Short term risk-averse management Vs. long term risk and winning it all management

There are two common strategies for investment that also apply for management (well management is an investment :–) ). You can focus on short-term profits while ignoring the next unknown macro event that can take away all the small gains that you collected over the years. The alternative is to accept small losses and plan for the big unplanned macro event that will generate huge revenues (revenues that will exceed lost you encouraged). While most of the people driven by risk-averse culture take the first strategy, the bold and successful players in the market use the second approach.

The same strategies can be found in management and with the same results. Most of the management group that I’m familiar with will take the risk-averse, efficiency, focus on continuous improvement approach. In their linear thought process, unplanned events are something that might happen every ten thousand years. So, they take their business forward until the ten thousand year’s event happens (note that in reality; those events occur every 5-10 years). When the event occurred, they’re losing everything (for example, banks during the South America crisis, financial institutions, aviation companies, the list is long).

The other management strategy is different, and it’s based on the assumption that one in ten thousand tears event will happen in the next five years. This management strategy is not focused on efficiency. It is taking continuous risks. In the heart of this strategy there is a concept that if a significant negative macro event will happen, the company needs to invest time and effort to prepare people to deal and work when the macro-event will take place. As in financial investment, when this strategy is in place, the company will see less short-term revenues. On the other side, when the macro-event hits the industry, they will be one of the few that will pick all the fruits from the trees while others will stand in chapter eleven office line.

Even a hybrid approach of those two strategies is better than a focus on the first one. But, regretfully people feel much more confident with the first strategy. Well, this is great, as it enables the few that are taking the second strategy to wait and earn X10 more from all the investment they put in place.