Encourage calculated risk taking

Burned by the unfortunate choices made by a handful of reckless decision-makers, and sensitized by the scandals which have shaken the very foundations of the business community, many companies have decided to design specific processes to better control risk. These very laudable efforts have often proven beneficial. British Petroleum, for example, significantly improved the return on its exploration investments by instilling more disciplined processes. BP engineers, hoping to strike it big, used to be willing to invest huge sums in oil exploration based largely on their intuition. However, by setting objectives like “zero dry wells” and applying strict criteria to ensure the attainment of these objectives, BP dramatically reduced the number of fruitless drilling operations.

Many organizations, however, are so anxious to protect themselves that they end up institutionalizing excessive caution, which in turn limits creativity, stifles innovation and stunts their ability to respond to environmental shifts or capitalize on new opportunities in a timely manner. As one manager emblematically complains, “We’re much more than just careful; no one is capable of making any decision at all. We analyze everything to death. We have to ask everyone up and down the ladder what they think about every little thing, and sometimes even the heads of other divisions! How can you hope to innovate under such conditions? Lucky for us our competitors have the same problem!”

In fact, a combination of phenomena may push people to be too conservative, including deeply embedded human reflexes that naturally discourage risk taking, overzealousness on the part of organizations to penalize failure, and an increasingly uncertain professional environment where danger seems to lurk behind every corner!

A growing number of companies, however, are now beginning to realize that rekindling the spirit of initiative and giving people the courage to take calculated risks is critical to their short-term performance and long-term survival.