Strategy. Innovation. Brand.

Innovation: What’s Your Risk Profile?

Need a spreadsheet?

Quick. What’s your risk profile? Do you like to take risks in business? If you do, you’ll probably seek and consume information in very different ways than your colleagues who are more risk averse. That can be a huge obstacle to innovation.

I often ask my clients to self-assess their appetite for risk on a scale of 1 to 6. People who are very averse to risk give themselves a “1”. People who love taking risks give themselves a “6”. In most cases, my clients distribute themselves along a more-or-less normal curve — a few 1s and 6s and many more 3s and 4s. To innovate successfully, you’ll need people in every category. If you have only 1s, you’ll never venture anything. If you have only 6s, you’ll take far too many risks for your own good.

The issue is that people with different risk profiles also have different information needs. That can stifle communication and that, in turn, can stifle innovation. People who are generally risk averse (in a business sense), want much more information than those who are risk oriented. People who are 1s often want very detailed business cases before making a decision. They want to identify every possible risk in the proposed venture and have contingency plans ready. They also like detailed spreadsheets; lots of quantitative data makes them feel comfortable.

Risk-oriented people, on the other hand, are quite comfortable with less information. They believe that it’s impossible to predict the future. A detailed spreadsheet is no better at predicting the future than a rough-and-ready guess. Further, you can’t control every variable. So, why bother creating detailed spreadsheets and exhaustive business plans? You have to dive in and experiment to learn what will work and what won’t.

To innovate successfully, you need both risk-oriented and risk-averse individuals. They see the world differently and that’s good. Your risk-oriented colleagues can help you spot new opportunities. Your risk-averse colleagues can help you avoid stupid mistakes. The trouble is that the two types of colleagues don’t know how to talk to each other effectively. They have different information needs that are very deeply ingrained and will probably never change. As a leader, you’ll need to step in and serve as an interpreter between the two groups. By doing so, you’ll hear both sides, get a balanced view, and pick those innovations that are most likely to work.


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