When it comes down to the wire as a business leader are you more likely to go for it or punt? In American football punting occurs when a team believes they cannot score in the final down or their chances of making another first down are low. They therefore decide to kick the ball to the other team in an attempt to put the ball deep inside the opponent’s own territory. In business, punting refers to when an organization chooses to give up or defer an idea or a strategy because they don’t feel they can “win”.
Is punting the best option? In football, the logic behind punting is that it reduces the opponent’s chance to score. In reality, punting reduces the chance for the team possessing the ball to score. Think about it, in football you have 4 downs to score. Rather than taking advantage of all four of these opportunities, by punting a team give up 25% of its opportunities for a first down in exchange for around 35 yards of field position. When a team punts, it reduces the winning opportunity to zero! University of California professor David Romer’s research concluded that teams should not punt but rather take the risk and maximize the odds to score.
Yes, winning takes risk. A common quote about risk is attributed to Jeff Bezos, founder and CEO of Amazon. The quote is “I knew that when I was 80, I was not going to regret having tried this…I knew that if I failed, I wouldn’t regret that. I knew the one thing I might regret is not ever having tried. And I knew that would haunt me every day.” No one can guarantee that a risk will pay off. However, to win, you must follow the famous words of Frederick Wilcox, well-known athlete, “Progress always involves risks. You can’t steal second base and keep your foot on first.”
If you can prevent risk and win, by all means do so. However, most often to score you will need to accept some level of risk in hopes of a superior return/win. This type of risk is known as a strategy risk. Robert S. Kaplan and Anette Mikes in the 2012 Harvard Business Review article, “Managing Risks: A New Framework”, define strategy risks as a strategy with high expected returns that generally require a company to take on significant risks, and managing those risks is a key driver in capturing the potential gains.
Therefore, to maximize winning opportunities you need to be both smart and brave. That means you need the data to make realistic risk assessments and the potential range of outcomes so that when you are on the fourth down you are prepared to score. Start with these four steps for taking your strategy risk all the way into the end zone.
- Be aware of your confirmation bias. Confirmation bias is the tendency to search for, interpret, favor, and recall information that confirms or supports a particular perspective or preferred outcomes. To help offset confirmation bias, consider leveraging independent experts to help with your assessment.
- Conduct a risk analysis: This entails identifying the potential threats and then estimating the likelihood that these threats will materialize. You need to calculate both the likelihood of these threats being realized, and their possible impact. For each threat you can use this equation.
Risk Value = Probability of the Threat x Cost of the Threat
Explore how you can reduce the risk value for each threat. Decide what you can and will do to mitigate the risk and/or reduce its impact? Place the risk value of each threat within the context of the opportunity value to decide which ones need the greatest attention.
Opportunity Value = Probability of the Opportunity X Potential Revenue of the Opportunity
- Plan your move, actually plan for several moves. Exceptional chess players are planning and analyzing multiple moves ahead and across a wide range of variations and anticipating possible responses from their opponents. They look for a good move that can withstand any possible response and still come out ahead. Take the same approach. Use scenario planning to help you identify and prepare for potential moves and counter moves.
- Implement the game plan. Odds are you won’t have all the information you need or want when it comes to deciding on the play. Being a leader entails making a decision and taking action without complete data. If you’ve done everything you can to calculate and mitigate the risk, then it’s time to commit.
Maximizing a winning opportunity is the result of defining a strategy, managing the risk, and creating and executing the plan. Of course, there may be times in football and business that it does make sense to punt. The key point of today’s episode is that savvy business leaders know you can’t score by punting.