Is Intelligent Risk and Oxymoron? There is an implied contradiction in the term – Intelligent risk. An intelligent risk is one deemed worth taking, not to be avoided. Risk is everywhere in our lives and we deal with it on the personal level daily. Unfortunately, but rightfully so, risk is usually thought of as something bad, undesirable, and to be avoided. We have health insurance, life insurance, long term care insurance, auto insurance, and others, all to ensure us against catastrophic financial loss.
Baldrige Award
Taking intelligent risk is a leadership responsibility, described in the Leadership Category of the Baldrige Excellence Framework. More specifically, intelligent risk is a Leadership responsibility requirement for ensuring a successful organization by creating an environment for innovation, intelligent risk, achievement of strategic objectives and organizational agility. A component of Leadership is creating a focus on action to achieve intelligent risk taking. While intelligent risk has been a Baldrige requirement for some time, the current Baldrige Excellence Framework (2017-2018) has a strengthened emphasis on Enterprise Risk Management, and includes questions related to managing strategic risk.
What are intelligent risks conceptually? They include both technological and organizational innovation to help the organization succeed in the future. Needless to say, a successful organization will have the capability to address both risks and opportunities in its market. Intelligent risks are strategic in nature and may be in the form of opportunities developed during the strategy development process. Confronted by multiple strategic opportunities to pursue, intelligent risks arise from deliberate consideration of relative risk associated with opportunities, such as financial risk, but should include other risk perspectives such as the availability of effective processes to enable success. An intelligent risk is an opportunity that has been sufficiently vetted on multiple dimensions, such as financial, fit with vision, values, capable processes, and human capital, and then making the decision that taking such a risk is an intelligent choice.
Encouraging the taking of intelligent risks in a risk-averse culture will most likely be non-productive. Leadership has the mission of creating an environment for taking such risks.
Enabling Factors
But it does not stop there. There are a number of other enabling factors associated with the taking of intelligent risks. Is there a budget for innovation? How are strategic opportunities identified? How are non-financial resources made available? And, when do you pull the plug on the pursuit of an opportunity when it may not be successful – to redeploy resources to more likely candidates?
Finally, are results of intelligent risk taking measured, and monitored over time? This provides a necessary feedback loop to the innovation – risk taking process.
Amazon is a very successful company that takes risks, and fails often. It is disrupting retail as well as entertainment. While Amazon pursues risk, it also cuts its losses quickly when its “intelligent risk” does not pan out. Some of its biggest failures include Fire Phone (often quoted as a $170 M loss), Amazon WebPay, Amazon Webstore, Amazon Destinations, and others.
The lesson about intelligent risk from Amazon – create a culture that embraces risk, with the caveat that failing faster is more desirable than failing slowly.
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