Run That Risk!

As we sort through the economic ruins wrought in part by irresponsible speculation, an increased appetite for risk may not seem like the best medicine for what ails us. But maybe we should think again.

According to an article in the McKinsey Quarterly, mid-level managers are making timid, scaredy-cat decisions and passing up crucial opportunities for profit. The result is underinvestment that can “ultimately hurt corporate performance, shareholder returns and the economy as a whole.”

The remedy, write the authors—Tim Koller, Dan Lovallo and Zane Williams—is to instill a company spirit of sensible risk-taking. For instance, “managers should be evaluated based on the performance of a portfolio of outcomes, not punished for pursuing more risky individual projects.”

We’ve written often about the nature of risk here at the Drucker Exchange, for Peter Drucker dismissed the idea of taking risk for its own sake, and he encouraged planning as a means to cope with risk. But he also knew that no organization can completely avoid risks, viewing them as inherent to any successful venture.

“The attempt to eliminate risks, even the attempt to minimize them, can only make them irrational and unbearable,” Drucker warned in Technology, Management, and Society. “It can only result in the greatest risk of all: rigidity.”

For this reason, learning how to deal with risk, and instilling such lessons in management from top to bottom, is crucial. As Drucker wrote in Management: Tasks, Responsibilities, Practices: “The end result of successful strategic planning must be the capacity to take a greater risk, for this is the only way to improve entrepreneurial performance.”

So as burned as you might be by the past risks you or others have taken, toss yourself back in the fire.

How do you incorporate the right amount of risk-taking into your business or your life?