One of the starting points when I talk to any group about adaptability—whether they are first responders, warfighters, businesspeople, or teachers—is the basic idea that just like all living organisms since the first life forms on Earth, we all live in a world that is full of risk and almost completely unpredictable.
Biological organisms don’t try too hard to eliminate risk, rather they learn to live with risk, even thrive under the shadow of ever present risk. What I haven’t talked too much about is actual risk taking, which people—especially in business—are realising is essential to moving an organisation beyond mere survival. For example, in his remarkable little book, Plain Talk, the former CEO of Nucor Steel, Ken Iverson, conveyed that risk taking was one of the keys to Nucor’s long string of successes and growth in a notoriously unpredictable and risky industry.
At a recent meeting of the Marketing Science Institute, a principal of a private consulting firm noted that I didn’t directly talk about risk taking, and asked me whether risk taking fits into a biologically-based adaptable framework for problem solving. Here is my response.
I believe that popular discussions about risk and what is risky have obscured the concept of risk and how we may use it to our advantage. In particular, we tend to lump risk as a singular idea, usually a problem, and risk taking as a singular action, usually equated with rash decision making—the proverbial leap off a cliff that sometimes pays off. In reality, risk is a huge spectrum of forces, as diverse as life itself and powered by all the forces and rules and outcomes of biology, chemistry, and physics.
Risk is the jaws of a predatory reef fish, and a tsunami following an Earth tremor, and the chance (if you are a bower bird) that your beautifully constructed bower will attract a fine mate. Within this spectrum of risk you might find death or a meal, social ostracism or someone with whom to pass on your genes. Likewise, risk taking can take the form rash decision making, but it can also emerge as shrewdly calculated moves that fly in the face of conventional wisdom and yield enormous payoffs.
The full spectrum of this risk taking was on display leading up to the US Presidential election in November, 2012. On the rash side, Karl Rove took a political risk in declaring his prediction that Mitt Romney would take the election. On the calculated side, Nate Silver took an enormous risk (arguably larger than Mr. Rove’s, considering his more tenuous position as an emerging online columnist and author compared to Rove’s well established position as a multi-millionaire political consultant and frequent television commentator) in declaring, with tight precision, a large margin of victory for President Obama. In the end, Rove was wildly off the mark, and Silver’s prediction was not only precise, but extremely accurate. Rove’s stock as a prognosticator plummeted, while Silver’s soared. It is Silver’s calculated type of risk taking that managers should cultivate, but what is it made of?
In short, being a successful risk taker means having a sense of the environment that is deep, holistic, and flexible. What kind of handicapper can call up this trifecta? One who works hard at cultivating information. This kind of sense develops from intense observation of the patterns and signals of change in the world around you, and results in an earned degree of confidence when stepping off into the necessarily unknown future.
In other words, the most successful risk takers are not rash at all. As Iverson wrote in Plain Talk about Nucor’s remarkable string of successes in incorporating new technologies and capturing new markets, “we didn’t leap before we looked.” Rather, the company was just acutely aware of its strengths, weaknesses, and untapped potential in its environment. While industry observers, looking from the outside, saw a maverick company that got lucky more often than it failed, company insiders were justifiably confident in their risks. In the same way, Nate Silver insisted that his ultra-precise predictions weren’t risky at all, they were simply the result of his extremely informed sense of changes in the political world that he spent so long observing.
As I discuss with Aníbal Pauchard in Observation and Ecology, the extremely adept observational sense demonstrated by the best risk takers, a sense that allows one to appear to predict events to come, is developed through long hours of practicing the art of observing complex systems. The “Great One”, Wayne Gretzky, did it with hockey (as Malcolm Gladwell discussed in one of his early popular articles), animals across Asia did it with the Boxing Day tsunami, and Iverson did it with steel.
Organisms in nature have developed this ability to confidently sally forth into each unpredictable and risk-filled day through the relentless process of natural selection. If they didn’t develop all sorts of sensors and nerves and immune systems and replication methods that allowed them to observe and respond to change quickly, they were selected off the face of the Earth.
From an evolutionary standpoint, humans have had for thousands of generations cultural ways of passing on information and selecting out poor performance that allowed us to bypass some of this nasty and brutish natural selection. Likewise, from a modern organizational standpoint, productive risk taking can be allowed and encouraged by a culture that doesn’t fear risk, doesn’t waste time and resources trying to eliminate risk, and cultivates a vision that is either wide enough, or long-term enough, to see the value of risk.
Not surprisingly, the CEOs and astute observers of the most successful companies—the Nucor Steels, Southwest Airlines, Googles, and Apples that are mistakenly thought of as wild mavericks that got lucky—always talk about the culture of their respective companies (see Gary Kelly on Southwest’s culture here). They are, in fact, all examples of organisations that cultivate a hardworking, intensely observational approach to risk. Although Iverson resorted to the old canard, “look before you leap”, to describe Nucor’s approach to risk taking, a more appropriate statement might be, “observe like mad before you leap.”
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