Companies that embrace strategic risk taking and make smart risk decisions can realize twice the amount of growth compared to peers that manage risk more traditionally, according to new research from CEB (NYSE:CEB), the leading member-based advisory company. However, CEB’s latest Executive Guidance suggests that very few companies have figured out how to leverage risk to their benefit. Sixty percent of corporate strategists characterize their companies’ decision-making as slow – particularly for difficult and risky decisions – and those same executives believe that their current growth rates could be almost double if inaction were not a problem.
Companies without good risk management practices often make poor risk bets, such as an ill-timed acquisition or failed product launch. These missteps ultimately hurt a company’s bottom line, its brand and even its ability to operate. In fact, 86 percent of market capitalization declines over the last decade were caused by risks that were strategic in nature – not operational, legal or financial.
The “flip side” is also true, with excessive focus on risk prevention and overly formalized risk management processes leading to a type of risk aversion that CEB calls “organizational drag” – a complexity that slows decision-making and execution.
“Slow decision-making around risk taking is the critical barrier to growth,” said Sampriti Ganguli, executive director, CEB. “As growth is hard to realize and uncertainty remains prevalent, many business leaders have become either too risk averse, causing decision paralysis, or too risk prone, cutting corners and prioritizing short-term gains over longer-term success. Instead of focusing on one extreme or the other, executives need to have the courage to take the right kinds of risk in order to adapt to the changing business environment and maintain competitive advantage.”
To navigate today’s risk landscape, leading companies focus on taking the right strategic risks, simplifying their risk responsibilities and making human judgment and behaviors a risk priority.