One of the interesting challenges that managers face is the tension between expectations of senior leaders that managers minimize risks for their organizations while also motivating their direct reports to be more innovative. Finding a balance is no easy task, as managers consider the impact of decision-making on their reputation, job security, the impact decisions might have on their direct reports, and the short- and long-term impact of their decision-making on their organization.
Consider the following management profiles and the possible outcomes of these mindsets:
HIGH RISK AVOIDER – This manager defaults to the safest possible decision and encourages his or her direct reports to do the same. The manager will rely heavily on established policies and procedures and punish his or her employees who do not carefully follow these guidelines. This fosters a culture of risk avoidance in this unit. Employees that will thrive in this environment are those that like a predictable routine and are reassured by the presence of clear parameters for decision-making. This manager will likely push any risk up the chain of command rather than making a tough call himself or herself.
HIGH RISK TOLERATOR – This manager is very comfortable with risk and encourages his or her employees to test the boundaries of policies and procedures when a possible benefit can be seen for the company. This manager expects that his or her employees will fail and make mistakes and accepts this is the cost of doing business on the cutting edge. The manager will encourage employees to try new things and step outside of their comfort zones, rewarding them when they successfully innovate but avoid punishments that might stifle future innovation. Employees that will thrive in this environment are those that enjoy autonomy, are comfortable with change, and naturally look for new and better ways of doing things. This manager will likely assume responsibility for decision-making and look to upper management for the financial support and latitude to achieve innovative outcomes.
MODERATE RISK MANAGER – This manager is willing to take calculated risks and recognizes that he or she may forego major innovations when the potential for success seems slim. He or she will likely encourage employees to keep their eye out for opportunities and allow latitude for deviations from policy or process, but feel more comfortable if the employees discuss anything beyond minor risks with him or her before moving forward. This manager is likely to forgive minor missteps as a result of innovative activities, but large-scale mistakes would not be expected or accepted without repercussions. Employees that will thrive in this environment are those who appreciate the opportunity to be creative, but prefer to defer to managers when greater risks are apparent. This manager will likely involve upper management before taking action on riskier decisions in the same way he or she expects to be involved in these decisions with his or her direct reports.
It is important for managers to recognize that the way that they approach risk in their business unit and the value they place on innovation must be in alignment. A manager cannot expect to play it completely safe and also generate large-scale innovations. How employees are rewarded (and punished) influences the way that they approach problems and their willingness to try new things.
There is no “right” way, as each approach has its own benefits and drawbacks. High risk managers are probably not well suited for managing nuclear power plants. High risk avoiders are probably not well suited for working on Wall Street. A moderate approach is not a silver bullet compromise either. Small incremental changes may be great in a large bureaucracy, but equally harmful if the next great innovation would be missed because it appeared too risky on the surface.