Why courage is key

23 September 2016 -

As the initial shock of Brexit wears off and fears of political turmoil and economic doom begin to recede, it is clearly time for organisations to put in place a strategy that will best serve them in the new age

Guest blogger David Dumeresque

Many business leaders are too concerned with current regulations and preserving reputations (both corporate and personal) to examine what new opportunities are emerging.

Excessive focus on risk prevention and overly formalised risk management processes lead to "organisational drag" – a complexity that slows decision-making and execution. The flip side, when leaders embrace strategic risk and embed this into the very DNA of their organisation, can have a transformational effect on corporate culture as well as growth figures.

One of the key hurdles to growth appears to occur when those at the helm have only ever operated in a recessionary environment.

According to Carol Dweck, a psychology professor at Stanford, people can be broadly split into two categories, those with a “fixed mindset”, such as those who view talent and leadership as a quality they either possess or lack, and those with a “growth mindset,” who by contrast, enjoy challenges, strive to learn, and consistently see potential to develop new skills.

Both types of mindset may be influenced by external circumstances but, when we look at those leaders who have only ever operated in recessionary times, the differences become less well defined.

While a leader with a growth mindset may conceivably be more optimistic, if they have had little to no experience of managing in a risk taking, entrepreneurial environment, they are still most likely risk-averse. Those with a fixed mindset are even less likely to stretch boundaries and change mentality.

The circumstances for stagnation are set.

Given the emphasis over the last ten years on keeping operating costs low, shrinking discretionary expenditures, rationalising business portfolios and preserving cash, managers will struggle to flip the model around to focus instead on making fresh investments in R&D, developing new businesses, or buying assets such as plants and machinery.

The explosion of corporate share buy-back programmes is one key indicator of risk-averse management, and in the US alone, JP Morgan estimates that a massive $615bn worth of buy-backs were recorded in 2015 by US companies.

When significant amounts of cash flow are being allocated to stock buy-backs, the result is that much less is being apportioned to investment of whatever type. Using that capital to buy back stock may be compelling from a share price performance point of view, but the strategy is becoming harder to justify.

Earnings growth that is derived more from cost cutting, corporate restructuring and share buybacks has some key investors questioning this strategy. Failure to invest for the future in terms of capital equipment, research and development and people is going to have a significant impact over the coming years and hold back growth.

The opportunities missed over the next few years will be lost for ever.

A new type of economy has been spawned precisely during these last recessionary years, such as Uber for transportation, Tinder for dating and AirBnb for accommodation. What has shaped these innovative concepts has been a combination of carefully taking stock of the current economic landscape and throwing away the rule book.

A failure to change and reliance on the components for a successful business ecosystem which were valid 15 years ago is a recipe for long term corporate oblivion.

The business landscape still looks confused and organisations will always have to cope with the myriad of uncertainties, yet this is, paradoxically, an opportunity for companies to be brave and to start taking risks.

It is vital leaders break out and seize the opportunities that arise. Waiting to see “how the chips fall” will only allow others to steal a march. Without betting the ranch, leaders should be pushing more aggressively for growth, taking risks and adjusting and adapting their strategy for the next few years.

The first step is to recognise that this is a time for boldness, not for caution.

David Dumeresque works for executive search experts Tyzack