I was driving home last night and happened to hear a great documentary on CBC Ideas—Risk.
Business = Risk
But risk is much more than unpredictable, bad things happening.
Every action a business leader takes, every investment our business makes, is a risk. If an action we take or investment we make is wise, our business makes a profit. If we take a series of wise risks, our business flourishes.
If we take unwise risks, our business loses money. If we make enough of them, it goes bankrupt.
Just as bad, if we are fearful and attempt to take no risks, we make no profits. And our business withers and dies.
So risk is not an option, or a danger, or something that interferes with our business. It’s the core of what we do.
How, then, can we take wise risks? That’s the question this documentary wrestles with. It presents, I think, an interesting way for business leaders to think about risk. It doesn’t focus only risk in the business context, choosing instead to think about risk as a broad, human dilemma. But it does have some fruitful ideas that business leaders can apply in their own situations.
Perhaps the most useful one is the problem of “Confirmation Bias”. A term from research psychology, it’s the human tendency to judge new information based on beliefs we already hold.
So, if we believe the economy is starting to recover (a big if!), whenever we hear economic news, our minds latch on to the good news, and discount the bad. If, on the other hand, we believe the economy is still in big trouble, our minds latch on to bad news, and discount the good. Same news, same reliability (or lack of reliability) in the sources, same certainty (or uncertainty) in the data, but our mind’s habits and limitations will lead us quickly (and unconsciously) in different directions, depending on what we already think.
This is especially difficult for business people—especially entrepreneurs—because we’re socialized to “trust our gut”. You never hear a businessperson say, “My gut said ‘go left’, I went right, and it turned out great.”
Confirmation bias “helps” us choose which stories we tell. And if we treat our stories as fact, we never escape our own illusions.
Acknowledging risk means acknowledging uncertainty. As Yogi Berra said, “It’s tough to make predictions, especially about the future.”
Yet, as business leaders, we’re required to be confident.
So the challenge is to be both confident and uncertain at the same time.
The documentary takes just under 2 hours to listen to, and is available here. To whet your appetite, here’s one of the quotes from it that stuck with me:
When our brain is processing information, we’re looking for matches all the time, because we don’t want to think about everything afresh. When we find something that looks roughly approximate to something we already know, it’s like a game of Snap.
The brain goes ‘snap'; it feels really comfortable; we found a match. And with that level of comfort comes a degree of certainty. We think, “This looks just like that, I know all about that, therefore I must know all about this.”
Most of us will get that about 80% right. And in most of our lives, the 20% doesn’t matter very much. But in some things, of course, it matters enormously.
We have a kind of romantic belief that, somehow, if it doesn’t quite fit, we’ll know. We’ll have some idea of discomfort, or some nagging doubt. But the truth is that mostly we don’t have nagging doubt. If something looks like a peach and smells like a peach, we pretty much assume it is a peach, even though it turns out to be an orange tennis ball.
Our certainty really isn’t a good guarantor of our correctness. Yet, uncertainty requires much more effort, and it’s very uncomfortable. It’s very hard to go through life thinking, “You know, I could be completely wrong about this.”
One of the joys of being the Director of the Buller Centre is the opportunity to work with business students in Providence’s Business Administration program. Perhaps, in addition to the implications these ideas have for leading businesses, there’s an implication here for how we teach and mentor business students.
Business strategy is the art of answering the question, “How can our business thrive”? And then turning the answers into actions.
And some of the biggest obstacles to answering that question are our pre-existing beliefs. So doing strategy means, in part, sifting out what is true from what we wish were true.
Could it be that teaching strategy begins—and ends—with teaching the discipline of self-awareness?
June 7 2013