A Guide for When to Embrace Risk for Value

Should an organization embrace risk or spend millions of dollars a year to avoid it? How do you know when which strategy is best?

Considerations for such thinking are covered in the Baldrige Excellence Framework, and the topic was recently explored by Brennan McEachran in an Innovation Excellence article entitled “How to Embrace Risk to Create Value.”

“When risk is positioned in a positive light, it’s easier to develop a greater tolerance for it,” writes McEachran. “Many large well-known brands . . . are embracing the right kinds of risk to engage their employees on how to innovate some of their most important business priorities.”

McEachran prescribes strategies for how to handle risk, for example, “focus on incremental not radical innovation.” He writes, “The reasons why incremental innovation is generally more successful than radical innovation is because the latter takes much longer to implement, uses more resources, and carries greater risk. On the other hand, small ideas can be turned around quicker and executed in less time, so benefits are realized sooner. Incremental innovation also provides a more sustainable competitive advantage.”

McEachran also advises to “focus on areas where you need to take more risks . . . [but] don’t try to innovate in all areas . . . focus your experimentation.” Piloting an innovation so that you can acquire real data and asking your community for feedback and collaboration also are suggested paths to embrace risk.

But how do you answer the where, when, and what for turning strategies to embrace or avoid risk into action? A roadmap customized for your organization may exist in the Baldrige framework itself.

In the Baldrige Excellence Framework, intelligent risk is defined as “opportunities for which the potential gain outweighs the potential harm or loss to your organization’s future success if you do not explore them.”

Considerations for intelligent risk and innovation can be found all through the Baldrige framework, for example,

• Within 1.1 Senior Leadership, in regards to creating an environment for intelligent risk taking and a focus on action
• Within 2.1 Strategy Development, in regards to deciding which strategic opportunities are intelligent risks for pursuing
• Within 5.2 Workforce Engagement, in regards to how your workforce performance management system reinforces intelligent risk to achieve innovation
• Within 6.1 Work Processes, in regards to how you pursue strategic opportunities that you determine are intelligent risks

A great source of examples comes from Baldrige Award recipient application summaries in which role-model organizations answer the considerations above in terms of what was important to their businesses and services. How did these national role models embrace risk for value and know what, when, and where to do it?

According to McEachran, embracing risk is sometimes a choice organizations need to make: “You won’t achieve double digit growth without taking risks.”

And the Baldrige Award recipients can certainly claim growth and mastery within their industries from knowing how, when, where, and what to act on when it comes to embracing risk for value.