A few days after Steve Jobs' death, Roger Martin, Dean of the Rotman School of Management, published the following observation: “Steve Jobs has provided vivid and compelling evidence that it is the job of corporate leaders to imagine what does not now exist, but would be adored, and invest in bringing it to life... He proved that there was money to be made – lots of it – by investing in user experiences that were sublime, but utterly untested and unproven.”

Investing in unproven experiences requires a healthy appetite for risk; however, a recent study by Deloitte, aimed at identifying the causes of Canada's eroding labour productivity (see chart below), found that Canadian executives don't have a lot of stomach for it. The study asked people to self identify as either risk takers or risk avoiders, and then profiled their behaviours. They found that the proportion of executives who self identify as risk takers vs. risk avoiders is roughly the same in Canada as in the US – about 50/50. The important insight came while profiling the behaviours of the two types. While the risk takers were pretty similar on both sides of the border, the risk avoiders in Canada were significantly more risk averse than their American counterparts. This is manifested in a relatively low willingness by Canadian executives to invest, change and experiment in their business, resulting in reduced innovation and ultimately, lower GDP per capita than other G7 nations.

In the work that I do with leaders at some of Canada’s best-known companies, my experience has been that the root cause of risk aversion is often a lack of clarity about what high potential alternatives could/should be considered. It’s human nature to avoid the unknown, and too few organizations have resources, experience and skills necessary to do the type of analysis and planning that is required to develop a solid roadmap.

The workforce in most organizations is typically dedicated to two pursuits: selling and execution. Rarely are there people whose day job it is to focus on what occurs before the sale and after the product or service has been rendered. This is where insights about future opportunities – and risks - are typically found.

Two gaps emerge from a shortage of this type of thinking: first, businesses are less likely to try new things because they have no roadmap; second, the risk of inaction is understated, or worse, overlooked entirely.

Our prescription for leaders facing potential opportunities that feel “too risky” is two-fold:

1. Seek an objective resource to fully scope the opportunity. Perspective from another company or even another industry may yield hidden opportunities and reveal unforeseen ways to mitigate risks.

2. Before dismissing the opportunity, be sure to fully evaluate the risk of maintaining the status quo. Consider the implication to your business if a competitor achieves success by taking a calculated risk you’re avoiding… and it pays off? What will it mean for your business when your customers find a substitute for your product? What if regulatory change increases your cost of operations and you fail to adapt because you thought it too risky or didn’t know which path to take?

Working in capital markets taught me the immutable truth that without risk there can be no reward. The job of a leader should therefore be not to avoid risk, but to manage it. For Canadian companies to reach their full potential and compete effectively on the world stage, Canadian executives must equip themselves with the vision, tools and capabilities to take greater risks. Only by doing so will they achieve great rewards.

Image Source: Globe and Mail (Government of Canada Review of Federal Support to Research and Development; Canadian Manufacturers and Developers)