Do You Have an Aligned Risk Culture?

An Aligned Risk Culture – How Much Risk Makes Sense for Your Corporate Culture?
A risky situation is one which involves exposure to danger. To be avoided, right? It depends, a risky corporate culture is not necessarily bad.

In the corporate world, risk is also a condition that involves exposure to opportunities, innovation, and taking chances. In some instances, taking a business risk is decision making in the face of incomplete knowledge of events or circumstances. We know from our organizational culture assessment data that one risky corporate culture may work for some strategies and not work for others.

To get it right, business leaders must decide how much to culturally embrace risk versus mitigate risk in their quest to execute their strategy in a way that makes sense to the people AND the business.  Culture risk is not good or bad; it is either aligned or misaligned with a company’s strategic priorities.  The degree of acceptable and desirable risk varies according to each company’s specific circumstances and culture.

Risky Corporate Cultures
Compared to companies that want to mitigate risk, companies with a risky corporate culture celebrate taking chances, have formal processes and systems to create deliberate risk taking, and release new products and services broadly before all problems are resolved.  Examples include companies like Tesla, SpaceX, Virgin, Coinbase, Spirit, Southwest, Dropbox, Apple, Netflix, Goldman Sachs, and 3M.

They have all determined that a high risk tolerance is required for them to succeed strategically, and their cultures and business practices are aligned accordingly.  When organizations want and need their employees to find ways to innovate and adapt, they make sure their employees feel supported and comfortable taking risks by:

• Hiring and promoting risk takers
• Celebrating risky successes and failures
• Urging skunk works projects and brainstorming
• Encouraging strategic pivots

Risk Averse Corporate Cultures
On the other end of the spectrum are organizations that cannot afford to take risks if they are to be successful.  These executives are reluctant to propose and advocate for risky projects and tend to celebrate perfection, have formal processes and systems to eliminate risk, and ensure all problems with new products and services are resolved before launch.  Examples include hospitals, airlines, healthcare providers, law firms, and road construction. 

They have all determined that a certain level of risk mitigation is required for them to succeed, and their strategies and cultures are aligned accordingly.  When organizations want and need their employees to mitigate risk, they make sure incentives and control processes actively discourage people from taking risks by:

• Celebrating perfection and taking pride in eliminating all risk
• Investing heavily in formal processes and systems to eliminate risk
• Ensuring all problems with new products and services are resolved before customer use
• Formalizing project post mortems and continuous improvement

3 Common Traits of an Aligned Risk Culture
Regardless of whether your industry or strategy requires a high or low risk tolerance, companies with an aligned risk culture have learned to handle risk effectively, neither under- nor over-reacting as risks emerge. They commonly exhibit three distinct corporate cultural traits that guide them to handle risk by avoiding disaster on the one hand and profiting from opportunity on the other. Having an aligned risk culture means that your organization consistently and explicitly:

1. Recognizes and Discusses Risk
   In an aligned risk culture, everyone understands the desired approach to risk, takes personal responsibility to manage risk accordingly, and encourages others to do the same in terms of actions, behaviors, attitudes, and decisions. When you can acknowledge risk, define it, measure it, and discuss it, then you can respond to risk in a way that aligns with what matters most. Implicitly accepting or ignoring risk only weakens and misaligns your risk culture.
   
   Is your desired risk culture embedded in the way people think, behave, and act?
   
2. Shares Information Freely
   Our organizational alignment research found keeping important information accessible and flowing across an organization fosters clarity and trust.  The timelier and more transparent the information flow, the greater the alignment and performance across the organization. 
   
   Regardless of the amount of risk that you want employees to take, aligned risk cultures do not hoard information and ensure employees feel safe to raise concerns without fear of retaliation from managers. Cultures that encourage transparency create psychological team safety for different opinions and therefore better enable the appropriate levels of risk taking.
   
3. Establishes Aligned Controls
   Once the desired level of organizational risk is defined and agreed upon, aligned risk cultures consider and adjust risk across the organization in key areas from strategic planning to day-to-day operations.  They make sure that the rules that regulate resource allocation, investment, and decision-making help, not hinder, people’s ability to get work done in a way that makes sense.

The Bottom Line
There is no “one size fits all” corporate risk culture profile that makes sense for every organization.  How leaders design and manage organizational risk should align with, and support, its business and talent management strategies. Have you spent the time and effort to determine how much risk makes sense in your unique situation?

To learn more about how to create a high performance culture, download the 3 C’s of a High Performance Culture that Leaders Must Get Right