Question

Reflect on the role that leaders play in avoiding risk-management mistakes. How can managers navigate through the uncertainty of risk, and how can they deal with it? What leadership qualities are essential for dealing with uncertainty?

Answer 1

1. Managers navigate through the uncertainty of risk by following the below strategies:

Mobilize: The starting point is to embrace the uncertainty that paralyzes other organizations. As Nathan Rothschild is reputed to have said: “Great fortunes are made when the cannonballs are falling in the harbor, not when the violins are playing in the ballroom.”

In practice, this means ferreting out the many cognitive biases, such as overconfidence, that can lead to decision-making shortcuts. One way to fight back is to build an inventory of decisions, catalogued based on which can be made now and which require more information. Other tools that help include influence diagrams, real-options analysis, and system dynamics modeling.

If this sounds time-consuming, it is. And one surprisingly common failure mode we see is that leaders fail to block out time to discuss potential future states in the necessary detail.

Execute: It may be a difficult message to hear, but managers must realize that not all strategies are possible for their organization. Selecting a strategy with the least number of execution hurdles and the highest probability of closing the relevant capability gaps is vital. An attractive strategy you can’t execute is useless.

Transform: Rather than place all bets on one or two initiatives, companies should take a portfolio approach to investing for the future. Yet organizations must also develop processes that help them objectively, quickly, and relentlessly pull the plug on projects or strategies that are failing. One approach is the “real, win, worth it” framework developed by Wharton’s George Day.

Agility: Leaders know in their heads that even the most successful companies must adapt, but in their hearts they often fail to recognize how much more dramatic the changes to cherished strategies and processes may need to be.

An industry-leading asset manager shows how to adapt. It had weathered the financial crisis fairly well, but its leaders recognized that the business needed to evolve into passive trading, despite its heritage of active trading.

2.  Leadership qualities are essential for dealing with uncertainty are:

Presence is an essential skill for keeping calm, grounded and aware when everything around you is chaotic and uncertain. It involves ‘deep listening’, which means being open beyond your pre-conceptions and historical ways of making sense, and being acutely aware what of what’s going on in the present moment. This allows leaders to operate from a deeper sense of what is real and truly required at any one time, so moving beyond current loyalties or short-term agendas.

Framing is a fundamental skill for leaders of change to master. This enables leaders to steer their teams through the unchartered waters of change by continually letting them know i) where they are in the story of change, and ii) what’s required next. It is a guiding rather than controlling way of leading.

When a leader is ‘framing’ he or she defines a clear context and boundaries for whatever requires attention.   This means painting a picture that illustrates the change destination, keeping teams in touch with the story as it’s unfolding, and holding this frame consistently so that others can engage with it and ‘fill it in’ as things progress.

The constant requirement to deliver change in an uncertain context is a highly stressful business for leaders. Absorbing the boss’s anxiety, being under increased scrutiny regarding performance, living with imperfect decisions, dealing with the team’s concerns and managing one’s own anxieties – these things all take their toll. To lead well within this swirling cocktail of emotions, leaders need to become skilled at containing.