How are risk tolerance and job function related, and what do they have to do with leadership development? When most people think about risk tolerance they think about financial investing. Investopedia describes risk tolerance this way:
An individual should have a realistic understanding of his or her ability and willingness to stomach large swings in the value of his or her investments. Investors who take on too much risk may panic and sell at the wrong time.
Just as there are different levels of risk tolerance in investing, we have observed that employees are attracted to certain industries, companies, and functions based on their personal comfort taking on risk. This is part of the reason certain people gravitate towards start-ups vs. established companies, sales vs. accounting, and stable industries vs volatile industries. Whether consciously or subconsciously, employees weigh the risk associated with an industry, company, and job function with their personal needs when evaluating their career. And, truth be told, most people's risk tolerance is relatively consistent across multiple dimensions of their life such as investing, physical risk and career choice.
Functional Risk Tolerance is the amount of risk certain functions within any organization are willing to take on, and it is a key element in career decisions. It is the reason that sales people are generally viewed as the biggest risk takers, because no one closes 100% of their leads. For sales people, trying new things is simply a way to improve their odds, whereas quality assurance and regulatory functions are generally viewed as lower risk environments, as they focus on error prevention. Each of these functions attracts individuals who have a personal risk profile that is similar to that of the function. Regardless, if an employee is in a job function that does not align with their personal risk tolerance, they often don't last long.
While functional risk tolerance is manageable when an individual stays within a function, it creates challenges for individual contributors as they become cross-functional leaders, and ultimately senior leaders and executives. Imagine a leader who grew up in the risk averse world of quality assurance leading a cross-functional team of high performers from Sales, Finance, Marketing, and Technology. The mix of risk profiles around the table can be highly beneficial in making thoughtful decisions, but only if the leader can step outside his/her own world view and engage the perspectives of others.
So, how do you develop employees who have spent an entire career in a risk-averse function and get them comfortable taking more risk? Similarly, how do you develop risk-takers such that they have the empathy and interpersonal skills to not drag colleagues unwillingly into higher risk situations? These are vivid examples of leadership situations that demand balanced leadership. Ultimately, how do you develop balanced leaders?
These are questions we at Insight Experience encounter every day, and the answers are at the core of our experiential team-based simulations. Telling a leader to "be more empathetic" or "take more risks" is no more effective than telling them to run five miles when they haven't exercised in six months. However, putting someone on a cross-functional team, in a competitive environment, with strategic imperatives and extreme time pressure, creates tensions that replicate the risks inherent in a business. In that setting, a leader can explore their personal behaviors and practice how they engage their team. As they experience and reflect in the learning cycle, they understand the dimensions of their thinking that need to evolve. Just as the tensions are real, so is the learning, and the leader who couldn't run five miles now has the endurance to do so.