Risky Business

15 March 2010

Leaders must accept and even embrace a certain level of risk and uncertainty in their business. That's the view of Clare Roberts, partner, head of Global Market Development at Oliver Wyman Leadership Development, who believes that finding a comfortable balance between chaos and control will leave you better placed to redefine risk as an opportunity.

Business has become more complex, diverse and uncertain. The global marketplace we operate in brings with it multiple risks: competition from emerging markets, worldwide economic uncertainty, new laws and regulations, the conflicting needs and demands of different groups of customers and investors...I could go on. Many leaders worry about what's going to happen next, often because they do not know what's going to happen next. And even when they do know what's happening, they often feel it is spiralling beyond their control.

As a leader, you must accept and even embrace a certain level of risk and uncertainty in your business. For many of us, this is quite a challenge. However, if you can find a comfort level between chaos and control, you will find you are better placed to redefine risk as opportunity.

Whole leadership

Uncertain times call for 'whole leadership'. Whole leaders use their head to set strategy, their heart to connect with the world and their guts to make instinctive and intuitive decisions based on clear values. The 'head, heart and guts' model of whole leadership was first defined by Peter Cairo, David Dotlich and Stephen Rhinesmith in their 2006 book, Head, Heart and Guts: How the World's Best Companies Develop Complete Leaders. In 2009, the authors followed this up with Leading in Times of Crisis: Navigating Through Complexity, Diversity and Uncertainty to Save Your Business. Redefining risk and uncertainty is one of the key themes of the second book. The authors advocate that successful risk leadership involves using your 'head' to understand the risk, your 'heart' to feel its impact on yourself and others and your 'guts' to act on your beliefs. They argue that the smart leaders who successfully combine these skills are well placed to take advantage of the opportunities our volatile global marketplace presents.

"Whole leaders use their 'head' to set strategy, 'heart' to connect with the world and 'guts' for decisions."

Every leader has strengths and weaknesses when approaching risk and uncertainty. Many believe they can out-think risk and that uncertainty can be compartmentalised and controlled. This strong outthink 'head' approach is common and isn't necessarily wrong. It is, however, an incomplete response. Often it feels good because it represents action. In order to be really effective, a 'head' response should be combined with 'heart' and 'guts' responses. Leaders should use their hearts to create a culture where people embrace and communicate potential risks, and their guts to question their own assumptions before making bold decisions.

Find your optimal risk level

Most senior leaders agree that certainty and uncertainty have an optimum level. You need to define the optimum level for your business, and communicate this clearly to the people around you. The more senior you are in your organisation, the more risk and uncertainty you need to tolerate in order to ensure that you are open to the opportunities that come with risk and uncertainty.

Studies have shown that leaders vary greatly in their tolerance for uncertainty. In today's fact-based world, many leaders feel more comfortable relying on investigation and scrutiny than intuition and hunches. However, most business decisions are riskier in the current climate. We used to be able to rely on good analysis carried out in a stable environment to ensure low-risk decision making. Today, although the analysis is still necessary, we can no longer rely on it the way we used to. The most rigorous analysis did not prepare us for the banking crisis, and it will not prepare us for external forces beyond our control such as war or natural disaster.

Personal risk

As a leader, you do not just need to be aware of organisational risk. You also need to be aware of personal risk. All leaders have their own individual risk profiles. Your personal strengths and weaknesses and your tolerance for risk and ambiguity may be very different from other leaders in your organisation. Some leaders may be very aware of the risks facing a particular project but unaware of their personal risk profile. They do not understand their biases and personal assumptions. Maybe they have a strong desire to please others - a desire that prevents them from taking gambles, no matter how smart that gamble may appear. Or perhaps their ego drives them to rush into new markets because they believe they can succeed where others have failed.

Some leaders respond to uncertainty by trying to control risks. This desire is understandable - many leaders seek to create order out of chaos. However, now that a certain degree of chaos is inevitable, all leaders need to learn how to see opportunities in the midst of turmoil.

"If you embrace risk, you stand a much better chance of seizing its inherent opportunities."

Take time to reflect on your personal approach to risk. Think about your own biases and assumptions. For example, if you are a strong 'head' leader, you may feel it is particularly important to research the collective wisdom about the risk you are facing. Strong 'heart' leaders will create a climate of openness and trust where others feel empowered to voice their concerns. 'Guts' leaders may believe that their instincts never let them down and that a conservative approach to risk can only ever results in lost opportunities.

If you embrace risk wholly, you stand a much better chance of seizing its inherent opportunities. Wrap your mind around the risk, feel its impact on yourself and others, and use your bedrock beliefs to act on it. This way you may find you uncover opportunities for innovation and even redefine your competitive marketplace.

Clare Roberts of OWLD.