For the rider above, the stunt has risks, but with skill planning and practice, it becomes manageable.
As we approach 2022, it is essential that we develop the same skills for our firms – so that we can reclaim our ability to manage risks and develop fresh sources of returns for our stakeholders (if you are curious about the physics involved in the loop, you’ll find more on that here).
I’ve been in conversation with more than 40 leaders of firms and, through no fault of their own, they have been subtly shading their risk appetite toward the core. While I’d be the first one to recommend that we invest most of our budget into the engine that pulls our firm forward with consistent efficiency and cost improvement, we also know that to have a vibrant firm, it’s essential to invest in projects and products with higher potential rewards.
When I ask what’s pushing them toward the core, I hear two replies:
- The first response is a shortage of skilled resources. The talent shortage and the great “resignation” certainly have had an impact.
- Less frequently stated is the sense of trauma from the last 18 months. In short, leaders are just fatigued and ready for a “return to normal” (Though I’d argue that normal has been permanently changed by the pandemic).
We all know there is a tipping point of risk and reward, and removing all risk can be as costly as having too much. The inflection point for this moment of adding risk by investing in the core doesn’t have a warning light, and can easily be missed until a competitor shows up with a business model change that puts us on our heels.
So what can you look for in your own firm? What seemingly unrelated events might prod you to lean up against this force field?
Spotting this trend is challenging, because the effect is in the future. One thing we know for sure however, is that a firm rarely outperforms its business benchmarks on projects in the core. In fact, as the market gets divided into smaller and smaller niches, returns come under even more pressure.
I’ve given you four areas to think about below that are close to the front lines and as close to leading indicators as possible.
4 Internal Patterns That Can Foreshadow an Unintentional Retreat to the Core
#1: Portfolio Reviews are Dominated by Risk
The Event: When you have your quarterly allocation meeting when programs are reviewed, the dialogue quickly moves to the chance of success without a corresponding deep discussion of business case reward.
An Example: In working with a team on new products, when sitting in on meetings, I noticed that the leader unintentionally was emphasizing risk-based dialogue without the corresponding business case testing and valuation.
Why it Moves You Toward Less Risk and Reward: Teams pick up on this really quickly and stop bringing up higher reward ideas that need teamwork to flesh out. This results in teams not bringing forward high-potential ideas that are not yet worked out. Ultimately, the business misses out on higher stakeholder returns.
#2: One of Your Key Product Leaders Decided to Move on
The Event: One of your product team members decides to start answering those unsolicited emails from recruiters.
An Example: Product leaders are constantly doing the risk-reward math, not only for you, but also for themselves. Their move will happen suddenly, even though it’s been on the product leader’s mind for a while. Unfortunately, recruiters have the upper hand right now, because in many situations, they make their case to your best team members 1:1.
Why it Moves You Toward Less Risk and Reward: The leaders who move are typically the higher performers. They have an external social footprint and bring the projects forward that have higher risk and reward.
#3: Your Best Account Manager Has Taken a New Job
The Event: Your most entrepreneurial account manager moves on.
An Example: Every firm has one…they are consistently on the hunt for trends and new angles for the product line. They dominate the bar during sales meetings, talking to the engineering leaders as much as they can while bypassing the product managers.
Why it’s a Leading Indicator: This type of sales leader thrives on aligning offers for the niche, that they can drive margins in with low competition. When they sense they can’t get the firm to respond, they’ll move on fast – and take the relationships and insight with them.
#4: One of Your Best Partners Changes Direction
The Event: Either upstream or downstream of your firm, one of your partners adds or cancels a product, service or capability that has a significant impact on your team.
An Example: A components manufacturer who cancels a line of custom devices that causes significant heartburn to downstream customers.
Why it’s a Leading Indicator: Suppliers don’t take these decisions lightly. If they are moving on, chances are they have done the homework and determined that your product lines are headed for commoditization – and challenging returns on investment.
How to Move Back to the Offensive When it Comes to Risk and Returns
If you’ve read this far and ticked off one or two of the items above, through no fault of your own, you may well have become a firm that is over-emphasizing the core. The cleanest way to verify those insights is to use a neutral resource to talk with key leaders and look at a snapshot of the portfolio.
Once confirmed, you can go to work building the platform that will help you regain the balance needed to optimize your investments.
To assist senior leaders, I use a tested framework built on the foundation of patterns I’ve observed in dozens of projects to help you structure a project in a way that gets you the results you back into the higher return zone.
If you’d like to talk more specifically about your situations, feel free to put a call on the books using this link. If I can help it will become quickly obvious, and if not, I likely know another resource who is a better match.
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