By Oren Harari
Date: Jul 27, 2007
Strategy appears "easy" only if you copy someone else's, but that's potentially the riskiest strategy of all. Despite all our affection for concepts like innovation and entrepreneurship, however, we are often strikingly risk averse, even when we're dissatisfied with the status quo. Instead, the second rule posits that we need to reassess risk and then take a prudent risk on risk.
Strategy guru Gary Hamel has dryly noted that strategy appears "easy" only if you copy someone else's, but that's potentially the riskiest strategy of all. Despite all our affection for concepts like innovation and entrepreneurship, however, we are often strikingly risk averse, even when we're dissatisfied with the status quo. We fear the negative consequences of risk, even as we ignore the even more negative consequences of staying the course. Instead, the second rule posits that we need to reassess risk and then take a prudent risk on risk.
As leaders, we should always undertake due diligence before taking action, but there's no way to cut all risk if you're breaking new ground in products, service, marketing, or distribution. What all this means, says Ralph Shrader, CEO of the consultancy Booz-Allen & Hamilton, is that "leaders need to become comfortable with imperfect data" when making decisions about which markets to enter, which projects to support, which suppliers to enlist, which acquisitions to make, which assets to unload, and so on. Why? Says Shrader, "Time was, when faced with a decision, the chief executive officer and board of directors could set up a task force to look at the options for a matter of months. Today failure to decide and act quickly can pre-empt options altogether."
Once your preparation provides you with basic intelligence, then trust your instincts! Colin Powell suggests that leaders should postpone decisions and seek more information only if they believe they have less than 40 percent probability of making the right decision with the amount of information they currently have. But, he says, "Once the information is in the 40 to 70 percent range, go with your gut." When leaders insist on studying a problem until they have amassed sufficient information to be absolutely "sure" of making the "right" decision (the 70 to 100 percent range), they increase the probability of making the wrong decision—wrong not in terms of intellectual truth, but wrong in terms of competitive success. That's because even while the organization is doggedly accumulating yet more data and information, the market battlefield changes. New competitors, new technologies, new value propositions, and new products emerge from elsewhere. Or a fleeting, wonderful market opportunity is lost, and a nimbler competitor capitalizes on it.
As Air Force Col. "Hoot" Gibson argues, you might think that you're in great shape if you operate in a zone of rosy 100 percent certainty. But in real life there's no such zone; if you believe you're in it, then you're probably in a perilous state of routine and complacency. Says Gibson, "Ninety percent is inside most people's comfort level, and 80 percent doesn't induce much sweat." That means that the closer you try to operate in a near–100 percent certainty zone, the less breakthrough action you'll be motivated to take. Rapid response, imagination, and entrepreneurial initiative happen when leaders sweat a bit as they deliberately go beyond their comfort level.
I want to add one more ingredient to this discussion: love. Billionaire Mark Cuban, the owner of the Dallas Mavericks basketball team, cut his chops on start-up ventures like MicroSolutions, Broadcast.com, and HDNet. Cuban's philosophy on risk begins with an interesting ingredient. "First, I ask myself if this is something that I would enjoy doing." It's important, he says, to "find something you love to do." If you love what you do, you're more likely to make it successful, and if you fail, then, as Cuban says, "at least you love going to work."