Four Reasons to Encourage Employees to Take Smart Risks

10/4/13Follow @metricstream

The economic downturn and subsequent market volatility have made risk into a four-letter word. Employees, in particular, are growing increasingly risk-averse, afraid of layoffs and the prospect of extended unemployment. Many of them opt to be cautious rather than brave, to stick to the status quo, and to keep their heads down, rather than challenge the norm.

Unfortunately, a number of companies have subtly encouraged and institutionalized this kind of risk-allergic behavior. What they don’t understand is that risk and opportunity are two sides of the same coin. Striking the right balance requires taking calculated risks where the upside far outweighs the downside.

Having worked with multiple organizations in several capacities—as an employee, executive, or collaborator—I have realized how important it is for businesses to encourage their employees to take smart risks. Here are four reasons why:

1. Risk-taking is critical to a culture of innovation

“Why not go out on a limb? That’s where the fruit is.”—Will Rogers

Innovation can be a company’s most powerful strategic advantage, especially in today’s crowded and competitive marketplace. But for innovation to occur, companies have to be willing to embrace risk and the possibility of failure. Encouraging this kind of an approach across the enterprise has to start with the tone at the top—if employees see their managers taking risks, and trying out new ideas and processes, they are more likely to follow suit.

Another good practice is to develop an experimental working environment where employees are encouraged to explore new ideas and possibilities. Sometimes, that means giving them a few hours or a whole day each week to work on their own pet projects. Other times, it means setting up online innovation forums where employees can collaborate with their colleagues to exchange ideas. Whatever the approach, companies need to send out the message that employees should be unafraid of pushing the boundaries of innovation, even if that involves taking risks.

2. Risk-taking builds employee confidence

“A ship is safe in harbor, but that is not what ships are for.”—William G.T. Shedd

When we at MetricStream wanted to increase the scale of our industry events in the governance, risk, and compliance sector, we were challenged to find good event coordinators. One of our program managers saw this as an opportunity to try crowdsourcing local event managers. The idea posed potential risks to our reputation, credibility, and even information security. But our program manager took the calculated step of providing all local event managers with a complete “MetricStream event kit” to maintain quality and consistency across global events. Not only was his initiative successful, but it was also cost-effective. Today, we use crowdsourcing for all our events.

Employees who push an idea, and transform it into tangible results are likely to feel increasingly confident about taking smart risks. That being said, a license to take risks shouldn’t translate into rash business decisions or reckless behavior. Employees should be educated on what kind of risks to take, when to take them, how to weigh the upside against the downside, and which areas of the business are off-limits in risk-taking.

3. Risk-taking spawns new ideas for revenue growth

“Pearls don’t lie on the seashore. If you want one, you must dive for it.”—Chinese proverb

3M’s Post-It notes, Amazon’s Prime loyalty program, British Airways’ descaling of toilet pipes—these ideas, which were dreamed up by engineers and other employees, have raked in billions of dollars in revenue for their companies.

One of the reasons why employees come up with such great ideas is because they interact with customers almost on a daily basis—be it while gathering requirements or resolving complaints—and therefore are well-positioned to understand market needs and identify new opportunities.

Many companies have realized this, and are devoting substantial time and effort to fostering a culture of debate and discussion—a “safe” environment where employees have the freedom to share their opinions and ideas, even if it means the risk of going against the grain, or opposing a more traditional view held by top management.

4. Risk-taking can improve customer satisfaction

“Do you want to be safe and good, or do you want to take a chance and be great?” —Jimmy Johnson

The Wall Street Journal tells the story of hotel brand Extended Stay America, where a hotel manager in New Jersey took the risk of cold-calling a movie production company when she heard they would be filming in the area. The film crew ended up booking $250,000 in accommodations at the hotel.

None of this would have occurred if it were not for Extended Stay America’s efforts towards encouraging its employees to take more risks, even if they made a mistake. CEO Jim Donald handed out miniature “Get out of jail free” cards to all 9,000 employees, telling them to call in the card when they took a big risk on behalf of the company.

What Donald knew is that employees need to feel comfortable taking risks that can improve customer satisfaction. If mistakes are made, so be it. The key is to educate and encourage employees to take calculated and intelligent risks, keeping in mind the best interests of stakeholders.

Conclusion

One of the great paradoxes of our time is that while people love buying the latest, coolest products that truly challenge the status quo (think iPod or iPad), they don’t always exhibit this passion for innovation and risk-taking at the workplace. Usually, it’s the stigma of failure or retribution that holds them back. That’s why it’s so important for companies to encourage, exemplify and reward smart risk-taking, both from the top down as well as the bottom up. If they don’t, businesses will simply grow stagnant and irrelevant. As many great leaders have said, the biggest risk is not taking any risk at all.

Shellye Archambeau is CEO of MetricStream, a Palo Alto, CA-based company offering governance, risk, compliance, and quality management solutions to enterprises in the pharmaceutical, medical device, high tech manufacturing, energy, financial services, healthcare, manufacturing, food and beverage, and automotive industries. Follow @metricstream

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  • Bryan

    I agree with everything you said and I feel that the only long-term successful organizations will be staffed with risk-takers. The challenge is building a culture of risk taking, without defining it as risk taking. Most people/employees view the term “risk taking” as making major decisions with high upside potential and also relatively high cost or downside. An organization with a culture that fits the risk taking mold will have employees constantly attempting little things for little gains. This behavior does two things; It develops continuous improvement and it builds confidence in risk taking so that employees are comfortable taking largerer risks. It is not realistic to hang a suggestion box and expect large cost saving ideas immediately.
    Empowerment is the key. I have worked in an empowered workplace and most employees felt that they had some control over their work and workplace. If I feel I am a representative of my company, and my language reflects “we” and not “them” when I speak of my company, I will view my risk taking as a home improvement exercise rather than a risk.

  • Helen

    Great article with detailed insights and examples on how companies can utilise their risk culture into profit making and customers’ satisfaction. Risk culture is the hottest topic in town at the moment with many quoting how important to define this, but few have written how this can be embedded into the company. Well done! ‘Bryan – how about risk acceptance as a name for risk taking?’