Getting employees to take risks... which are good

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The WSJ had a great article today on the challenges managers have in getting employees to take risks. It profiled a number of companies wherein they had been in survival mode for a long time, and employees had gotten used to being cautious. As one managing director told me at an overseas bank where I worked in the US operations, "the nail that stands out gets hammered." In his case, I believe it was meant to be a rebuke - I am usually the nail that stands out for advocating change and risk - but the mindset of being cautious was clearly there.

The article highlights the tension between being cautious to safely navigate a business through stormy waters, especially recessions and bankruptcies, and the risk-taking culture required to generate innovative change and therefore growth. Managers trying to turn a business from the first mode into the second need to find a way to reassure staff that risk-taking will be rewarded, or at least not punished. One of my earliest mentors used to reward employees for risk-taking that failed, and reward them even more for risks that succeeded. Quite simply, taking a calculated risk deserved a reward (although success deserved greater reward).

It is nearly impossible to have a culture that is both cautious and risk-friendly. After all, "cautious" is simply another word for "risk-averse," which is the exact opposite of "risk-friendly." A business can manage its risks, can train employees to evaluate the risk - what is the upside, what is the downside, what are the probabilities of each (basic understanding of the differences between probabilities and expectations are important - see Nassim Taleb's "Fooled by Randomness") - and how to mitigate the downside, but in the end, either employees hunger for the opportunity to take a chance on an upside, or they don't.

One approach is that of the new CEO of Extended Stay America, who gave out, "get out of jail free" cards. It is a nice innovative idea, but it only works if employees already hunger for the risk. The cards remove the personal downside, but don't incentivize the taking of risk itself. My old mentor's approach - rewarding risk-taking itself - is a somewhat better approach. Ideally, though, you simply hire people with a hunger and drive to make the world (starting with your company) better. I recently read of a company that checks to see if a prospective hire will pick up a napkin off the floor. While they are looking for how much the employee cares about the overall environment, a sense of responsibility beyond the mercenary self, part of that motivation is the desire to make the world (and office) a better place.

The one issue I have with the article is that it makes a big error: it assumes that risk is good only for growth, while caution is good for steadying the ship in turbulent waters. I would argue that risk is goo in both scenarios. During hard times, while everyone else is trying to stay afloat and getting very cautious, it is finding new sources of growth - new markets, new products, or taking market share away from competitors - is often easier than when everyone is after them.

I believe risk-taking is best in good times to find growth, and in bad times... to grow out of them.