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RISK/REWARD THINKING IS DRIVING TODAY'S TURNAROUND SUCCESSES. WINNING REQUIRES TRANSITIONING FROM RISK TAKERS TO RISK SHAPERS.
IT'S TIME TO UPDATE CONVENTIONAL WISDOM. For example, in the 1980s conventional wisdom said you could have high quality or low cost, but not both-until Japanese makers of cars and electronics showed otherwise. Now, high quality and low cost are required just to enter the marketplace.
Today, a similar paradox involves the conventional wisdom on risks and rewards-that bigger rewards always require bigger risks. The challenge is to recognize that risk and reward are not inextricably linked, says management guru and author Adrian J. Slywotzky, director, Oliver Wyman (formerly Mercer Management). "It is possible to reduce the risk you confront at the same time you improve the returns." His evidence: "The leaders of today's most successful companies aren't risk takers, they're risk shapers."
He says the risk shapers typically uncover growth breakthroughs as well as the means to counter the accelerating economic volatility from such things as globalization, technology, venture capital, private capital and deregulation. Evidence of the new thinking is growing and can be seen in the turnaround accomplishments of such companies as DuPont, Corning Inc. and Cummins Inc.
Slywotzky explores his thinking in the just-published, "The Upside, The 7 Strategies for Turning Big Threats into Growth Breakthroughs" (Crown Business, 2007). In the book Slywotzky explains how the revised thinking on risk and reward applies to the successes of companies ranging from Toyota, Apple, Continental AG and Samsung to retailers such as Target and Coach.
He says the inspiration for the book came from how those companies gain new business opportunity while reducing unnecessary risk exposure. Rather than shrink from the risk so integral to the tumultuous global economy, those companies regard risk as being the greatest source of growth and future business reward. To Slywotzky, as management consultant, the key phrase is "strategic risk management." The goal: a transformation process to increase business opportunity while lowering business risk.
How is it done? Automakers, for example, constantly face the costly risk of project failure when they develop a new product. For example, Toyota's hybrid Prius was a $2 billion risk with a 5% chance of success initially. By making a series of specific risk-reduction moves, Toyota (but...