If we look back over time, we see a lot of small, entrepreneurial organizations that have gained advantage over large, behemoth organizations. We look at Amazon now challenging Wal-Mart, and they started from an idea from Jeff Bezos’s mind. He thought to put this stuff online and sell it out to the world because it’s easier to get to. And it’s this type of thinking in these small entrepreneurial organizations that gives them a huge advantage from an innovation standpoint. In large organizations, the opposite is true – they have become protectors of wealth. Large organizations are risk averse types of organizations afraid to rock the boat. But organizations don’t learn by doing something they already know. They learn from failure.
Russell Ackoff really put this in simple terms. He referenced something called Errors of Commission, which is doing something that shouldn’t have been done versus errors of omission, which is not doing something that should have been done.
And it’s the second one, errors of omission, that really becomes the problem for organizations. So what do most executives fear? Well, it’s risk and they try to eliminate it rather than embrace it. And there’s a certain mindset associated with an averse type of mentality in larger organizations. By virtue of them failing to innovate in today’s environment is even riskier. But risky behavior in an organization is going to get you in trouble – it is not a safe play.
And so what ends up happening is everybody plays it safe in the organization. Humans are risk-averse by nature. This comes from neuroscience. We know that our brains don’t like risk and they don’t like bad outcomes. And when you get a bad outcome, your brain says, don’t do that again. This is something that we have to fight, especially in these large organizations, because the entrepreneurial ones say, what do I have to lose? Executives whose job it is to look to the future need to consider these errors of omission. What are they missing by not doing something?
And I think there are important ways to mitigate the risk that every executive should consider. And the place to start is by looking at their purpose. Are we doing something in line with our purpose?
The second thing that you need to consider then is the scale of things. “Risk” gets a bad reputation because executives attack it on too large a scale. Usually, you can run a test on a small scale before blowing up the entire system. Rarely are you forced into all-or-none thinking.
The third thing is the finality of a decision. In other words, executives make the decision and they move forward on it and they don’t go back to it. A decision to do something shouldn’t be final. It’s a learning opportunity. Executives may need to refine, scrap, or pivot on an idea.
And so this leads to the fourth thing is that we need to begin to record what is happening in our decisions. Most organizations don’t record even their large decisions. What they should be recording (at a minimum) justification for the decision, assumptions they made, data used in making the decision.
Then the fifth thing, you need a method for all this stuff. Do you have a method for decision-making? Do you have one for innovation? Do you have a method for an organizational redesign? Most don’t and typically “wing it.”
If you don’t have a method to mitigate risk – fear will often prevail. And let’s be honest you need to take risks. Does this sound like your organization? We offer both online and advisory services to help you mitigate risks to grow.