Bet The Barn – Not The Farm

Encouraging big risks at the local level for bigger wins.

“NEVER BET THE FARM.”

That’s solid advice for CEOs of large enterprises: Don’t take risks that the company’s very survival is on the table.

Paradoxically, that same solid advice can cause companies to miss valuable opportunities when managers take a local versus company-wide perspective. What would be considered a reasonable and valuable experiment for the company as a whole might appear to be a reckless leap for a local manager.

For example, a business unit replacing aging IT or production equipment might identify an emerging technology with a potentially great payoff… or it could cripple the unit for months. From the local perspective, they are betting their facility’s immediate future – they are betting their farm (and possibly their careers). The rational act is to pursue a safer path.

However, if this is only one of many facilities in a company, the emerging technology option is only a small side bet – betting the barn, not the farm. Further, if the technology succeeds the value is greater than the local team might realize. Once proven successful, the technology can then be confidently replicated across the rest of the company for a huge pay-off.

And if the technology fails? The impact to the overall company is minor and they can have contingency plans for other facilities to cover the disruption at minimal cost.

From the company’s view, this is a very smart experiment.

Encouraging Smart Experiments
Leadership is needed at the most senior level to overcome the exaggerated risks perceived at the local level. CEOs can encourage smart experiments by:

• Requiring ALL the options are put on the table: Decision makers can’t make their best decisions when they are not given their full range of choices.
• Probing for risk aversion: Corporate-level review is usually primed to identify over-optimism, not excess pessimism.
• Evaluating system-wide value: If the experiment succeeds, what is the value of repeating that success across the whole company?
• Adjusting performance metrics: A bet-the-barn experiment usually demands a revision of performance measures for the local team. Otherwise, teams will be reluctant to put bet-the-barn options on the table in the future

By recasting these risks in the light of the total company and removing the burden of the risk from local teams, firms open up new, valuable avenues for discovering opportunities that are currently overlooked. That can add up to big value.

© 2012 Verax Point