Charles Darwin said: “It is not the strongest of the species that survive, nor the most intelligent. Rather, it is those most responsive to change.”
I am perhaps unduly acknowledging his prescience for spotting the solution to our current economic situation but his observation is as relevant to modern business as the animal kingdom.
Risk is a four lettered word that has become our mot du jour. There is a huge industry devoted to managing risk in the workplace, from our environment through to our financial stability. It’s a wonder any of us contemplate leaving the house there is so much risk about.
Our perception of risk is that it has become something to be avoided and minimised. The time has come to understand that success in the long term, means understanding that risk taking is a powerful source of opportunity and reward.
Ever since our early seafaring years, the idea of risk contained a powerful sense of opportunity and reward as well as downside and danger. I seem to recall that in my youth Risk was a board game about taking over the world.
Indeed, it is not as if we are pathologically averse to the idea of risk in other parts of our lives. Extreme sports, theme-parks, horror movies and countless other thrilling activities point to the fact that we are in part programmed to enjoy doing new things and taking risk.
I have long thought that one of the principal reasons why sport has become so popular is that we have so successfully removed risk from our day-to-day existence that we really do thrill to see competition where everything is on the line.
It is no coincidence that our ancient fascination with games of chance was a major driving force behind the emergence of probability theory.
Even now, people are gambling online in numbers unimaginable some years ago, and I bet (even I cannot help it!) that even if investment products and pensions did return, we would still seek the thrill of a win-lose situation.
So where has it all gone wrong for business? Well in part we have always been hard-wired to be risk averse. Trust is an emotion we value in all relationships over any other. As a species, we have realised that co-operation has underpinned our success. But over and above that has been our growing predisposition for the path of least resistance.
In growth markets, where it has been remarkably hard to fail, a smart and simple risk strategy has been to simply protect against catastrophic downsides and then let the engine run.
Finally, the extraordinary innovation in risk management tools, which allow sophisticated hedging, repackaging and pricing of risk has meant we are out of practice with trusting our instincts.
So culturally government and big companies cope with risk by acting conservatively. Discretion and prudence may be sensible ways to view a complex world but they will not win you a dog fight. The rest of the world is on our heels doing things as quickly, more cheaply.
But it is remarkably easy, when you have a lot to protect, to become overly conservative. Conservatism at some point simply has to step aside and make room for growth strategies; the key is to know when to move.
So even if business today is faster-moving, more connected and increasingly global a bigger menu of uncertainties provides daring innovators with new opportunities to create upside risk.
It is clear that raising the barriers to entry in the good times is often counter-productive in tempting people to get new ideas off the ground when change is required in the down times. If we are not to undergo a ‘miners’ moment’ and see the meltdown of the mortgage industry in the UK, then we need a vision and climate that supports risk taking and quick adaptation.
Government needs to treat uncertainty as a powerful starting point for innovation and renewal, rather than simply as a threat to be managed.
In a constantly changing environment, the business that is optimally tuned for today’s environment very often struggles in tomorrow’s world. It is not survival of the fittest, it is survival of the most adaptable. n
