The Success Zone: Aligning Your
Business Model and Risk Profile

by Stephen A. Rutan

Are you satisfied with the performance of your company's investments in new opportunities during the last five years? Are you comfortable with the promise offered by your current and future business plans? Any disappointment in your ability to successfully choose and implement projects could be the result of a mismatch between your business model and your management team's orientation to risk. This mismatch could be reducing the size of your Success Zone!

Before we can discuss the relationship between our business model and our risk orientation, we need to develop the basis for evaluating our approach to situations involving risk. What does each of us consider when taking a chance? Typically, the important three elements of risk are the following:

  1. The size of the wager in proportion to total available resources
  2. The expected size of the desired outcome
  3. The probability of the desired outcome

With these factors in mind, it is useful to think about the personality types that engage in risk situations. Consider the casino gambling environment. Nearly everyone has some familiarity with at least the fundamentals of Black Jack, Roulette, Craps and the like. We approach a gaming table, place our bets and based on our knowledge of the game and our assumptions for risk, we win or we lose.

There are at least 4 different types of gamblers based on their willingness to wager and their gambling performance over time. These are categorized in the Risk Matrix of Figure 1.

The first type is the small time gambler. They fly to Las Vegas expecting to gamble little, hoping to win more than they lose, but are more interested in enjoying the many entertainment options.

They have come to play some Slots and enjoy the Shows. They half-heartedly hope that their meager wager might actually enable them to hit the jackpot, but it is unlikely that they will return home with their stake intact. Without exceedingly high financial expectations, they return home a modest "winner", because they define victory as an enjoyable and fiscally responsible outing.

The second gambling personality can be characterized as the Card Counter. These characters possess complete understanding of every nuance of the game they choose to play. They believe that if there is a chance to win, they can tilt the odds in their favor. They come prepared and they expect that with a reasonable amount of money at risk, they can position themselves for the big payoff.

The third quadrant in the figure takes on the personality of the High Roller. These individuals have many traits in common with the Card Counters, in that they fully understand the game they are playing. The difference is that they are willing to risk large sums of money in pursuit of their dream of the big payout. Their personality is typically more brash and aggressive than the Card Counter and they usually thrive on the attention that their bold plays attract.

Finally, in the lower right hand corner of the diagram, we find the House Favorite! These players visit the casino loaded with cash, eager to show off, willing (and, frequently able) to blow the wad. They find themselves being treated like royalty by their casino hosts, provided with complementary airfare, lodgings and other benefits, because, in the long run, the hotels know that they will come out on top. They view the casino experience as an entertaining hobby and an opportunity to exhibit their remarkably deep pockets.

Each of these gambling personalities has a counterpart in the business world. In Figure 2, we redefine the axes of the Risk Matrix as Investment and Return and characterize the business personality types as follows:

The Steady Eddie individual (or organization) has a definite set of cultural characteristics. Portrayed here by the image of the Tortoise from the traditional fable, The Tortoise and the Hare, we know that the adage "Slow and Steady Wins the Race" is often true.

Typically, Steady Eddies are conservative, cautious and competent - playing basically the same business game as their direct competitors. They lack a distinct industry vision. They expect that, as long as they are as good as (or, perhaps, just a little bit better than) their competition, they will enjoy moderate success over the long haul. They plod along, investing in relatively small projects, expecting to prosper, but not expecting to strike it rich anytime soon.

The Master Strategist, portrayed here by former General Electric CEO, Jack Welch, is characterized by discipline, rich market and competitor information, a strong, mature vision of their industry, and high expectations. Master Strategists are aware of and focus on the development of a powerful array of strategic competencies. This self-knowledge enables them to generate a targeted list of opportunities that are closely aligned with their focus and their competencies. As a result, they approach new opportunities with confidence, consistently bring them to fruition and enjoy exceptional financial success.

The Bold Visionary - the Hare from the above-mentioned fable - is ambitious, aggressive and risk seeking. (Sure, the bunny lost the race in the original tale, but it wasn't due to lack of talent. I know where I am placing my money in the rematch!) Bold Visionaries perceive themselves as smarter than the rest of the market and feel that they possess an extraordinary, fresh vision for succeeding in their industry. Because of this, they brashly attack the market with large investments of money and time, expecting that they will enjoy skyrocketing success and leave the rest of the world behind. The popular business archives are filled with examples of companies that fit this profile - in hindsight, the winners are easy and attractive targets for documentation!

Finally, the Gambler believes that he is the Bold Visionary, but his true cultural characteristics are unpolished versions of the capabilities available to players in the third box. Gamblers are impulsive, impatient and perhaps desperate and sloppy. They have grandiose ideas, but lack the know-how and/or commitment to push the big projects through to successful completion. Still, they are irresistibly drawn to the big bet. Nobody consciously decides to be in this box - the perception of self is that of the Bold Visionary. Rather, Gamblers earn their position here through repeated (or a single, crippling) disappointment on the big projects.

If you buy into the characterizations of this risk matrix, then how can you apply them to your own business situation? The profiles can be used to evaluate both your company's proposed strategic opportunities and, perhaps more importantly, the ability of your management team to move the business forward.

Step One: Satisfy Yourselves

First, use the matrix to evaluate individual opportunities. As you develop your list of ideas for improving business performance, make a conscious determination as to which box each opportunity appears to favor. Prioritize the list based on overall attractiveness of each opportunity (e.g. bottom line impact, strategic significance, ease of implementation, etc.) and choose those opportunities that make your active list for this cycle of strategic planning.

Then, consider the composite picture presented by this prioritized collection of opportunities.

Is it strongly biased in any of the first three boxes? (Remember, no one chooses opportunities that are perceived to be in the Gambler box). Is your list evenly distributed among the three desirable boxes?

At this stage of the evaluation, there is no right or wrong combination. In order to determine if the resulting list is appropriate for your business, you must decide whether this portfolio of activities will satisfy the expectations for business performance over time.

What do you and your management team want to accomplish in the next five years? How much growth can you accommodate? What level of profits will be satisfactory? Do you have access to a resource base that is adequate for the completion of most of the opportunities you have chosen? Your management team is the group of people most intimately aware of the realistic potential of the business and should be able to estimate the impact of successful implementation of both existing and new endeavors. Does the list of new opportunities, along with your current products, services and strategies, add up to a fitting picture of success?

Step Two: Satisfy Owners

If the opportunities portfolio appears to meet your expectations, present it to the owner(s) and/or board of directors. Will they be satisfied with the projected results? You may need to modify your choices based on the demands placed on you by the controlling interests in the firm. If their demands represent aggressive targets for growth and profits, you may need to consider more of the larger, riskier projects typical of the Bold Visionary (higher slugging percentage, lower batting average). If the ownership is conservative, with lower requirements for long-term performance, then you may need to gravitate toward a mix of opportunities typical of the Steady Eddie quadrant (higher batting average, lower slugging percentage). Either of these scenarios can have a significant impact on the organizational structure and the array of investment resources that you prescribe for your strategic success.

Step Three: Assess Your Team's Capabilities

Assuming you have satisfied the expectations and best intentions of both your management team and your ownership, there is another level of analysis utilizing the risk matrix that will help you plan for future success: What are the personality characteristics of your management team? After all, identifying the possibilities for progress is probably the easier step in the process when compared to the hard work necessary for implementation. What questions do you need to carefully consider when evaluating your team's ability to follow through with the plans?

Review your track record. Have you demonstrated the ability to complete the big projects? Do you historically plan these projects thoroughly, follow the plan and exhibit the commitment and the stamina necessary to bring them to completion? With a blend of large and small projects on the agenda, does your team gain inspiration from and focus their limited resources on the major initiatives and generally let the smaller projects limp along or vice versa?

Are you better at completing many small projects? Are you somewhat daunted by the big changes and always manage to let them languish? Has your long-term performance been driven by the incremental success of several lower level investments? In the best situations, you may have demonstrated the ability to pursue both large and small opportunities with success.

Chances are, the types of projects that you have consistently completed in the past are the best indication of the overall personality of your management team (Steady Eddie, Master Strategist, Bold Visionary). Assuming no changes are made to the management staff, it is likely that your future successes will derive from the same sort of activities - align your current choices accordingly. If this has generated a track record of acceptable or superior performance and is likely to continue to do so, then celebrate your ability to align your risk orientation and your performance with expectations!

Step Four: Assess Individual Capabilities

Do not stop at analyzing the overall personality of the team. There are individual personalities at play and you can learn from assessing each manager's position on the matrix. For instance, you may have had mixed results with major projects, but notice that one or two individuals always manage to make things happen (Bold Visionary or Master Strategist personalities). You should not frustrate these team members' ambitions by shying away from the more aggressive activities. They actually thrive on the big challenges and are likely to become disenchanted if this appetite for adventure is not satisfied.

Do not under-appreciate the contributions of the Steady Eddie. The impact of a high batting average - provided the consistent player is asked for base hits and not home runs - is dramatic over the course of a baseball season and no less beneficial to a corporation. Match these individuals with the right type of projects and watch their job interest and satisfaction flourish - along with your business results.

Step Five: Assess Risk Leadership

Finally, consider the role of the general manager. Where does this individual fit on the matrix? A Bold Visionary may be capable of driving the team to industry-leading performance, but may have no use for the slow progress of the Steady Eddie personality. Similarly, if the CEO is the capable but cautious caretaker of the business, they are likely to struggle with the ambitions of the management team's high achievers. Several combinations are possible, each with its own positive impact or negative complications. Evaluate this important role and make sure that there is compatibility between your leader's orientation to risk and the performance expectations and personality of the organization.

Taking these factors into account is one way of modifying the risk matrix in your favor. Figure 3 illustrates a simplified version of the matrix, one in which the long term performance of the business falls into either the Success Zone or the Failure Zone - the dividing line representing Breakeven performance. By defining a clear and appropriate Vision for the business (through the activities of ongoing strategic planning) and complementing this Vision with effective Execution, the Breakeven line rotates in the clockwise direction - enlarging the Success Zone.

A realistic evaluation of your organization's personality and risk orientation and a corresponding alignment of your business model will improve your chances of spending your time in the Success Zone!


Steve Rutan is a consultant with Center for Simplified Strategic Planning, Inc. He can be reached via e-mail at rutan@cssp.com . For more information, call 203-255-2080 or visit www.cssp.com .

Simplified Strategic Planning:
A No-Nonsense Guide for Busy People Who Want Results Fast!
by Robert W. Bradford, Brian Tarcy, J. Peter Duncan, Chandler House Press, 1999.

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