Love risk but hate loss?  You're not alone.

“This new market strategy is great… but what if we lost one of our key clients?” “This product has the potential to make a huge splash… but should we stray too far from what we are known for?” “This improvement proposal could improve our efficiency, safety, and alignment significantly… but the up-front cost is pretty high.”

Do these statements sound familiar? They reflect the never-ending dilemma of organizational decision makers: seizing opportunities without sacrificing current assets. There is a balance. But how do you find it?

Bengt “Dr. Beng” Järrehult, innovation guru at SCA, claimed in his Pipeline 2011 keynote, Two Ways of Working in One Company, that most organizations are not, in fact, risk-averse. They are loss-averse.

Risk is attractive. It holds the possibility of new markets, growing profits, and innovative ventures. Organizations intuitively know that stepping out on a limb can help sometimes. But loss is a different story.

Loss is one of the most feared words at any organization. The perception in most business is that losing is never okay and always means that the organization has taken a step back.

In actuality, organizations lose and make up for those losses all the time. But the cultural perception of loss typically does not include this reality. When presented with an opportunity, the list of potential losses is often far more visible and concrete than the abstract benefits of the opportunity. In the executive’s ideal world, opportunities would present themselves with only lists of benefits. If any negatives to seizing the opportunity existed, they would be remote and easily surmountable. But this is almost never the case.

It is so much easier to stay the course. Organizations want to take risks; they know risk will benefit them. But because their current trajectory, product line, or way of doing things holds some benefit—albeit not as much as the risk opportunity—and very little potential for loss, they stay with the current plan. No executive or manager wants a loss on his or her shoulders.

But organizations die this way. Yes, die! Failing to innovate by ignoring the growing irrelevancy of products or the slow narrowing of a market can sink organizations before they even realize what is happening.

The only way to overcome the aversion to loss is to change the organizational culture itself. If the organization allows failure and rewards risk taking, people will become more apt to take risks. Focus on risk and the positives that it brings. If you can emphasize the fact that organizations incur loss all the time and that loss and failure are natural stops on the pathway to success, risk becomes much less... risky.

Organizations afraid of people taking too many liberties can institute processes to monitor or measure risks—again, monitor, not control. Let people take the risks, and keep track of how they are doing. Tracking progress is not merely a babysitting exercise; it can also demonstrate the true value of risks. You will be able to see where the organization most feels its losses and when it can typically expect to see gains. You can also track the percentage of loss to gain in different categories of risk. All of these figures can help you make better choices when it is time to consider future risks. Measurement (as usual) makes things clearer.

At APQC, we believe that failure is an option. It’s not an attractive option, but it is bound to happen if you are ever going to succeed. Hear one of our friends, Scott Anthony of Innosight, speaking on this topic in this recording: Accept Failure and Focus on Experimentation for Innovation.

And read a little more about how best-practice organizations handle risk and failure in The "Right" Failure is an Option.