Monday, February 2, 2009

How Leaders Take Risk – Part II

Washingtonj0397921jpg By 1786 George Washington, as he surveyed the national and international scene, was convinced that the United States was reeling towards disunion. Congress failed to retaliate when British outposts in the Northwest Territories were not given over to the United States, as mandated by the terms of the peace treaty. Foreign powers refused to allow American ships in West Indies' ports. Neither the local nor national government was able to cope when the people of western Massachusetts broke out in rebellion. To save the Union... again, George Washington took another calculated risk.

Washington understood that his reputation and honor had been cemented in history by eight years of bloody battles, ending with the liberation of America from the mighty British Empire. But if he now associated himself with a government that proved unworthy or incapable of sustaining independence, he felt his sacred honor would be hammered into oblivion. As Washington calculated the risks, he concluded "the good of my country requires my reputation to be put at risk." (1) He marched off to Philadelphia (Washington, DC had yet to be built) at the invitation of the Congress, which promptly and unanimously voted him the first president of the United States. The rest is history.

As mentioned in the previous blog, Professor Kathleen Reardon, from the University of Southern California, interviewed more than 200 leaders who acted courageously. She discovered what Washington practiced - that the heart of courage in organizations is risk calculation. (1) Professor Reardon's studies show that individuals who become extraordinary business leaders make bold moves that have been thought through carefully. They take calculated risks by implementing a six-step decision-making methodology described below. This blog will share specific examples on the last three steps.

1. Clarify Goals.

2. Evaluate Goal Importance.

3. Build Support.

4. Weigh the Risks and Benefits.

5. Select the Right Time.

6. Develop Contingency Plans.

4. Weigh the risks and benefits of different approaches. The fourth step in taking calculated risks involves trade-offs. Who stands to win? Who stands to lose? What are the pros and cons of the alternatives? What is the probability that your actions will affect a promotion?

I collapsed my courage when I was a salesperson for Siemens Medical Systems. Our vice president of engineering announced a new software release and provided a preliminary list of its features and benefits at a trade show. One particular feature disturbed me greatly. They were planning to display images of the heart in a way I absolutely ‘knew’ our cardiology customers would not accept. I knew this because I just spent five years publishing and presenting research in the cardiology department At UCSD Medical Center. By the end of the meeting, I was fuming. I discussed the issue with a few of my sales colleagues and they agreed with me. However, in a private meeting with my boss, he told me that it was not my business to tell the engineers how to do their job. He also reminded me that the senior leadership in our company did not take kindly to salespeople "interfering" with product development. He was right on both counts. I chose to say nothing. The software was released, our customers rejected it, sales went into a tailspin, and I was vindicated. Or was I? Did I do the right thing?

Probably not. My courage collapsed. If I had weighed the risks and the benefits of various options, I think I would have arrived at an alternative approach. For example, I could have quietly surveyed a large number of my cardiology customers regarding their display preferences. Maybe a few sales colleagues would have agreed to survey their customers. Measurement eliminates argument. Armed with data, I could have quietly called a few of my friends in engineering and asked them the how to disseminate my findings. Had I weighed the risks and benefits, I might have been more courageous.

5. Select the right time. Courageous leaders understand that risky decisions have unique gestation periods. Sometimes quick thinking and action are needed. Other times, deliberate and thoughtful calculation is the prudent path. Ask yourself questions such as, "Why am I pursuing this now? How long would it take to become better prepared? What are the pros and cons of taking my time? Could I take a few small steps now that would lead to courageous action later? Am I emotionally and cognitively prepared to take this risk now? Do I have what it takes at this time to take this risk?” Leaders who take calculated risks successfully think about timing by answering these questions.

6. Develop contingency plans. Professor Reardon's research shows that most people only make one attempt. A knock at the door brings no answer, so they give up. Successful risktakers knock on the door, ring the doorbell, call from their cell phone, go around back, and if the goal is important enough, they sit on the front steps. In other words, they have backup plans.

I was coaching an executive to coach/mentor his managers more often. When a situation arose that demanded this executive meet with an important customer who was not pleased with his service, I encouraged the executive to coach his manager to handle the meeting. When the executive said it was too risky to let his manager lead the meeting, I asked him what backup plans might he put in place if the meeting took a bad turn. He said he could intervene by asking more questions, calling for a break, or taking over the meeting. By developing contingency plans, the executive was able to take what he considered a calculated risk.

These are the six steps commanding leaders like Washington take when they need to make risky decisions. This process helps them execute, so that they fulfill their commitments and deliver important projects and goals on time. It will do the same for you. Which ones do you need to work on?

Keep eXpanding,


1. Edmund Morgan; The Meaning of Independence, University Of Virginia Press, 1976, page 48.

2. Kathleen Reardon; Courage as a Skill, Harvard Business Review, January 2007, 58 -- 64.

1 comment:

Eshan said...

Having read this I thought it was really informative. I appreciate you finding the time and energy to put this content together.