Risk Appetite

Risk.

Don’t talk to the CEO or the CFO, in particular, about risk.

Risk one of those things where, particularly in large organisations, people don’t like risk. They have risk committees. We try to work out what the risks are and we avoid those things and I’m not talking about health and safety. Safety first. A hundred percent. Always.

However, from a business perspective, if you don’t risk, you don’t innovate. If you don’t innovate, you die. It’s as simple as that

So we need to get our head around creating an environment where risk is part and parcel of the things that we do in order to be able to innovate. So no risk, no innovation. No innovation, no differentiation. No differentiation, you get to play a different game because you have no clients left.

So we need to think about risk but, I think, within a box. If we just create risk for no sake, you know, there’s all sorts of downside for that. People innovate around their own areas of expertise and create all sorts of risk that’s just not appropriate.

So when we’re thinking about innovation from a risk perspective, it’s really around finding those things that are related to our existing customer set or existing capability that allow us to move and to change and to create things that are incrementally an improvement.

And those are less risky than the big jumps, and the big pivots, and the big changes.

Sometimes those things have to happen, particularly if the status quo is being fundamentally challenged. We might be trying a new product into a whole new market which you might be valid for your future sustainability.

So how do you manage that risk?

For me, it is defining the parameters and trialing things, having a go, be willing to invest a certain amount of time, resources, and effort on trialing something. See if it works. What can you learn?

You know, have a run at something.

Wow, this is a great opportunity you might find out. Or you might go, “You know what? It’s absolutely not for us.” Or, “It’s going to take longer. Do we still want to do it?” And so getting into that action learning cycle, deciding how much in the way of resources do you want to allocate to finding out about this particular risky venture, whether it has some validity or not.

So risk, put up with a little bit of chaos but put it in a box. Nice firm parameters.

How would we know whether this is successful? What are the KPIs that we’re looking for? What are the outcomes that we’re trying to do? So risk, absolutely. A hundred percent. Go for it. Take risk but do it in a way that is measured. Measured in the fact of “whys”, but also measured in the fact of what is it we’re trying to achieve. How will we know? What are the metrics behind this to understand whether this risk is worth taking or not?

So risk it, but risk it wisely.