When Are Managers Willing to Take Risks?

 

When Are Managers Willing to Take Risks?

Wednesday, September 6th, 2017 - 12:19
Do federal managers systematically avoid taking risks, or do they regularly try new things, undertake organizational changes, and innovate?

The common perception is that, as a group, federal managers tend to be risk adverse.  However, new research based on data from the annual federal employee viewpoint survey concludes that the answer is: it depends.  Managers in both high-performing and low-performing organizations tend to be risk takers.  They probably feel they have little to lose by trying something new.  In contrast, managers in stable, middle-of-the-road organizations tend to be risk adverse and do not want to rock the boat by taking risks.

These insights are based on research by Sean and Jill Nicholson-Crotty and Sergio Fernandez in an article appearing in the current issue of Public Administration Review. To reach their conclusions, they applied a “relative risk” model – common in the private sector management world – to analyze survey response data from 2011 and 2013.  They looked at survey data related to “managerial decisions regarding the encouragement of innovation, empowerment practices, and delegation of decisionmaking authority” to determine the extent to which these practices were used in different organizations across the federal government. The authors judge these management practices as “risky” since the end results cannot be known at the time they are undertaken.

Background.  The annual federal employee viewpoint survey generates data on about 28,000 workplaces across the government.  The non-profit group, the Partnership for Public Service, compiles the survey’s summary results in its “Best Places to Work” report.  Detailed data are available to federal managers via a gated federal website, UnlockTalent.gov.  But for the most part, the data are relatively unexplored by researchers.  Parsing data like this – often called “People Analytics”in the private sector -- is a serious endeavor and used to make important management decisions.  Maybe studies like this one by the Nicholson-Crottys and Fernandez will increase interest in the potential for insights that can be gained from such analyses.

Why is this relevant now? The Office of Management and Budget (OMB) released a preliminary management agenda in March 2017, promising to develop a comprehensive plan for the entire government by early 2018.  In this agenda, it noted that “The Administration will . . .  let managers manage.” This implies some OMB support for innovation, delegation, and empowerment!

OMB also says: “The Administration will use available data to develop targeted solutions to problems Federal managers face and begin fixing them directly by sharing and adopting leading practices from the private and public sectors.”  The Crotty-Nicholson-Fernandez article is a good start in using available data!

What Can a Relative Risk Model Tell Us?  According to the authors: “A relative risk model can help us understand the relationship between performance and managerial decisions under conditions of risk,” where relative risk is the probability of similar decisions being made by someone else, or in comparison to a level of performance by other organizations or your own organization in the past.

They go on to explain: “. . . we use a relative risk model from the private management literature in order to understand how several major types of decisions made by pubic managers are influenced by the performance of their organizations.”

And what do the trio of researchers mean by risk?  They say: “Risky choice is typically defined as behavior requiring investment or imposing potential costs when outcomes are uncertain . . . innovating is risk taking because it involves a novel way of doing something that may or may not work . . .  adopting a new way of doing something introduces uncertainty regarding outcomes and therefore is inherently risky.” And this uncertainty holds true when delegating authority to employees as well as the use of collaboration and networks.

Hypotheses on Managerial Willingness to Take on Risks.  Based on findings in the business management literature, the three researchers crafted hypotheses for similar behaviors by federal managers that, in sum, ask:

  • Will federal managers promote more innovative activity or empower their employees with greater discretion when they believe their organizations are failing to meet, or are exceeding performance goals, relative to when they are just meeting those goals?

Their premise is that “the probability of major organizational change decreases as performance increases” and that managers will be less likely to undertake innovation, networking, and collaboration when they are just meeting goals relative to expected performance.

What Did Their Analysis Find? To test these hunches, the researchers analyzed employee perceptions of whether they worked in an organization that supported innovation and employee empowerment, based on 2013 survey data.  They then arrayed these results statistically against the survey responses of how managers in those same units rated their organizational level of performance and mission accomplishment in the 2011 survey.

They concluded: “The results . . . strongly support our expectations that managers in public organizations become more risk adverse when they are just accomplishing their goals relative to higher and lower performance conditions” and that “. . . managers will be more risk adverse, and thus less likely to cede discretion to employees, when they are just meeting performance goals.” Conversely, federal managers in organizations that are far exceeding or falling short of their performance goals tend to be more willing to take risks.

Implications for Federal Policy Makers and Agency Managers.  So, what are the implications of this research?  For policy makers, the researchers observe: “. . . the effectiveness of recent public sector reforms designed to incentivize innovation and entrepreneurial behavior, such as performance pay and employee empowerment, likely depend in part on the existing level of organizational performance.”  That is, across-the-board reforms will likely not result in a common response across the workforce.

And at the agency level, when agency leaders want to find and encourage their risk-takers, they should start by identifying their high- and low-performing organizational components.  According to the research results noted above, federal managers at both extremes of organizational performance are more likely to be open to innovating, empowering their employees, and involving them in decisions.  In contrast, managers in the mid-performing organizations may need to be pushed out of their comfort zones.

Interestingly, the conventional wisdom has been that managers in low-performing organizations will be more risk adverse and are more likely to impose greater controls, greater centralization, and less collaborative behavior within their operations.  But the data show that managers in low-performing organizations – rather than circling the wagons – may be more likely to take on new risks such as innovation and empowerment. That’s an insight worth acting on!

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