November 19, 2013
CEOs Become CRTs (Chief Risk Takers)
In the numerous discussions had on RetailWire over the years about what it takes to succeed in retailing, one of the common responses has been the willingness of companies to let their people fail, learn from mistakes and quickly move on. And yet, the reality is that 
many companies operate daily trying to avoid risks both small and large. That’s why a recent Sun Sentinel profile on new Office Depot CEO Roland Smith and his penchant for taking risks in his personal and professional life was so interesting.
For those not familiar, Mr. Smith has a reputation for turning companies around. He helped fast feeders Arby’s and Wendy’s reverse their declines and received high marks from those he led. Outside of the corporate boardroom, Mr. Smith likes to ride motorcycles and climb mountains. He served as a test pilot in the Army.
"Ever since college, I’ve looked for ways on a regular basis to challenge my own capabilities, to look fear in the face and take a little bit of a risk," Mr. Smith told the Atlanta Journal-Constitution in a Dec. 2009 article. "Because only people who are willing to take risks are truly free."
BrainTrust
Recent Discussions
Discussion Questions
How important is the willingness to take risks to being a successful leader in retailing today? How willing to take risks or risk adverse are retailers in general?
Poll
I’m betting he wears a helmet when riding a motorcycle and has the appropriate gear for mountain climbing. Risk-taking is great when you’re just stretching the envelope – not so much when you’re taking risks for the sake of taking risks. Experiment and learn in an environment that lets you contain the mistakes.
A successful leader in retailing today truly needs a “balanced scorecard.”
Unfortunately, too many leaders are primarily focused on cost cutting and risk avoidance. While those are always important in a balanced approach, retailers today can not expense themselves to profitability … at least not in the long term.
In today’s homogenous retail environment, retailers must differentiate or die. From that perspective, leaders need to more “calculated” risk takers.
There is a difference between willingness to take risk and “betting the farm.” Taking measured risks is what moves companies forward. This is especially important in today’s retail environment when the entire historic B&M business model is being challenged by ecommerce, showrooming, etc.
However, retail leaders must do this in carefully thought-out steps. Making the big bets can lead to disaster – just ask former J.C. Penney CEO Ron Johnson.
The more you lead the more you recognize the fundamental truth of finance: risk equals reward. That doesn’t mean taking blind or stupid risks, but it does mean that you don’t get ahead protecting the status quo. Leadership, especially in retailers, means taking a stand and staking out a path to growth and typically that path is not the safe way (which is a grocery store).
I know an organization is doomed when its motto is “Failure is not an option!” With that “guidance” in place, goals are set low, innovation is non-existent, risks never taken, decisions seldom or weakly made, and truth is restricted to elevators, restrooms and parking lots, but seldom evident in meeting rooms.
What we fear, we create.
If you don’t take some risks, you won’t succeed. The competitive environment calls for constant experimentation and change. Companies that are content eventually find their business eroding or collapsing. This is true for manufacturers and retailers.
Retail and risk. They are the same – the difference is the speed. Retail used to be lower risk because it was slower, but retail today is fast and thus, riskier.
Smith comes from fast-food retailing that is faster than the MAX marketplace, but more wicked due to the speed it takes to recover from the wrong decisions.
To play this out, retail is the same as dual-sport motorcycle riding. It is a mix of roads and trails dirt/sand/rock that jeeps and hikers avoid. Roland was on a street bike before. He is entering the segment of retail that is pure dual-sport. More than a helmet – he is wearing good body gear and on a bike – like my BMW 1200 GS – that was built for this sport. His management team and the MAX associates are the gear and the bike is the MAX brand. Strong, ready, and willing.
Roland needs to be ready for sand – pull up on the handlebars, lean back and crank the throttle, get the front wheel to ride the sand before you. Sand aligns with the holiday season. Moving too slow in sand and you wipe out hard. Same as retail holiday sales drive – move to slow with wrong assortments, promo, and no inventory and the numbers topple.
I could go on and on (no rude comments, please…) but most readers get it. Retail is now a fast and vicious game. There is no one answer to solving retailers problems – just the same as a dual-sport trail. It is about balance, sensing, and playing through the scenarios that you face.
Roland, dump the fast food helmet. Get a dirt helmet and better gear and see you at the camp site. Ride safe.
Tom
Thomas Edison was known to have said, “I didn’t fail, I just found 10,000 ways that won’t work.” That says it all about the need for risk and innovation in today’s marketplace speed. That is, keep trying or keep dying.
With respect to retailers in general, they run the gamut from extreme willingness, such as Amazon, to totally adverse, such as Blockbuster. Those two names alone depict the breadth of the spectrum.
In a multi-store chain, there is the ability to take educated risks by testing new concepts in select stores, (before rolling expensive changes out to the entire chain). Let’s hope Mr. Smith understands this concept better than the former CEO of J.C. Penney.
Retailing appears to be just above “trying to catch a falling knife” at every juncture these days. I would consider playing with knives risk taking. There is no progress without risk takers. Thankfully, they are the smaller percentage of the population.
The magic for this economy is to be able to get people that are shopping in your store to buy there. Twenty-first century, i.e., today’s retailers are facing an avalanche of buying methods and customer service demands. Store shoppers are now less than half of the opportunity for sales in a retail company. The risk in this reality is in not knowing what and where your opportunities are or how to recognize them, for that matter. I have no doubt that the competition will be posturing for the end game in this match up. But that’s just what I think.
My definition of leadership is as follows: preacher of vision, lover of change, and servant to others. A lover of change involves making decisions which necessarily involve risk. Recall the highest risk strategy is often the best strategy because it is not expected by the competition.
My perception of most retailers is that their goal is to be “first at being second.” Doing what the competition is doing too makes them number two. Prudent risk taking is the hallmark of success for any individual or leader.
A successful leader innovates first and manages risk along the way. Innovation and differentiation with successful execution is the key to advancing any business. Inherent in moving in this direction is always risk, so a successful leader manages the risk involved in change and progression. Unless of course you are building healthcare exchanges….
Chris Petersen has it about right. It’s not so much about taking risk for risk’s sake, but about creating the ability to experiment quickly and often while incorporating successful experiments into the core business. Retailers that fail to build such a capability, or that remain risk averse will find themselves falling further and further behind.
Good topic. I just had a conversation with some execs from a very large retailer about the “fail fast” concept and how it worked so well for The Limited when I was there. They proceeded to tell me though, that at their company, “fail fast” was more like “fail and get fired.” Which surprised me.
Really? In this day and age? Seems so primitive.
Mr. Smith is right, of course, but the change in mentality that needs to happen with some retailers is this: you can’t win all the time at everything – AND – that the best teacher is failure, not indecision or doing nothing.
Sports analogy: Michael Jordan was frequently (if not always) the highest scorer in the NBA. But what many people don’t know is that he also missed more shots than anyone else perennially. Missing does not equate to losing.
If taking risk involves having the patience of bringing a business “back to basics” then risk-taking should be applauded. The trend at retail has been to avoid the blocking and tackling in favor of the Hail Mary. I don’t know if this is due to ignorance to laziness, but retailer after retailer has gone down when management has relied on short cuts to produce results. They just don’t last!
In retail, failure rates are very high. Most ideas that retailers think will work based on intuition, inspiration, or even research simply don’t actually work. So you would imagine taking risks in a high failure environment would be a bad strategy.
In fact, just the opposite is true. High failure rates mean many more ideas need to be tried in limited ways – even very risky ideas – in order to figure out which ones work.
This in turn requires the right culture of risk taking. Leaders and managers need the guts to try many things, with two rules: 1) protect the downside – i.e., test in limited numbers of stores, be able to unwind what you test and 2) measure – so you can kill what fails and expand what works
More Discussions
How Timely Is the Planned Lowe’s Website Renovation Focusing on Personalization?
Is Lowe’s being timely with its website reno, and is it right to be placed as…Should Costco Be Opening Members-Only Gas Stations?
Is this the right move for the warehouse club?As Boomers ‘Age Out of Peak Purchasing,’ How Can National Brands Retain Interest With Gen Z?
According to a recent First Insight study titled “Is Gen Z Still Choosing Your Brand,” while…
I’m betting he wears a helmet when riding a motorcycle and has the appropriate gear for mountain climbing. Risk-taking is great when you’re just stretching the envelope – not so much when you’re taking risks for the sake of taking risks. Experiment and learn in an environment that lets you contain the mistakes.
A successful leader in retailing today truly needs a “balanced scorecard.”
Unfortunately, too many leaders are primarily focused on cost cutting and risk avoidance. While those are always important in a balanced approach, retailers today can not expense themselves to profitability … at least not in the long term.
In today’s homogenous retail environment, retailers must differentiate or die. From that perspective, leaders need to more “calculated” risk takers.
There is a difference between willingness to take risk and “betting the farm.” Taking measured risks is what moves companies forward. This is especially important in today’s retail environment when the entire historic B&M business model is being challenged by ecommerce, showrooming, etc.
However, retail leaders must do this in carefully thought-out steps. Making the big bets can lead to disaster – just ask former J.C. Penney CEO Ron Johnson.
The more you lead the more you recognize the fundamental truth of finance: risk equals reward. That doesn’t mean taking blind or stupid risks, but it does mean that you don’t get ahead protecting the status quo. Leadership, especially in retailers, means taking a stand and staking out a path to growth and typically that path is not the safe way (which is a grocery store).
I know an organization is doomed when its motto is “Failure is not an option!” With that “guidance” in place, goals are set low, innovation is non-existent, risks never taken, decisions seldom or weakly made, and truth is restricted to elevators, restrooms and parking lots, but seldom evident in meeting rooms.
What we fear, we create.
If you don’t take some risks, you won’t succeed. The competitive environment calls for constant experimentation and change. Companies that are content eventually find their business eroding or collapsing. This is true for manufacturers and retailers.
Retail and risk. They are the same – the difference is the speed. Retail used to be lower risk because it was slower, but retail today is fast and thus, riskier.
Smith comes from fast-food retailing that is faster than the MAX marketplace, but more wicked due to the speed it takes to recover from the wrong decisions.
To play this out, retail is the same as dual-sport motorcycle riding. It is a mix of roads and trails dirt/sand/rock that jeeps and hikers avoid. Roland was on a street bike before. He is entering the segment of retail that is pure dual-sport. More than a helmet – he is wearing good body gear and on a bike – like my BMW 1200 GS – that was built for this sport. His management team and the MAX associates are the gear and the bike is the MAX brand. Strong, ready, and willing.
Roland needs to be ready for sand – pull up on the handlebars, lean back and crank the throttle, get the front wheel to ride the sand before you. Sand aligns with the holiday season. Moving too slow in sand and you wipe out hard. Same as retail holiday sales drive – move to slow with wrong assortments, promo, and no inventory and the numbers topple.
I could go on and on (no rude comments, please…) but most readers get it. Retail is now a fast and vicious game. There is no one answer to solving retailers problems – just the same as a dual-sport trail. It is about balance, sensing, and playing through the scenarios that you face.
Roland, dump the fast food helmet. Get a dirt helmet and better gear and see you at the camp site. Ride safe.
Tom
Thomas Edison was known to have said, “I didn’t fail, I just found 10,000 ways that won’t work.” That says it all about the need for risk and innovation in today’s marketplace speed. That is, keep trying or keep dying.
With respect to retailers in general, they run the gamut from extreme willingness, such as Amazon, to totally adverse, such as Blockbuster. Those two names alone depict the breadth of the spectrum.
In a multi-store chain, there is the ability to take educated risks by testing new concepts in select stores, (before rolling expensive changes out to the entire chain). Let’s hope Mr. Smith understands this concept better than the former CEO of J.C. Penney.
Retailing appears to be just above “trying to catch a falling knife” at every juncture these days. I would consider playing with knives risk taking. There is no progress without risk takers. Thankfully, they are the smaller percentage of the population.
The magic for this economy is to be able to get people that are shopping in your store to buy there. Twenty-first century, i.e., today’s retailers are facing an avalanche of buying methods and customer service demands. Store shoppers are now less than half of the opportunity for sales in a retail company. The risk in this reality is in not knowing what and where your opportunities are or how to recognize them, for that matter. I have no doubt that the competition will be posturing for the end game in this match up. But that’s just what I think.
My definition of leadership is as follows: preacher of vision, lover of change, and servant to others. A lover of change involves making decisions which necessarily involve risk. Recall the highest risk strategy is often the best strategy because it is not expected by the competition.
My perception of most retailers is that their goal is to be “first at being second.” Doing what the competition is doing too makes them number two. Prudent risk taking is the hallmark of success for any individual or leader.
A successful leader innovates first and manages risk along the way. Innovation and differentiation with successful execution is the key to advancing any business. Inherent in moving in this direction is always risk, so a successful leader manages the risk involved in change and progression. Unless of course you are building healthcare exchanges….
Chris Petersen has it about right. It’s not so much about taking risk for risk’s sake, but about creating the ability to experiment quickly and often while incorporating successful experiments into the core business. Retailers that fail to build such a capability, or that remain risk averse will find themselves falling further and further behind.
Good topic. I just had a conversation with some execs from a very large retailer about the “fail fast” concept and how it worked so well for The Limited when I was there. They proceeded to tell me though, that at their company, “fail fast” was more like “fail and get fired.” Which surprised me.
Really? In this day and age? Seems so primitive.
Mr. Smith is right, of course, but the change in mentality that needs to happen with some retailers is this: you can’t win all the time at everything – AND – that the best teacher is failure, not indecision or doing nothing.
Sports analogy: Michael Jordan was frequently (if not always) the highest scorer in the NBA. But what many people don’t know is that he also missed more shots than anyone else perennially. Missing does not equate to losing.
If taking risk involves having the patience of bringing a business “back to basics” then risk-taking should be applauded. The trend at retail has been to avoid the blocking and tackling in favor of the Hail Mary. I don’t know if this is due to ignorance to laziness, but retailer after retailer has gone down when management has relied on short cuts to produce results. They just don’t last!
In retail, failure rates are very high. Most ideas that retailers think will work based on intuition, inspiration, or even research simply don’t actually work. So you would imagine taking risks in a high failure environment would be a bad strategy.
In fact, just the opposite is true. High failure rates mean many more ideas need to be tried in limited ways – even very risky ideas – in order to figure out which ones work.
This in turn requires the right culture of risk taking. Leaders and managers need the guts to try many things, with two rules: 1) protect the downside – i.e., test in limited numbers of stores, be able to unwind what you test and 2) measure – so you can kill what fails and expand what works