Here is the counter-intuitive truth: true, outsized profit only exists as a reward for bearing Uncertainty.
If you only take measurable risks, your competitors will easily calculate those same risks and replicate your moves. Avoiding uncertainty doesn't keep you safe; it prevents you from ever becoming a market leader.
But how do you manage the unmeasurable? You don't do it with statistical forecasting; you do it through strategic structuring. Instead of rolling out that untested AI across the entire company and hoping for the best, you "sandbox" it. You beta-test it in just one branch. By isolating the exposure, you ensure that if the system completely fails, it only impacts one balance sheet, leaving the parent company's survival intact. You use phased introductions to keep human personnel on hand as a fallback mechanism, mitigating operational damage.
Not all risks are created equal
Beyond uncertainty, we also have to understand where threats come from. In 2012, professors Robert Kaplan and Anette Mikes highlighted that organisations often fail because they treat all risks exactly the same. They divided risks into categories, two of which are vital for leaders to understand:
- Preventable Risks: These are internal threats with absolutely zero strategic benefit, like an employee bypassing security to embezzle funds. The goal here is absolute elimination through strict compliance and zero-tolerance rules.
- Strategy Risks: These are risks a company voluntarily accepts to generate higher returns, like launching an aggressive new mobile lending app. The goal here is to manage and optimise, not eliminate.
The greatest mistake leadership can make is treating a Strategy Risk like a Preventable Risk. If you wrap an innovative new product launch in the same severe red tape used to stop embezzlement, you will strangle the initiative before it even begins. Strategy risks require dialogue and monitoring, not absolute elimination.
Ultimately, good management isn't about running away from the unknown - it's about knowing exactly what you are saying "yes" to, and building the resilience to navigate it.
The next time you face a massive unknown, don't ask, "How do we avoid this?" Ask, "How do we safely test this?"