CEO Jim Donald’s Memo to Staff: Take More Risks; Growth and innovation come from daring ideas and calculated gambles, but boldness is getting harder to come by at some companies.

March 19, 2013, 6:54 p.m. ET

Memo to Staff: Take More Risks

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CEOs Urge Employees to Embrace Failure and Keep Trying

By LESLIE KWOH

When Jim Donald took the helm at Extended Stay America a year ago, he sensed fear.

Many employees at the national hotel chain, which had recently emerged from bankruptcy, were still stuck in survival mode. Worried about losing their jobs, they avoided decisions that might cost the company money, such as making property repairs or appeasing a disgruntled guest with a free night’s stay.

“They were waiting to be told what to do,” recalls the former Starbucks Corp.SBUX -0.18% chief executive. “They were afraid to do things.”

So Mr. Donald gave everyone a safety net: He created a batch of miniature “Get Out of Jail, Free” cards, and is gradually handing them out to his 9,000 employees. All they had to do, he told them, was call in the card when they took a big risk on behalf of the company—no questions asked.

Growth and innovation come from daring ideas and calculated gambles, but boldness is getting harder to come by at some companies. After years of high unemployment and scarred from rounds of company cost-cutting and layoffs, managers say their workers seem to have become allergic to risk.

Companies large and small are trying to coax staff into taking more chances in hopes that they’ll generate ideas and breakthroughs that lead to new business. Some, like Extended Stay, are giving workers permission to make mistakes while others are playing down talk of profits or proclaiming the virtues of failure.

At Extended Stay, Mr. Donald says the small lime-green cards have been trickling in since last summer, a sign that the staff’s risk-averse mentality may be dissipating.

One California hotel manager recently called to redeem her card, he says, confessing that she nabbed 20 business cards from a fishbowl in the lobby of nearby rival La Quinta in an attempt to find prospective customers.

Another manager in New Jersey cold-called a movie-production company when she heard it would be filming in the area. The film crew ended up booking $250,000 in accommodations at the hotel.

Workers may feel some whiplash as companies inadvertently bombard them with “conflicting messages” to be creative and cautious at the same time, says Ron Ashkenas, a senior partner at Schaffer Consulting, a Stamford, Conn.-based management consulting firm that advises Fortune 500 firms including Merck & Co. and General Electric Co. GE +0.30%

A penchant for risk can get an employee flagged as a loose cannon or hard case for management. And, while companies may talk lovingly about experimentation, they’re often quick to deem someone a failure when results don’t come quickly, Mr. Ashkenas says.

Little wonder, then, that senior managers complain that “nothing happens” when they tell their employees to feel empowered and come up with new ideas, he says. The irony, he adds, is that a company where workers fail to take risks along the way often find themselves forced into a “position where it has to take a big bet, to put all chips on one shiny new object.”

Steve Krupp, CEO of consulting group Decision Strategies International, says one of his clients, a financial-services firm, dubbed its portfolio managers the “walking wounded” because they remain traumatized by losses their portfolios sustained during the economic downturn.

Many have become overly cautious about taking even ordinary risks with investments, adds Mr. Krupp, who is devising ways for the firm’s senior leaders and employees to overcome their fears and take balanced risks.

“You can’t just avoid all risk, because it will lead to entropy,” he says.

In many cases, risk-averse employees just assume that’s how the boss wants things. Mark O’Brien, North American president of ad agency DDB Worldwide, says he got a wake-up call when workers cited “profit” as the company’s top priority in a 2011 employee survey. In previous years, profit generally ranked second to creative work, and ahead of people.

He understood why workers felt that way. His division, DDB North America, had just laid off 10% of its workforce, and clients were paying less than before. He saw the work suffer, too—the division, which brought in roughly half of the company profit, only won a tiny share of industry awards given for creative work, a key driver for attracting talent.

Talking too openly about the company’s financial pressures was dampening morale and inhibiting creativity, he reasoned, so he took managers aside and told them, “You and I can talk about money, but don’t let that spill into the rest of the agency.”

Mr. O’Brien has taken risks of his own, going beyond the usual employee pools to source new talent in the U.K. and Latin America, where he says the advertising industry is more competitive.

To prod employees into action, some management gurus are preaching the virtues of failure.

Naveen Jain, CEO of information-technology company Inome, says his own missteps as an entrepreneur led him to urge his 400 employees to “fail fast” if they can, moving on quickly from projects that don’t take off.

“My whole life has been a set of failures,” says Mr. Jain, whose Internet-search venture InfoSpace almost ran out of money in the 1990s. “It’s impossible to try something new and not fail.”

About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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