Attitudes to risk
Different organizations will have different attitudes to risk. Some organizations may be considered to be risk averse, whilst other organizations will be risk aggressive. To some extent, the attitude of the organization to risk will depend on the sector and the nature and maturity of the marketplace within which it operates, as well as the attitude of the individual board members.
Risks cannot be considered outside the context that gave rise to the risks. It may appear that an organization is being risk aggressive, when in fact, the board has decided that there is an opportunity that should not be missed. However, the fact that the opportunity is high risk may not have been fully considered.
One of the major contributions from successful risk management is to ensure that strategic decisions that appear to be high risk are actually taken with all of the information available. Improvement in the robustness of decision-making processes is one of the key benefits of risk management.
Other key factors that will determine the attitude of the organization to risk include the stage in the maturity cycle, as shown in Figure 2.2. For an organization that is in the start-up phase, a more aggressive attitude to risk is required than for an organization that is enjoying growth or one that is a mature organization in a mature marketplace. Where an organization is operating in a mature marketplace and is suffering from decline, the attitude to risk will be much more risk averse.
It is because the attitude to risk has to be different when an organization is a start-up operation compared with a mature organization, that it is often said that certain high-profile businessmen are very good at entrepreneurial start-up, but are not as successful in running mature businesses. Different attitudes to risk are required at different parts of the business maturity cycle.
Chicken farmer
Consider the example of a very successful breeder and reseller of chicken in a mature marketplace involving little risk and steady and manageable growth prospects. The CEO saw an opportunity to transform his family's company. Overturning the family tradition of avoiding debt, he borrowed $500,000 and set about fundamentally changing the operation from a chicken farmer and reseller to a fully automated chicken raising and retail operation.
It is not surprising that many great CEOs and founders had a strong propensity for risk - without taking at least some calculated risks, the businesses would not have flourished and more importantly lasted. Some had nothing to lose, but for others, there was a tremendous amount at stake - both personally and professionally. Like vision, an appetite for risk taking is considered almost a prerequisite for success.
Knowing when to be a risk taker and opportunistic is critical to being able to successfully take advantage of the times. It can also be disastrous when the context of the times changes sharply. The same act performed too soon or too late or in the wrong scene may make a person a fool rather than a hero. That analysis fully applies to risk taking in business.