Avoiding risk is the most effective way to make your business irrelevant, redundant and bankrupt.
Unfortunately, it appears that, in the face of the recession, risk avoidance has become the preferred strategy of most British companies.
Last week, the insurer RSA and the Future Foundation published a report that suggested that British companies were choosing not to pursue growth opportunities.
Although over 60% of the 250 business leaders questioned said that opportunities existed in their markets, less than half of them believed that their company would grow. More worryingly, only a quarter of these senior executives agreed that risk-taking was a good way to make money.
It seems that the mismanaged risk-taking in the financial sector over the past decade, the subsequent decline in bank lending and the stream of bad news in the media, is persuading our business leaders to steer clear of new opportunities and their inherent risks.
This attitude is both wrong and concerning. Prudent risk-taking is at the heart of corporate growth. Indeed, most company breakthroughs occur when business leaders spot a new opportunity and find ways to exploit it profitably.
Take Tesco, for example. It is one of the UK’s biggest corporate successes of the last 20 years, and its executive teams have continuously raised the bar and been willing to invest in new opportunities that have included international expansion, new ranges and departments, new formats, new channels and stronger customer relationships.
What’s more, history tells us that continuing to invest in growth during recessions is likely to drive longer-term success.
For example, McKinsey, the management consultants, studied 1,000 companies that performed strongly following the recession of the early 1990s. During the downturn these companies had clearly demonstrated a greater appetite for acquisitions, for using their cash reserves and for investing in R&D, marketing and sales.
Of course, taking risks does not mean being reckless:
- Understand and focus on the assets and capabilities that will allow you to exploit the opportunity.
- Understand the nature of the risks involved: their likelihood of occurring and their impact if they were to become manifest.
- Put in place preventative and contingent actions that enable you to minimise the impact of the key risks on your business.
Above all, you shouldn’t avoid risks. British business leaders must find ways to embrace the risk and uncertainty that comes with opportunity. As Tesco’s management team know it is the only way to drive market-leading growth.
© Stuart Cross 2009. All rights reserved.