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The New Balance Between Risk and Control

(originally published by Booz & Company)

Decision-making today places a premium on speed to a degree unprecedented in world history. The need to act in e-time is testing the limits of the command-and-control model that has dominated commercial and military leadership for generations. To maintain a bias for action — and stay centered on the appropriate goals — both realms are coalescing around an emerging leadership model that rebalances traditional attitudes toward two crucial decision factors: risk and control.

In the corporate world today, decision-makers need to have a higher tolerance for and comfort level with risk. Multimonth task forces are the buggy whips of leadership. Today, failure to decide and act quickly can preempt options altogether. Increasingly, companies across industries are managing risk at a portfolio level — something financial services companies have been doing for decades. If one product line or venture doesn't pan out, it's okay, as long as the sum of business decisions yields success.

For the military decision-maker who deals not just in capital assets but in lives and national credibility, the concept of risk has greater implications. Bet-the-company decisions, such as those being made every day now in the Internet industry, would be totally inappropriate on the battlefield. Yet the redefinition of risk in the face of e-time is occurring in this sphere as well.

General Colin L. Powell has warned that procrastination in the hope of reducing risk actually increases risk. He recommends a 40/70 formula, and advises, "Don't take action if you have only enough information to give you less than a 40 percent chance of being right. But don't wait until you have enough facts to be 100 percent sure, because by then, it is almost always too late. Once the information is in the 40 to 70 range, go with your gut."

Contemporary leaders need to heed this advice, and become comfortable making decisions with imperfect data. At the same time, they must create a fault-tolerant culture for those below them in the organization, so the men and women closer to the action can take appropriate risks and make courageous decisions with less fear of failure.

That means contemporary leaders must also be willing to have less personal control — which is the second key element affecting decision-making today.

Leaders have to become more comfortable not knowing it all. This does not mean they have to lose control over situations, or give up responsibility for decisions. But they need to give up control of doing it "our way" in terms of process, and focus instead on setting the vision and driving the desired outcome through participative leadership.

Here again, there is concurrence between what is happening in corporate and military decision-making. As Booz-Allen & Hamilton war-gaming specialist Mark Herman puts it, "The commander has to maintain top sight" — to set the vision and watch that the mission is being met, but not focus on the tactical details about which fighter is going after which target. There isn't time for vertical command and control. There isn't time to direct operations at that level of detail. And the fact is, pilots and navigators are usually in a better position to make those decisions."

Corporate decision-makers need to rely on soldiers in their organization in a similar way. Max DePree, former CEO of Herman Miller Inc., explains it this way in his book, Leadership is an Art (Doubleday Books, 1989): "Participative management guarantees that decisions will not be arbitrary, will not be secret, or closed to questioning. But participative management is not democratic. "Having a say differs from having a vote." The best leaders empower and listen to their people — but they take full responsibility for making decisions and for the consequences of those decisions.

Ralph W. Shrader,
Ralph W. Shrader is the chairman and chief executive officer of Booz Allen Hamilton, the international strategy and technology consulting firm.
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