Do You Play It Safe or Take Risks?

By R. Keith Mobley, Principal SME, Life Cycle Engineering
As appeared in Reflections on Excellence

In the not too distant past, I had the opportunity to help with two clients that face similar problems.  Both are losing market share because costs of goods sold are too high and ineffective use of installed capacity. Even when presented with vetted data and incontrovertible facts, neither will accept any responsibility for these shortcomings. They seek to blame external forces for their declining market position. That is where the similarity ends.

The first client has a history of being ultra conservative. They have relied on a few product families that generate 90 percent of their revenue, but now that market is declining and future prospects are dim. Over four decades, the risk averse philosophy of the company permeated the organization. As a result, everyone—from the CEO to the newest hire on the factory floor—avoids risks at all costs. No one is willing to question status quo, to see obvious losses, or to consider options that could improve performance. Everyone plays it safe and mindlessly follows management, business and work practices that accelerate the company’s decline. Like the ostrich, they bury their collective head in the sand and refuse to acknowledge that just because that is the way they have always done it is not acceptable in today’s world.

The second client has a volatile history that is full of direction changes, false starts and aborted projects. Their solution to almost every problem, including loss of market share, is to change something. Over the past few years, they have reorganized the entire management team—not by bringing in new faces but by reassigning their incumbent managers. They have spent tens of millions on new production systems, implemented an SAP information management system and adopted the Toyota Production System. Over the decades, the company has ingrained a culture of initiative change as a means of solving problems. If this organizational structure does not work, change it. If we cannot meet demand, install more production systems. Even though change continues, nothing has slowed the escalation of costs or decline in market share.

These are the two extremes in culture, one risk averse and the other an almost limitless risk taker, but neither can resolve their common problem. When we first met with each client risk management was near the top of the discussion topics. Viewpoints of these two clients were diametrically opposed. One client thought risk should be avoided at all cost and the other client believed that risk-taking was the way business should be run. Neither view is correct, but changing decades of conditioning is never easy.

Risk is a part of life. Taking risks is a necessary part of any business but one should never take unnecessary risks. For many years, I have joked that I do not gamble but I play the laws of probability every day. The difference is that before changing anything I take great pains to understand the risks, consider all of the possible consequences of each possible change and then weigh the probabilities of success. In other words, I take carefully calculated risks.

Each of these clients is slowly moving away from its polar position and moving toward the center—toward effective risk management and a culture that questions everything but carefully considers alternatives before making changes. In each case the transformation began with helping them understand risk. That might sound strange, but few companies truly understand or can even identify the risks that threaten their business each day. Most companies think of risk solely in terms of regulatory compliance or catastrophic business interruptions. Few consider the instability of their business and work processes that is the true source of high costs, poor quality and loss of market share. Constant fluctuations of output, product quality, or any other aspect of day-to-day business are risks. The only question is can one afford to live with them.

Once they could see and understand the risks within their operations, each of these clients has been able to make viable business decisions to resolve, or at least mitigate, them. Overcoming the decades of conditioning takes time and both clients continue to struggle against the incessant pull of habit, but they have maintained their discipline and are gradually reclaiming lost market share. They have learned an important lesson, but from different directions. One has learned that being risk averse—avoiding change no matter what—does not work. The other learned that uncontrolled change—taking unnecessary risks—does not work. They have both learned that taking risk is necessary, but only when the risk is known and the outcome predetermined.

MOBLEY'S 25th LAW:
“One Must Take Calculated Risks."

Thank you for taking the time to read this month’s letter. Hopefully, it has raised a few thoughts that will help you take the next step in your journey to excellence. I welcome your feedback and am happy to respond to specific questions. You can reach me at kmobley@LCE.com.

Best regards,
R. Keith Mobley
Principal, Life Cycle Engineering, Inc.

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Keith Mobley has earned an international reputation as one of the premier consultants in the fields of plant performance optimization, reliability engineering, predictive maintenance, and effective management. He has more than 35 years of direct experience in corporate management, process design and troubleshooting. For the past 16 years, he has helped hundreds of clients worldwide achieve and sustain world-class performance. Keith can be reached at kmobley@LCE.com.

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