Business

CEO Guru: Managing risk

Managing companies also means managing risks. Get your attitude to this wrong and you could be heading for trouble.

Some business leaders believe that handling risk has become more difficult over the past decade or so.

Joe Plumeri, chief executive of global insurance broker Willis, says that phenomena such as the recent spate of natural disasters and the global financial crisis have helped to create a climate of doubt.

"The riskier the world gets the more fearful people become," he says. "It's the fear of the unknown."

Mr Plumeri sees this as a shift from earlier times when things seemed more settled and the pace of change was less rapid.

Chief executives such as him must adapt to new circumstances, he says.

Not only do they have to have vision and a sense of realism, they must also become better at managing expectations.

"A lot of people live in fear because they've never seen this stuff before, so my job becomes different," he says.

"I've got to be able to instil hope... that we're going to trump that fear."

Diversification

Fear is a factor that several business leaders say needs careful attention, particularly in the early stages of the life of a new enterprise, which can be fraught with risk.

Image caption Managing risk and rewards is a balancing act for company managers

Liu Chuanzhi, head and co-founder of computer firm Lenovo, began his career and worked as a scientific researcher in China in the 1970s and 80s, during the period when the country began to embark on large-scale economic reforms. At the time, he was an academic. He and others similarly qualified were encouraged to think about starting businesses.

"Most scientists did not want to take such a job," he remembers, "because it's highly risky."

There were few role models to follow, and no-one wanted to be the first to take the plunge.

However, Mr Liu says he was happy to take a risk, because he "wanted to stand out".

The venture was successful, but about 15 years later, about the year 2000, Mr Liu grew concerned.

Although the company was doing well, he began to worry that the computer industry was inherently risky.

"I handed the computer business over to my successor, and I got involved in property and real estate, because it was an important industry that was about to boom in China at that time," recalls Mr Liu.

'Get to profitability'

Diversification can be a useful approach to spreading risk.

But, says management expert Steve Tappin, before launching your business in a new direction, make sure you have enough cash to keep existing operations going - otherwise the whole company could be at risk.

Eileen Gittins is a serial entrepreneur from northern California, home to the thriving hub of business and technological activity known as Silicon Valley.

Ms Gittins is the founder of online publishing company Blurb. She lived through the boom and bust cycle of the dot com era of a decade ago, and says she has learnt the hard way that expansion needs to be carefully planned.

You cannot always assume that finance from outside will be available just when you want it to be, she says.

"When we started Blurb, the number one goal was to get to profitability," she says, insisting she did not ever want to lay off people because she could not pay them.

"We have always very carefully managed growth against profitability," she says. "Cash is king."

'Get on with it'

Balancing the risks a company faces often requires making difficult decisions.

Sir Martin Sorrell, founder and chief executive of giant advertising and marketing group WPP, says it is better to make hard decisions sooner rather than later.

Image caption Sir Martin says being slow can be costly

"I had a terrible phrase very early on," he says: "A bad decision on Monday is better than a good decision on Friday, meaning, get on with it."

Sir Martin hastens to add that he is not advocating rushing into action without a proper consideration of the situation, particularly if the right course of action is not apparent.

"But a lot of the times, delay is because you're frightened of making a decision," he says.

Companies that put off dealing with the "tough stuff" will find things get more difficult as time passes, he says.

Running a company in an uncertain world can seem a daunting task.

Clear thinking can be clouded by doubts.

Chief executives must learn to manage their own fears, says Mr Tappin, before they will be able to judge correctly what risks they should, or should not take with the future of their businesses.