website The Human Constraint looks at how Deming and the Theory of Constraints can create the organization of the future, based on collaboration, network and social innovation.