To thrive in a digital world, you need to move fast and change course at a moment's notice. If you run a startup, you're probably good at this--it's in your DNA.
Large companies can do it, too, but it's harder. They might have to rethink long-established beliefs around leadership models, organizational structure, and how decisions get made.
Take, for example, how companies approach risk.
A good risk to take is one that has a net-positive outcome over the long term. For example, consider risking $100 to have a 10 percent chance of making $2,000. If you take that risk over and over, you're going to make money over time, even if you're going to lose 90 percent of the time. You just need to hit the jackpot before you run out of $100 bills.
Now, put that in the context of a company. Having a 90 percent chance of telling your colleagues you just lost money is a tough thing to do. Most people will shy away because the perceived downside is too great, relative to the upside. But if you don't take the risk, your company misses out on the 10 percent of ideas that hit and create real long-term equity value.
That's why you need to start changing the perception of taking risks. Here are three ways to begin:
1. Evaluate failure.
As a leader, you always need to foster an environment where your team feels supported to take risks. Of course, that's easier said than done.
If your organization conducts annual evaluations, consider evaluating whether the individual took a risk and failed or didn't take a risk at all. It signals that you trust your team to do what's in the best interest of the company, including big ideas that involve risk.
At my last company, I asked key employees to write a one-pager on what they intended to fail at that year. I knew from experience that game-changing ideas are tough to nail the first time around.
They were judged on what they decided to fail at and whether they actually failed. By doing so, I gave people permission to take aim high and potentially fail. When they succeeded, the rewards were orders of magnitude greater.
2. Incentivize employees.
The lack of a right incentive structure for employees to take risk is the biggest reason why companies get stagnant. They get disrupted by startups who are prepared to take a risk that has a positive expected outcome (maybe you're that startup).
Even if a company is willing to embrace higher levels of risk for the promise of greater rewards, employees working on the high-risk, high-reward projects might not be. If you want employees to swing for the fences, you must create a culture where, in certain situations and for the right reasons, failure isn't a black mark on their careers.
A good example of incentivizing employees is the Carabiner Award, created by my colleague Greg Foran, CEO of Walmart U.S. The award is given each quarter to those who took a risk. Often, it involves challenging a deeply-rooted institutional process or structure, touching areas of the business beyond that person's specific area of responsibility.
A recent recipient of the award was recognized for re-imagining the fresh department in specific stores. After observing shopping patterns, he tested new ways to merchandise produce by displaying it by color. He also introduced new "2-for" and "3-for" pricing strategies.
He was successful because he took initiative. He identified what he believed to be the best for customers, took the initiative upon himself to execute, got some good results and now continues to refine and iterate. After seeing this success, other stores are beginning to emulate the same. What started with one person having the courage to take a risk has had a far-reaching, positive impact.
3. Be open to emergent leadership.
Of course, becoming a fast-moving, adaptable company takes more than deciding to take more risks. It requires a leadership model that emphasizes fast, different ways of approaching opportunities and problems--start with a vision and work backward; plan less, do more, and iterate; balance stability with agility.
My favorite example of such a model is emergent leadership, which rejects the notion that there can be just one leader or one style of leadership in a company. Instead, it assumes that there's too much for one person to know and do.
To take risks, individuals must be empowered to tackle big problems that stand in the way of an important goal. Instituting such a model requires companies to be comfortable with the idea that leaders can be found anywhere in the company regardless of job title or role. It requires leaders to push decisions down and out and give employees the latitude to use their own judgement. Permission is granted in advance in the form of general guidelines around what employees can and cannot do on their own so they can act quickly when necessary. This type of leadership lets companies be much more productive and adaptable to change.