During a postgraduate class, a student asked a question about one on my articles about innovation and risk management which I was using as a case study as follows “can an organization stay risk free?” My response was simply “No. In fact, setting up that organization is a risk by itself and failure to set up would also be a risk.” The discussion progressed to the point where he rephrased his question to “can an organization then eliminate all risks” to which my question again was an emphatic “No” since, an organization can never eliminate all threats and opportunities within its operating environment.
Further discussions revealed that the gentleman who raised this question has worked in an environment where risk aversion has often been equated to prudence as well as a shield against uncertainty and potential failure. It has also been portrayed as an essential requirement for stability and progress. Within the organization, risk taking has been discouraged at best and frowned upon at worst. departure from the familiar and known is almost a taboo within that organization.
In previous articles, I highlighted that innovation is useful in management of upside risk. Those who dare challenge prevailing beliefs and explore uncharted territories are the ones that excel. Examples include Equity Bank’s courage to challenge the traditional banking models in Kenya in the early 2000s when banking services targeted the rich and working class or Apple Inc’s challenge of the belief prior to 2001 that technology needed only be functional with beauty, aesthetics and intuitiveness being secondary concerns. Other examples include Mark Zuckerberg and Jeff Bezos who disrupted traditional industries and redefined the way we communicate, shop, and interact with the world. The success of these companies was out of a willingness to experiment and pivot in the face of uncertainty.
There are examples of companies who went into decline due to risk aversion. Examples include Nokia, the once dominant force in the mobile phone industry whose decline began in the late 2000s when it failed to venture into the smartphone market. In addition, Kodak failed to adapt to the digital photography revolution, despite actually having developed one of the first digital cameras in the 1970s. Both companies underestimated the potential of technological revolution and paid the ultimate price.
Advocates of risk aversion often equate risk taking with reckless abandon. They fail to realize that effective risk management requires a nuanced approach that balances boldness with prudence as well as ambition with caution. They also treat failure as a final verdict rather than a critical element for learning and growth. They do not ascribe to Thomas Edison’s statement to the that “I have not failed. I’ve just found 10,000 ways that won’t work.”
Contrary to risk aversion, responsible risk-taking treats failure as an integral part of the journey that fosters resilience, creativity, and adaptability, essential attributes in an ever-changing world. This attitude fosters a culture of innovation and creativity, driving progress across disciplines. Organizations that encourage experimentation and tolerate failure are therefore more likely to cultivate a fertile ground for innovation. On the contrary risk averse organizations which view failure as terminal are likely to hold on to the known regardless of the opportunities presented by the unknown and therefore either stagnate or regress.
Dr. Weru Mwangi is the CEO & Lead Consultant at Ultimate Management Solutions, a firm specializing in training & consultancy in Finance, Governance, Strategy, Risk Management and Leadership Development. He can be contacted on weru@umslgroup.com
