By Sheina Laws, Product Manager, at Partners in Leadership
It's no secret that courageous, calculated risk-taking is a crucial component of long-term business success. As the late Peter Drucker, a leading voice on management philosophy and modern business practices, once said, "Whenever you see a successful business, someone once made a courageous decision."
Indeed, Jeff Bezos sold books out of his garage through a modest ecommerce website before Amazon became a trillion-dollar cross-industry venture. Elon Musk burned a hole in his pocket so deep that he was unable to make payroll after launching his passion project, SpaceX, only to close a multibillion-dollar deal just several months later. When FedEx founder Fred Smith was rejected for a business loan shortly after launching his company, he ventured to Las Vegas with $5,000 and a mission to cash in on dumb luck -- a gamble that paid off in spades.
These may be extraordinary examples, but the reality is that risk-taking fuels innovation, and innovative companies experience higher growth rates than their competitors. As such, it's no wonder that innovation remains a top priority for corporate leaders: today, 93% of business executives believe "organic growth through innovation will drive the greater proportion of their revenue growth."
And yet, while 84% of executives agree that their businesses' future success will be highly dependent on innovation, data from the Partners In Leadership Workplace Accountability Index indicates that, by and large, employees are not willing to take the risks necessary to drive innovation. In fact, just 37% of those surveyed agree that members of their organization are willing to take risks to find better solutions.
Improving this state of affairs is of the utmost importance; but how, exactly, can leaders weave innovation into the fabric of their organizations in a way that drives better results?
Setting the Tone: The Right Kind of Risk-Taking
First and foremost, leaders hoping to drive innovation must understand that it's not indiscriminate risk-taking that elevates the world's most successful organizations to the top of their respective food chains; it's careful, calculated risk-taking that follows a set of specific strategies. According to venture capitalist Sean Wise, some of these strategies include:
Early adoption: seeing and tapping into innovation trends before they reach the majority of adopters.
Blue Ocean Strategy: the simultaneous pursuit of low cost and differentiation.
The 10x rule: the idea that "to dislodge incumbent market leaders, you must be 10 times better -- faster, cheaper, stronger, or otherwise."
Creative destruction: displacing an incumbent market leader by providing an exponentially better solution.
By adopting one or two of these strategies, leaders are able to approach risk-taking and innovation in a focused manner. However, to reap the benefits of this approach, leaders must position calculated risk-taking not merely as an organizational goal, but as an integral component of their company culture and, by extension, their employees' mindsets.
Building a Culture of Risk-Taking: Google as a Case Study
A conscious, continuous organization-wide commitment to risk-taking is often what sets the world's most successful ventures apart. In fact, 94% of senior executives agree than an organization's culture is the most important factor when it comes to innovation, meaning leaders can promote innovation by creating an organizational culture that rewards calculated risk-taking.
Google's company culture is among the highest-profile examples of normalized organization-wide risk-taking. Google rewards risk-taking not just for the sake of risk-taking, but in order to solve the world's most pressing problems, in areas such as education, inclusion, and economic development. The organization challenges and rewards employees across departments and functions to not only develop new ideas, but also to poke holes in existing systems and challenge the status quo in order to optimize efficiency. The organization so values innovation, in fact, that it doesn't mind investing in initiatives that end in failure -- as long as they learn something in the attempt.
According to Laszlo Bock, the organization's former Head of People Operations, leaders at Google "reward failure." To substantiate this claim, Bock points to Google Wave, an online platform that was launched in 2010 and shut down within a year. "They took a massive, calculated risk. And failed. So we rewarded them."
This philosophy permeates Google, but the employees who embrace the company's culture of risk-taking most wholeheartedly are those working at Google X, the company's semisecret research and development "moonshot factory." Google X encourages engineers and innovators to collaboratively design and produce seemingly impossible technological projects, facilitating both early adoption and creative destruction.
The head of Google X, Astro Teller, reports that the process of innovation begins with identifying a problem that needs to be solved or that could benefit from a more efficient or effective solution. Then, through collaborative problem-solving, team members are encouraged to engage with radical, creative ideas. Once they dream up a sci-fi-inspired ideal solution, they work together to unpack its possibilities. If there is any evidence-based grounding for their solution, they press onward based on the knowledge that is already available or obtainable.
In this way, Google X employees follow similar tenets to those outlined in the proven Partners In Leadership model of accountability: they see problems that need solving, take ownership of the development of solutions, solve the problems through creative collaboration, and do what needs to be done to achieve desired results.
When business leaders foster high levels of workplace accountability, every employee feels personally committed to achieving organizational goals -- which, in this case, concern innovation. As a result, employees engage more deeply with their work and take action to deliver on shared goals.
According to the BBC, Teller claims that this model of innovation is highly effective: "You must reward people for failing...If not, they won't take risks and make breakthroughs. If you don't reward failure, people will hang on to a doomed idea for fear of the consequences. That wastes time and saps an organization's spirit."
Not only does Google engage in some of the key strategies of calculated risk-taking, but it has centered its culture on a philosophy of innovation and continuous improvement. One of the organization's ten core values, or cultural beliefs, is "great just isn't good enough." When all employees feel invested in this belief, they take personal accountability for developing solutions and delivering results that are better than great.
Only by fostering an entire company culture that encourages collaborative, calculated risk-taking can an organization build the foundations of innovation necessary to achieve the kind of astronomical success that Google has enjoyed.
Driving Innovation Through Calculated Risk-Taking
Despite the overwhelming amount of evidence that indicates the value-add of risk-taking in business, many organizations are still hesitant to break from the operational status quo for fear of failing. Why change anything when doing things "the way they've always been done" is working just fine?
The answer? To propel an organization from its current level of performance to a level that's better than great. In the innovation big leagues, significant risks are often met with significant rewards.
Admittedly, cultivating an organizational culture of risk-taking is not always easy -- in fact, 54% of innovative organizations have trouble bridging the gap between innovation strategy and larger business strategy -- which we explore in detail in our white paper "Future Proof Your Company from Disruption". However, leaders can seamlessly integrate innovation strategy with the overarching business strategy of their organizations by:
Focusing on one or two strategic approaches to innovation -- whether Blue Ocean Strategy or the 10x rule.
Securing organization-wide investment in the value of risk-taking by building cultural beliefs around taking risks.
Cultivating high rates of personal and organizational accountability for achieving innovation goals.
Creating specific fora in which risk-taking and creative problem-solving are encouraged and rewarded. Digital tools such as the new Partners In Leadership Workplace Accountability Index can further incentivize risk-taking and creative problem-solving in the workplace by quantifying levels of innovation and accountability and prescribing courses of action in accordance to the results.
By building a company culture rooted in risk-taking and accountability, leaders drive innovation and, in turn, profitability. As a direct result, the organization grows. In fact, research from MIT has identified "a significant correlation between the ideation rate [...] and growth in profit or net income: the more ideation, the faster [companies] grew."
Learn more about how to foster a company culture of innovation and drive sustainable results.