Our profession must certainly reduce risk where it makes sense. Such areas of risk reduction include meeting legal requirements, honoring contractual obligations and ensuring basic processes like payroll and benefits are without mistakes.
Many organizations ask employees to complete an online course to make them more aware of how office actions can be interpreted and how to avoid harmful situations such as sexual harassment. Reducing the risk of inappropriate behaviors at work is an important role for HR to play, but it can go too far. It’s the same problem as putting your money in the mattress. You reduce the risk of losing the cash but give up opportunities to invest for higher returns.
When it comes to financial and other uncertainties, I prefer to think about risk leverage, which means both avoiding and taking the risks that make sense. In HR, outcomes such as less-than-maximum performance, turnover and employee shortages or surpluses are treated as risks to be avoided. Yet some turnover can create benefits, extra employees or even an employee shortage that may optimize risk and return; you don’t always need to guarantee maximum performance.
I’m teaching two MBA classes that deal with performance management, and I tell these future leaders they need to understand performance as risk leverage. I ask them, “Should organizations always avoid the risk of less-than-top performance?”
It’s a case-by-case situation. The same behavior carries very different risks depending on the job. On Jan.? 5, a United Airlines flight had to be diverted when it squawked the code indicating a hijacking. Fortunately, there was no hijacking. The squawk was caused by spilled coffee on the radio controls in the cockpit. Spilling coffee is a mistake for flight attendants and pilots, but airlines tolerate it for flight attendants and invest heavily to prevent it for pilots.
What about taking risks at the high end of performance, in customer service? Look up “preflight safety demonstration” online and you will find links to videos that include Cebu Pacific Air’s flight attendants dancing to Lady Gaga and Air New Zealand’s Bare Escentuals cosmetics demonstration featuring flight attendants wearing body-paint uniforms. The idea is to get passengers to pay attention.
Airlines often give the cabin crew great leeway in how they create a fun environment for passengers, expecting them to hold to essential safety standards while not being too rigid. Yet for the cockpit crew it is not vital that they spend time learning passengers’ names, rehearsing their in-flight announcements or coming up with funny jokes. These may be enjoyable for passengers, but everything that improves performance is not equally valuable. The payoff of funny jokes for pilots is not the same as for flight attendants.
The airline scenario reminded me of the U.S. Navy’s experience with the release of racy videos that led to the retirement of the commander of the U.S.S. Enterprise.
Several years ago, I had the privilege of teaching naval captains and commanders about talent management, and I showed an online video made by a carrier crew lip-synching a rock song. Most felt the video sent a positive image and might even be a good recruitment device to show that life at sea was not just boring and scary, and that the Navy was not stodgy.
Even then, the class could see the deeper implications for performance risk: A vital future element of “return on improved performance” for naval officers would be the growing influence of social media among those under their command. Ten years ago, it didn’t matter that much whether naval officers understood social media. Today, leader’s understanding of social media can be the difference between good decisions and career-ending ones. This is something to think about for all of an organization’s leadership competencies.
How well do your talent management systems optimize risk leverage? How well do your leaders, supervisors and employees understand differences in return on improved performance? How do you balance the upside with the downside?
John Boudreau is professor and research director at the University of Southern California’s Marshall School of Business and Center for Effective Organizations, and author of Retooling HR: Using Proven Business Tools to Make Better Decisions about Talent. He can be reached at email@example.com.