Enough Risk? (#30)

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Practically speaking, the business of life is all about managing risk. Whether managing a home, a multinational corporation, a small nonprofit, or the big business of government, managing risk effectively is the difference between success and colossal failure. Therefore, it stands to reason that a primary role of leadership is effective risk management.

Enterprise Risk Management (ERM) has become somewhat of a buzz word these days, but don’t let that intimidate you. ERM is simply a systematic process of identifying risks and recording your approach to managing them. A risk is nothing more than an event which could alter your ability to achieve your plans and is typically evaluated against your strategic objectives (such as your mission, vision, values, or goals). The term risk can carry a negative connotation, but in fact, many risks are positive. For example, the risk of the product launch being much more successful than we anticipate, causing inventory depletion. While somewhat subjective, a risk – or more specifically a risk score – is calculated as the product of the likelihood of an event happening and the level of impact of the event, should it occur. We each do this analysis routinely in our heads every day, at home and at work, Enterprise Risk Management is just the process of writing it down and tracking the risks over time.

The key to effectively managing risk and opportunity is to know your risk tolerance. In other words, what is the right level of risk for the organization? Some degree of risk is healthy, spurring growth and continuous improvement. I would call that Enough Risk, the right amount of risk to maintain a healthy balance within the organization. Too much risk is a drain on resources and could put the entire enterprise in jeopardy. Too little risk causes stagnation and stunts innovation. You need some risk, enough risk. Therefore, I prefer to call this process Enough Risk Management.

To find your Enough Risk Management point, follow these steps:

  1. Brainstorm your risks and write them down.
  2. Write out a brief definition of the risk.
  3. Develop an evaluation scale, with brief definitions for each number on the scale. (I like a whole number scale of 1-10 for both probability and impact.)
  4. Score each risk for both its probability of occurring and the impact it would have should it occur. (You would want to include key leaders and stakeholders in at least this part of the process, preferably the whole process.)
  5. Calculate the risk score by multiplying the probability score by the impact score.
  6. Determine your Risk Management Strategy for each risk. (See the Key Strategies below for more information.)
  7. Identify a Risk Steward for each risk.

There are basically four Key Strategies, or options, for managing risks:

  • Reduce it – Is there a reasonable way we could buy this risk down or minimize its impact? (An example is taking out insurance on your home or vehicle.)
  • Reassign it – Is there another person or entity who would better manage this risk?
  • Retire it – Is there a way to eliminate the risk altogether by rethinking the current state?
  • Reward it – Make a decision to accept the risk and reward those who steward it well.

Whether personal or corporate, identifying and managing risks are a part of everyday life. So, take time this week to start making a list of the risks in your personal life and organization. To help you take the next step, download the free Enough Risk Management Tool on the Resources page.

Brave Enough to Lead? (Post #6)

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Culture and Strategy: 7 Characteristics Needed to Lead Through Change

Management guru, Peter Drucker, is credited with saying “culture eats strategy for breakfast.” If this is true, then what should leaders do to ensure their organizational strategy, which is in the best long-term interest of the organization, doesn’t fall prey to the ravenous appetite of a culture committed to the status quo.

Please don’t mistake managers for leaders. Managers and leaders are often thought to be synonymous, when in fact they are quite different. While some managers are also leaders, a leader need not be a manager. A manager’s role is to manage day-to-day operations and ensure homeostasis within the organization. Managers preserve the organization’s ability to operate. Therefore, almost by definition, managers tend to naturally support the status quo. One may say their very livelihood depends on it.

A leader, on the other hand, recognizes the need for organizational improvements, growth, and adaptation. Leaders see trends and are not afraid to challenge the status quo to change for the long-term best interest of the organization. Courageous leadership even stands in contrast to the status quo, pointing out fatal flaws in cultural norms that will not serve the organization well in the future. This however, is exactly what Peter Drucker warns us about.

Whenever a leader tries to implement new strategy – to execute new business process or modify the status quo – that leader will come up against the current organizational culture. Changing cultural paradigms is the hardest, and most often overlooked, work of a good leader. This is a significant undertaking which requires good leadership and strong executive support.

To effectively navigate organizational growth and change, leaders must be:

  1. Brave. Going up against the negative aspects of current culture is not for the faint of heart. When executing a new strategy, people will come out of the woodwork to push back. So, leaders must be brave in setting the course and tone that reinforces new paradigms rather than caving to pressure from the old culture.
  2. Strategic. Quality leadership requires true strategic thinking. Leaders must ask questions and set the tone, especially on the senior management team, that supports open conversation, minimizes “turfism”, and insists that no question is off limits.
  3. Thinking long-term. Far too often in today’s fast-paced environment managers and leaders focus on the short-term. While the quick win, quarterly sales goals, or getting through the next election cycle may be necessary, true and lasting change must transcend the crisis of the day and be in the best long-term interest of the organization.
  4. Vigilant. Proactively watch for negative culture to rear its ugly head. When existing culture and strategy collide – and they will – be brave enough to truly investigate what’s going on, reinforce the new strategy, and use the collision as a learning opportunity to set new cultural expectations. In other words, check it out and then redirect energy into positively supporting the long-term organizational goals.
  5. Uncomfortable. Be willing to confront negative culture productively and not fall into the trap of a knee-jerk reaction (i.e. leader reaction vs. manager reaction) that reinforces the negative aspects of existing culture. Remember that the current culture will feel right and natural because that is what the organization is used to, but reinforcing it is detrimental to long-term organizational growth. Discomfort is part of growth, but it is also a sign that breakthrough is near if you keep focused on strategy. Know when it is healthy to be comfortable with the uncomfortable.
  6. Humble. Beware of the leader who is more in awe of their title than the weight of their responsibility. This senior leader may appear to have integrity but is really driven by pride and their ego rather than organizational health and longevity. He may talk the talk but will also undermine corporate strategy for personal and professional benefit. True humility in leadership means putting the organization and team needs first. A leader (or team) lacking humility will secure a win for themselves by undermining the strategy when the change heats up. Be willing to be humble and insist on humility among the leadership team.
  7. Committed. Don’t assume leaders around you, even those nodding in agreement, really see the need for organizational improvement or are brave enough to push against current culture. This is especially true of senior leaders who have been in the organization for a significant length of time. They may be heavily entrenched in the organizational status quo themselves. As the adage goes, “fish are the last to notice the water.” This is likely to be even more difficult since they also may be long-term friends with employees entrenched in current culture. This is likely to pose a difficult choice for these managers: support their friends by reinforcing the status quo and be praised for pushing back on the new strategy OR (assuming they can even understand the need for the new strategy) show leadership necessary to advance the new strategy and produce long-term organizational health, which friends may see as a betrayal of both their friendship and the history of the organization. Don’t underestimate the difficulty of this choice. Check in with “old timers” often and if you can, determine if they are truly in support of the new strategy. If not, help find them a new role where they can contribute to the organization but won’t be able to thwart good progress.

In conclusion, when implanting new strategy for the long-term health of the organization, be on your guard and your best leadership behavior…or culture will have your strategy for breakfast.

Not Enough Good Leadership (Post #4)

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Good leadership can often feel like a difficult maze of trial and error, navigating endless issues and convoluted drama. But, I contend, that nothing is as rewarding a good leadership and nothing transcends every area of life like leading well. Whether leading a major corporation, a medium-sized urban church, a rural community group, or a household, leadership pays off in big ways.

I am often saddened by the lack of good leadership I see in the world around me. People in high positions that have been grossly promoted beyond their leadership capacity and without a hunger to grow and learn to lead better. I admit, leadership is a journey. One never really “gets there” but it is in the growing that we learn to do better, lead wiser, dust ourselves off, ask forgiveness for our failures, and move forward better than we were before.

I believe we owe it to the people around us to keep learning how to lead better…the people and organizations you lead deserve the best you can give and they are worth the effort!