Research has consistently shown the value of encouraging risk taking in creative endeavors. Doing things differently and finding new ways of producing products and process depend on taking chances. People naturally tend to do what they have always done because it is safe. Innovative thinking occurs most easily when people feel free to fail. It is essential to develop an atmosphere of risk taking by doing the following:
• Not accepting the status quo
• Asking why, before asking how
• Separating responsibility and accountability
• Identifying long-term cost of the status quo
• Nurturing risk taking
Evolve or become extinct is the iron rule of biology, and it pretty much applies to all of us. This planet and life on it has gone through both subtle and catastrophic changes in its four billion year existence. In the modern world, it has been estimated that a species becomes extinct every 20 minutes. You either change or die, so too is it with modern organizations. Herb Kelleher, former CEO of Southwest Airlines, has said, “A company is never more vulnerable to complacency than when it is at the height of its success” (1). It has always been that way and it always will be. As much as we would like to stop overcoming adversity, stop exploring new opportunities, or stop taking chances, we cannot. Through exploration, we learn how to adapt to inevitable changes. When we are successful, we know this; but when we slip down the hierarchy, our instincts for survival take over and we grow more conservative rather than exploratory. This is a behavior we share with many other creatures.
When birds are hungry and desperate for food, you might think that they would sample everything they run across. With starvation at hand, some good- looking berry might be the key to survival. But hungry birds do not nibble at every unusual-looking item to see if it can be turned into a meal. Fear of the unfamiliar renders them conservatives. Birds that benefit from a bonanza of food are very different. They strut around with full stomachs, not ignoring morsels they come across but rather ready for a potential adventure in dining. The logic is that exploring unknowns is a risk. A hungry bird, like a marginal business, cannot take the chance of being immobilized for a day or two by food poisoning; those with stored- up calories can afford to experiment.
In times of trouble, societies and organizations act in similar ways. They tend to shun the new, even if it means future erosion of their ability to compete. When the Turkish Empire was crumbling in the sixteenth century, authorities were sure they could recapture former glories by returning to traditions of the past. Europeans came up with improved ways to prevent plagues but the Turks refused them. Why? Foreign techniques departed from customs that had once made Turkey great. Companies and markets in a state of decline will respond in a similar manner. It is what brain researchers often call downshifting.
Perceived threats “narrow our perceptual field,” so we revert to status quo thinking. Researchers Caine and Caine note that we downshift, we revert to the tried and true, and follow old beliefs and behaviors regardless of what information the road signs provide. Our responses become more automatic and limited. We are less able to access all that we know or see what is really there. We also seem less able to engage in complex intellectual tasks, those requiring creativity and the ability to engage in open-ended thinking and questioning. It also appears to reduce our ability to see the interconnectedness or interrelationships required by thematic or ecological thought processes (2).
Michael Eisner, former CEO of Disney, notes that the principal asset of their organization is creativity. In trying to describe what it takes to be a creative company, he related a story he heard about the legendary baseball player, Babe Ruth. A reporter once asked Ruth, “How is it that you always come through in the clutch? How is it that you come up to bat in the bottom of the ninth, in a key game with the score tied, with thousands of fans screaming in the stadium, with millions listening on the radio, the entire game on the line, and deliver the game-winning hit?” Ruth’s answer, “I don’t know. I just keep my eye on the ball.”
Eisner said that keeping one’s eye on the ball is, for him, a metaphor for what we must do in a creative company. In this case, it is to keep focused on creativity. They create products that people want. They create products that people cannot even know they want until they have bought a ticket or tuned in. Disney does a pretty good job of keeping its eye on the ball. The percentage of new products they introduce each year is in the 20 to 30 percent range or 80 to 90 percent in film and television. Eisner says they introduce one or more new products every week of every year (3).
When it comes to change, Disney is the exception; the rule may be Boeing. Lee Tom Perry says Boeing illustrates a common strategy of many organizations. Boeing made a decision to delay development of a hypersonic transport despite the fact that their engineers had completed initial designs for the hypersonic transport that would fly six times as fast as the Concorde. The $12 billion price tag for development cost frightened management. The company decided to wait until Airbus or another competitor had plans for its own hypersonic transport before further developing the technology. This risk-adverse strategy is a departure from the company’s early risk-taking history.
In 1952 Boeing bet $16 million, which was most of its net worth, on an innovative prototype passenger jet when the market was dominated by Douglas Aircraft’s propeller-driven DC series. Propeller planes became obsolete because of Boeing’s bold move. Past CEO, Frank Shrontz, said that Boeing did not want to get into the position of Douglas Aircraft, which at the beginning of the jet age became complacent about their product line. He said Douglas was unwilling to take the risk, so someone else did. Shrontz was, however, not talking about their hypersonic transport. Rather he was referring to investing in developing their 767-X, a 350-seat plane with only a slightly longer range than Boeing 747—not five times longer like the hypersonic transport. Perry notes that with $4 billion in cash, little debt, and an $80 billion backlog in orders for commercial airlines, Boeing may be letting a golden opportunity pass it by. Boeing has gone from high risk to high complacency (4). Many organizations, like Boeing, operate under the belief that stability and predictability are a good thing. Such an approach certainly gives you greater control over the organization and produces more consistent responses but creativity suffers.
Research shows that being able to develop new products is a powerful way a business can grow and that the most successful types of new products are the truly innovative ones, rather than line extensions or minor improvements. But managers and organizations, like Boeing, tend to avoid risk taking for many reasons, often because they are afraid of the risk. It is called risk-averse settings (5).
Using stretch goals, Six Sigma, or setting exceedingly high standards—from an organizational point of view—is almost a prescription for failure or success, depending on your outlook. Jack Welch, past CEO of G.E., emphasizes that the trick is not to punish those who fall short. If they improve, reward them even if they haven’t reached the goal (6).
Research studies show a strong relationship between the encouragement of risk taking and creativity (7). Such an attitude was demonstrated when Robert Johnson, of Johnson and Johnson, is reputed to have congratulated a manager who lost money on a failed new product by saying, “If you are making mistakes, that means you are making decisions and taking risks” (16).
Demanding exceedingly high expectations requires a high tolerance to failure, risk taking, and liberal management where anything goes. To achieve such extra-ordinary measures requires continually innovating. Following nature’s pattern, many parts of the old ways of doing things will quickly become extinct. The remainder will be smaller and better prepared to compete. It requires long-term commitment, not squeezing out profits at the destruction of other vital concerns of the organization. Using stretch goals, for instance, that focus on long-term profitability and market share may not sit well with shareholders who want a bigger dividend—now! Rapid improvement, as stretch goals infer, demands long-term commitment. You should not starve vital parts of the organization by squeezing out profits, which could have been used to insure long-term survivability. Tolerance for failure not only applies to the way you run a business. It also is applicable to how to manage people.
Michael Eisner says a company like Disney must create an atmosphere in which people feel safe to fail. This means forming an organization in which failure is not only tolerated, but fear of criticism for submitting a foolish idea is abolished. Creativity is hurt if people become too cautious. Eisner believes that if people are afraid to speak up, afraid to rock the boat, afraid of being ridiculed, then potentially brilliant ideas are never uttered—and never heard. It was Wayne Gretsky, the great hockey player, who said, “You miss 100 percent of the shots you never take” (3).
Disney’s CEO does not want failure to become a habit, but they do want their people not to be fearful and take chances. One of the ways they try to do this is through what their executives call their Gong Show. The executives would meet and toss ideas around. Anyone who wanted to pitch an idea to the executives could do it. Rank had no privilege. Each time there are about 40 presenters. Eisner said for it to work requires that each presenter feel safe about giving their ideas. The idea is not to pull their punches but to also give full and serious consideration to each idea. They will tell people if they think an idea won’t work. But they also tell them why and how it might be improved. Of course, they also tell them when the idea has promise.
Disney’s executives believe that creativity is enhanced if you take the time to listen and be honest in your reactions. It is important to be open and to recognize that ideas come in all shapes and sizes. Your people must believe that if they have an idea and can express it, it will be fairly considered. Eisner says this is more than employee relations. This is supported by the fact that some of their better ideas have come from these Gong Show presentations. An essential part of this creative process is also having an organization that can follow through and execute those good ideas (3).
Research shows that the building blocks for increased innovation and new product success include those like Disney’s top management commitment and a desire to take risks as well as a compensation program that rewards new product performance. Studies on innovation identified several factors associated with new product success including open-mindedness, supportive and professional management, as well as good market knowledge, a superior product that meets customer demand, good communication, and proficiency in technological activities.
Open-mindedness toward risk taking is essential to success in new product development. Complacency is a primary reason that many soon lose their competitive edge. Researchers have shown that highly innovative products do especially well in terms of profitability, capturing domestic and foreign market share, and meeting sales and profit objectives. Meanwhile, non-innovative products including modifications, revisions, cost reductions, and repositioning does well in terms of return-on-investments and domestic market share. They run second to highly innovative products on the other performance measures. It was the moderate or middle-of-the-road innovative products that fared poorly.
Innovation and risk taking require overcoming our natural tendency to prefer the status quo. Nature has no such problem because it does things differently. Darwin’s evolutionary insights, as seen in chapter 5, demonstrate the significance mutations play in the survival of the species. There would be no life if life could not adapt. The primary way nature is able to do this is through mutations. The ability of species to mutate insures survival of the species, and the same is true of organizations and their leaders. Nature never and business rarely operate in a static or rigidly unchanging state.
Simon Caulkin, editor of the Observer, notes that in an era of change, monolithic upper management will likely fail to generate the creativity needed to give the company adequate options. His point is that diversity of opinion and approach are needed to fight consensus (8). Straight-ahead thinking, without occasional side roads, dooms one to immobility. Honda, recognizing the value of nonlinear thinking, hires groups of managers in mid-career from other organizations with the express aim of introducing challenge and contention into the company. Ralph Stacey, professor of management at the Business School of Hertfordshire University, calls this creative destruction. It involves eliminating old, comfortable concepts and paradigms and embracing new ones (9).
William McKnight, former chairperson from 3M, was once quoted as saying “men and women to whom we delegate authority and responsibility...are going to want to do their jobs in their own way...mistakes will be made, but if a person is essentially right, the mistake he or she makes is not as serious in the long run as the mistakes management will make if it is dictatorial and undertakes to tell those under its authority exactly how they must do their job” (10). This is the philosophy that the company takes to heart. 3M believes that you need to be tolerant of initiative and tolerant of the mistakes that occur because of that initiative. The company’s rule that allows all technical employees to devote 15 percent of their time to a project of their own choosing is designed to institutionalize a bit of rebellion in their labs. This 15 percent slack time allows their people the opportunity to explore to take risk.
3M acknowledges that failure is a part of life and that they expect failure on a grand scale. In a bit of logic that has the appeal of Darwin’s natural selection, he says for every 1,000 raw ideas, only 100 are written up as formal proposals at the company. Furthermore, only a fraction of those become product ventures. And over half of their new products fail (10).
RISK TAKING AND THE STATUS QUO
Robust and spontaneous order exists everywhere in nature, but so too does disorder. Humans, like other creatures, try to control their environment, and they often do it in the most familiar way—by not changing. As noted earlier, we prefer the order and the status quo, even when it’s really, really bad. In a number of studies by Barry Shaw, participants played the role of a financial officer who was faced with improving profitability. They were asked to allocate R-and-D funds to one of the company’s two operating divisions. After they received feedback about the performance of each division, they were again asked to make a second allocation of funds. Shaw’s research showed that when participants received negative information about the performance of their chosen division, they would do a strange thing. They would then make an even bigger allocation to that same division! It was a bigger allocation than those made by participants whose first choice was performing satisfactorily (11).
Such a response is a common reaction. Managers continue to stick to their existing way of doing things, and recommit resources to poorly performing divisions rather than put those resources into other opportunities. In another case, Shaw had participants play the part of a vice president of human resources who had two choices involving downsizing. One plan would save one of their three plants and 2,000 of their 6,000 jobs. In the other plan, you had a one-third probability of saving all 6,000 jobs but also had a two-thirds probability of saving none of the plants and none of the jobs. Half of the participants received information that indicated the first plan (2,000 jobs) had been implemented during a previous crisis. The other half received information that it was the second plan, not the first, which had been the preferred plan in the last crisis. The study demonstrated that participants most often selected the plan designated as the status quo. It is almost instinctive for people to crave order and hold on to the tried and true. Bad jobs, bad marriages, poor diet and exercise habits all display our tendency toward the status quo, predictability, routine, and order. It is safe and sure, even if it’s not the best.
We often do not choose the best among alternatives, nor do we try to maximize but rather prefer to do what we always have done. A recent survey of 300 upper- level managers by Lee Roy Beach and Terence Mitchell shows that making decisions depends on three different kinds of information. The decision has to fit within certain guiding principles, beliefs, values, or morals. In other words, choice is indexed in terms of “who we are” (for example, we produce quality products). Decisions are also made in terms of “where do we want to go.” Normally decision-makers also have some ideal or mental picture of something they are trying to attain (for example, we need to adopt a team approach to improve our quality). Finally, decisions are made about “how we want to do it” and “what will be the outcome.” This process includes plans or tactics for reaching the goal as well as predictions of the expected result (for example, we did this before and it worked pretty well).
These mental images are not focused on maximizing something but rather are images about how the world should be in relation to a decision-maker’s guiding principles. Leaders make decisions based on what they think are likely outcomes. Once a decision is made, we often follow it with either a “how are we doing” or “what should we do next” decision. New actions or decisions usually concern the next step, “where do we want to go next.” Normally, new actions must be compatible with these previous decisions. The typical choice then becomes determining the best course of action from a limited number of alternatives. Such a choice depends on its reasonableness or compatibility with our underlying morals, ethics, and so on.
ASK “WHAT SHOULD WE DO?” BEFORE ASKING “HOW ARE WE DOING?”
The weakness of the human decision-making process is that we often ask “how are we doing” before we ask “what should we do” (11). It is only when we realize that things are not going very well that we begin to look at new, alternative ways of doing things. We are unlikely to change course as long as we are receiving positive feedback about our decision. We are only likely to change what we do if our goal has changed and if we realize what we are doing is not compatible with it. We will change if it looks like our action will fail, but we do resist accepting negative feedback. In his book Quitting, Dale Dauten interviewed hundreds of people. He reported that people who believe the status quo might actually get better almost never changed their course of action (11). It often takes strong adversity to force innovative approaches.
Risk taking is not natural for a species that prefers the status quo, so how do you overcome it? The first step is to understand how people perceive consequences and actions. People report feeling stronger regret for bad outcomes that are the consequences of new actions than they do for similar bad consequences that results from remaining with the status quo (11). For instance, a manager may remain with a reliable but expensive wholesaler if the reliability and cost of using a new one are uncertain. It is the fear of making a change and having it turn out badly that keeps the manager from acting. We will do almost anything to avoid change. If things are going badly, we will even lower our goal to fit the situation so we can keep the hope of having success with the status quo.
TO ENCOURAGE INNOVATION, SEPARATE RESPONSIBILITY AND ACCOUNTABILITY
Because people tend to naturally evaluate how they are doing before looking at what they should do, we need to establish some artificial behaviors. We need to find a way that forces us to sample alternative choices or decisions. One good way to avoid the normal resistance is to separate the responsibility for generating and examining new alternatives. Other departments can propose an idea, but let R and D or other groups have the responsibility for actually examining new alternatives. The original Apple Macintosh was created this way. Steven Jobs, created a separate team to develop a new computer by pulling people from their normal duties at Apple and putting them together in a garage (11).
IDENTIFY LONG-TERM COST OF THE STATUS QUO
Focusing people on the long-term costs versus short-term gains can be a way to create greater risk taking. Developing scenarios and forecasts based on the potential long-term costs or consequence of maintaining the status quo helps to keep you focused on the need to change (Exercise #9 on storyboarding in chapter 13 can be used for this purpose). We always retain the hope that we can stay with the status quo. The tendency is even stronger if we expect strong negative consequences like losing our job if the status quo plan fails.
Andrew S. Grove, former CEO of Intel Corporation, once noted that the world now operates as one big market and that every employee competes with every person in the world who is capable of doing the same job. He goes on to also state that many of those competitors are very hungry. It is a cold world that he paints, one where it is adapt or die. He feels that employees should recognize that they are in a business in which nobody owes you a career. He then encourages people to accept these realities and to start soul searching by asking themselves if they are contributing (12).
Grove’s comments clearly showed that he understood the nature of business and that he appreciated its competitive demand, but he and other senior officials make a grave error. The knowledge that you are on your own is probably not news to most working men and women. What is probably little appreciated by senior officers is that the “new” competitive realities cannot eclipse the fact that people have powerful nurturing needs. Like it or not, the reality is that most of us need constant nurturing, need to be listened to, and need to receive pats on the back. We need a sense of security and not to feel that we are throw-away containers. People, despite competitive realities, will always need a sense of order and permanence. If you want people to shape up, you can use fear, threats, and reality checks. If you want them to be innovative and apply their creative skills, then you need to make them feel that they are important, valued, and nurtured. Starving birds do not take chances. They try to avoid risks, not embrace them.
SHOW COMMITMENT AND CARING TO EMPLOYEES
Michael Porter, author of the classic book Competitive Nations, recommended a competitive strategy that flies in the face of many “you are on your own” companies. He notes that his research has consistently pointed out the value of treating employees as permanent. Underinvestment in training and development has always been a risky proposition. The risk in today’s era of do or die is especially acute. Porter noted that many have criticized the United States because its employees do not seem committed to their company or their profession. He feels that the reason for this apathy is, in large part, due to companies not being committed to their employees (13).
Nurturing entails more than simple training and education—it is attitude. One company and its leaders that have traditionally taken this nurturing philosophy to heart with great success is Federal Express or FedEx. This organization employs more than 290,000 employees and is the king of overnight mail delivery. This company, in more ways than one, is on the move because of their people first philosophy.
FedEx makes sure that employees have an opportunity to give feedback and to air their grievances. Their Guaranteed Fair Treatment Policy (GFTP) is a process has been in place for decades and is designed to that give employees the right to appeal any eligible issue through a systematic review by progressively higher levels of management. The GFTP process does not assure a judgment in their favor, but it does insure that employees can discuss complaints without fear of retaliation. FedEx, like other companies, also takes an annual anonymous survey of employee satisfaction with their management and company. FedEx then requires all managers to meet and discuss employee concerns within six weeks. If a manager’s survey scores are low, then he or she is expected to develop and implement immediate corrections.
Nurturing can be more than simply being receptive to employees’ concerns. It can also involve professional development. One of FedEx’s more unique nurturing programs is their mentoring program. It allows first-level managers with three years management experience to learn from other managers who are at the managing director level, their third level of management. Thus, a mentor is two levels above a manager. The purpose is to help guide and develop skills of those at the first two levels by putting people who want to succeed around those who have already succeeded. This is the essence of nurturing because it puts a more-skilled, experienced person with a less-skilled, less-experienced person. For two years the mentor and protégé will meet and with assistance from the human resources department draw up an agreement that describes the needs of the protégé and how the mentor will provide guidance.
Mentoring is not the only way this people first company is able to nurture and increase productivity. For instance, one of their managers of their aircraft line maintenance recently moved his ailing mother from Tampa to Memphis. The hard part was trying to find affordable housing, doctors, transferring benefits, and so on. He said, “I didn’t know where to begin.” He went to the library to get a list of government phone numbers. All that accomplished was to be bounced around and be put on hold. He finally got help from a most unexpected source—his company.
FedEx offers its employees an information and referral service it calls Work-Life Balance Program to help their employees with problems of elderly parents. Work-Life Balance also helps employees with child care and education issues. Their aircraft manager got a notice about their Work-Life Balance Program so he called their toll-free number in Boston and was then directed to a counselor at a nonprofit agency in Memphis. Through them, he was able to get a low-income housing referral list, a list of doctors, and information about Social Security and food stamps.
Typical Work-Life Balance Program normally cost companies between 15 to 25 dollars per employee but FedEx a, senior manager in employee benefits services at FedEx, said that if it is good for employees, it’s good for the company. Surveys of employees show that, when employees were trying to find housing for an elderly parent or deal with Social Security, the service saved six to ten hours a week. Time saved is frequently work time and that is a straight productivity gain. The company feels that if an employee is worried about his mother, then he probably is bringing the worry and anxiety to his job and that could result in diminished work performance (14).
A good example of having a willingness to experiment in the marketplace was also provided by Sony. It was Sony’s policy to send more products into the marketplace knowing that not all will be winners. A, senior vice president at Sony R-and-D labs in San Jose, once said, “Sometimes it’s much more comfortable to select two or three products you are 100 percent sure of, but you kill some innovative products that you may not be sure the market will accept.” He went on to say, “if you don’t take risks, you will never know” (15).
It may be a hard and cold world out there, but executives who simply want to tell us the “facts of life” and expect us to adapt or die make a serious mistake. Winning requires that we take risks and strive to compete, and we do that when we feel we are not alone. Our need for nurturing is biological, and it is not enough to expect people to get it at home. Organizations like FedEx show that nurturing pays big and lone-term dividends. Fear works too, but eventually it catches up with those who give us a stern eye and say adapt or die. Such philosophies may keep people in line and may make them obedient, but we need their creative hearts and minds. Everyone has creative potential, but it takes the right environment to bring it forth. Trying something new is a risk; it creates fear in a species that prefers the status quo. It is hard to be a radical and a risk taker if you think your next meal will be your last. Risk taking is an essential part of creativity and nurturing is an essential part of risk taking.
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