The four mistakes when an executive talks about ‘risk’

Published: 25 September 2019 By Harvard Business Review 2016

The four mistakes when an executive talks about ‘risk’

Good entrepreneurs are good at managing risk, they don’t just seek it out

 

Sometimes people will do everything right and still have a commercial failure.

Sometimes people will do everything right and still have a commercial failure.

 

In order to innovate, you first need to reframe how you talk about risk. When the word risk comes out of an executive’s mouth, it’s usually accompanied by one of these four mistakes.

1. Assuming that taking action is the biggest risk: 

In many cases, the riskiest action is, in fact, inaction. The pace of change in today’s world means that standing still leads to falling behind current and emerging competitors. The way in which many companies make investment decisions blinds them to this reality.

2. Believing that good entrepreneurs seek out risk:

They don’t. Good entrepreneurs recognise the inherent risk of creating new businesses. What good entrepreneurs excel at isn’t taking risk; it is managing it.

3. Celebrating failure to encourage risk taking:

There can be no innovation without risk, as innovation necessarily has uncertain outcomes, some of which can be bad. However, that doesn’t suggest a blanket endorsement of failure. In many cases, failure is bad. A lack of effort or preparation should never be celebrated. Rather, executives should recognise that the path to innovation is never a straight line, so fumbles, false starts and sometimes failure are part of the game.

4. Thinking that rewarding success will boost risk-taking:

Limited compensation is not really what holds innovation back in most companies. It isn’t the lack of rewards; it is the presence of punishment. The uncertainty that accompanies innovation means that sometimes people will do everything right and still have a commercial failure. And if that result carries stiff punishment, don’t expect anyone to ever take any risks.

– Coypright Harvard Business Review 2016

 

Previously published in The Irish Times.

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