“The biggest risk is not taking any risk. In a world that’s changing really quickly, the only strategy that is guaranteed to fail is not taking risks.” – Mark Zuckerberg.
The concept of employee risk-taking stands out as a catalyst for innovation and progress, yet it is not without its caveats.
Defined as the bold pursuit of uncertain opportunities, it has manifested in policies like Google’s renowned “20% time” and the cautionary tale of Wells Fargo’s risk management missteps.
While employee risk-taking holds promise in facilitating creativity and personal development, it also presents risks such as financial setbacks and reputation damage.
This article examines employee risk-taking, its advantages, pitfalls, and the need for companies to balance encouraging innovation and safeguarding against potential risks.
What is Risk-Taking Behavior in Organizations?
Risk-taking behavior involves individuals willingly engaging in calculated-risks at work to achieve positive results for organizations while acknowledging and accepting the possibility of adverse outcomes.
What is Employee Risk-Taking?
Employee risk-taking refers to the willingness of employees to step out of their comfort zones and pursue opportunities that involve uncertainty or potential failure.
Taking risks involves:
- Embracing challenges.
- Making decisions that may lead to positive or negative outcomes.
- Taking calculated risks to achieve individual and organizational goals.
Companies that encourage employees to take risks create a work culture that facilitates innovation, creativity, and personal growth while contributing to the organization’s competitiveness.
“A calculated risk can help employees discover new and improved ways of working. This can not only lead to reduced costs and improved productivity but helps employees feel empowered in their roles.” – Robert Half.
Why Allow Employees to Take Risks?
Companies are motivated to allow employees to take risks because it drives innovation and creativity, leading to potential breakthroughs and competitive advantages.
Case: Google and 20% Time
During the early 2000s, Google introduced a policy known as “20% time,” which allowed employees to spend 20% of their work hours on projects of their choosing.
The idea behind 20% time is deceptively simple:
Google encourages employees to spend 20% of their work hours, or about one day a week, working on projects unrelated to their regular work or responsibilities.
This freedom allows employees to experiment with new ideas and collaborate with colleagues. The policy led to the creation of innovative products such as Gmail and Google News, demonstrating the positive outcomes that can result from employee risk-taking.
Google’s 20% time policy demonstrates how a culture of risk-taking can lead to new innovations, providing organizations with positive results and competitive advantages.
Is Risk-Management a Concern for Organizations?
It’s important for companies to manage a culture of risk-taking to ensure that risks are calculated, controlled, and aligned with the organization’s (ethical) values and long-term objectives.
Case: Risk-Culture at Wells Fargo
In 2016, Wells Fargo faced significant backlash and legal consequences after discovering that employees had engaged in risky sales practices, including opening unauthorized customer accounts to meet sales targets.
Risk-taking practices were not successful at Wells Fargo for several reasons, including:
Mismanaged Risk Culture
Wells Fargo experienced significant issues stemming from a risk culture emphasizing short-term gains over long-term sustainability.
Control Breakdowns
The bank faced control breakdowns across multiple business areas, including retail banking, mortgage, and auto lending, indicating systemic issues.
Reputation Damage
The bank’s reputation suffered immensely due to its risk management missteps, leading to credibility challenges and loss of trust among customers and stakeholders.
Lack of Governance
There were deficiencies in governance, with inadequate oversight from boards and management, particularly in challenging business practices and risk decisions.
Incentive Compensation Misalignment
Poorly designed incentive compensation plans incentivized risky behavior, creating a disconnect between business objectives and risk management goals.
Wells Fargo Key Takeaway
The Wells Fargo example underscores the importance of prioritizing long-term reputation over short-term gains and maintaining a strong risk culture throughout the organization.
Moreover, it emphasizes the critical role of effective governance, risk management, and incentive structures in preventing systemic issues and ensuring sustainable business practices.
“It’s important to think through the potential for unintended consequences (of risk-taking) and take steps to prevent, avoid, or address unethical and potentially illegal actions. Incentive systems must be carefully crafted to avoid the possibility that employees will be motivated to act in their own best interest rather than that of their employer.” – Curtis C. Verschoor.
Advantages and Disadvantages of Employee-Risk Taking
Advantages
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- Promotes innovation and creativity within the organization.
- Encourages personal and professional growth among employees.
- Facilitates a culture of accountability and learning from failure.
- Enhances employee confidence and self-efficacy.
- Allows companies to capitalize on new opportunities and stay competitive in the market.
Disadvantages
-
- Potential for financial losses or negative impact on company reputation.
- Risks may lead to employee burnout or stress if not managed effectively.
- Lack of proper risk assessment can result in misguided decisions or reputation damage.
- Overemphasis on risk-taking may deter employees from following established protocols.
- Requires a careful balance between encouraging innovation and maintaining organizational stability.
“If you are not willing to take calculated risks, then you will never reach your full potential or reach your business goals. So, one way to get more comfortable with risk overall is by taking baby steps. It’s best to start with small risks and work your way up from there.” – Kristin Kimberly Marquet.
Conclusion
When managed effectively, risk-taking by employees can spur innovation, drive growth, and create competitive advantages.
However, organizations and employees must carefully balance calculated risks and maintain a robust risk management framework to protect their long-term interests.
Developing well-designed incentive programs and governance structures is critical to aligning employee actions with company goals.
In sum, a risk-conscious culture, under the right conditions, can propel an organization to new levels of success without compromising ethical standards or operational stability.
Thank you for reading our article!
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