When Are Managers Willing to Take Risks?

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-averse. 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-averse 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 decision-making 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 potential 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!

Image courtesy of freedooom at FreeDigitalPhotos.net

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richard regan

This is a great piece but I would have avoided the use of the phrase “circling the wagons.

Definition- Refers to a defensive maneuver white people used with their wagons to fend off American Indian attacks.

Historical Context- Most American Indians would feel they were justified in defending themselves against an enemy that stole their land, broke treaties and spread disease and violence with a campaign of forced assimilation.

Misunderstanding- Has evolved into a process of bringing team members together to fend off an attack from external forces.

Why the Term Should Be Avoided- Reminds Native people of an excruciating time in their history when they were nearly exterminated by the same federal government you refer to in your post.

Mark Hammer

Interesting piece (though I expect nothing less from John), and interesting article.

One of the elements missing is that of managerial tenure. When the Canadian federal government started its FEVS equivalent in 1999, one of the questions asked of employees was how many supervisors the person had during the previous 3 years. There are many instances where a person might report to multiple people without it necessarily being a case of managerial turnover, but we will assume that in the majority of instances, where a person reported more than one, it was because the last one was replaced by a new one.

Also asked was whether the employee felt they were encouraged to show initiative and be innovative. Typically, the more supervisors/managers they reported having in the same time period, the less likely they were to report such encouragement. Additionally, they were also less likely to indicate they had good communication with their supervisor, and reported less support for career development. There are many ways to interpret it, but my own is that new managers hit the ground running. They have to establish their own credibility to those above them. They also have to learn who to trust in those who report to them, what to trust them with, who to invest in, how to invest in them, and why. In short, taking risks is deferred “for later”, whether risks in changes to process or giving employees a longer leash, and will take time until it begins. If the employee is fortunate, and the manager not too much of a careerist, there will be enough stability for that to begin. If the manager is off to their next “exciting new challenge”, risk-taking may be off the table.

Of course, the aspect of corporate culture matters. I am reminded here of Malcolm Gladwell’s classic article (“The Talent Myth”) on the fall of Enron and WorldCom, in which he notes frantic rapid promotion of “top talent” recruited into managerial positions in both organizations, where newly-hatched MBAs would come up with some hairbrained scheme, impose it on their work-unit, and then move on to their own “exciting new challenge” without having to pick up the pieces of their own risk-taking. Corporate tolerance for risk-taking matters.

Finally, there are business lines where we encourage innovation and those where it is discouraged for all the right reasons. We do not want “innovation” from border guards, prison guards, or anyone in a regulatory-enforcement role. Many other kinds of jobs, and organizations where such jobs are found, CAN readily accommodate doing things differently and encouragement for doing so. But it is a reality that many other sorts of jobs are predicated on consistency and constancy of process and procedures. It’s always possible those deeply-entrenched processes are inefficient or ineffective, but the corporate value that “we do things the right way” is not, in itself, unreasonable or contrary to public expectations.

So, in sum, the paper would have been more informative for me, had it included managerial tenure (within the work-unit, or at least the agency), and also paid some lip service to the nature of the agency/work-unit business lines. It is possible that organizations with greater stability in their management cadre are both higher-performing AND more willing to take risks. Tenure may be the third variable that explains the relationship between the other two.

Mark Hammer

Oops. I am inferring that when an employee reports having more supervisors in the same period of time, that average managerial tenure is shorter. Not quite the same as asking the managers themselves “How long have you been attached to your current work-unit?”, but a not-unreasonable proxy.

John Kamensky

Mark – Thanks for the thoughtful comments! This might be an issue to raise with the researchers who did the PAR article . . . but they based their research on the data produced by the Office of Personnel Management, and I’ll see the person who leads the survey work there, next week. Will raise it with her!

Mark Hammer

Much appreciated. I will note that the 2016 FEVS asks respondents how long they have been with their current agency, and how long they have been with the federal government. When paired up with managerial status, those two variables should make for some interesting supplementary analyses.

Mark Hammer

Incidentally, I have been heartened by the number of papers I have seen in the public admin journals that make use of FEVS data. Many in Hal Rainey’s and Bradley Wright’s circle have published papers utilizing it. The government-wide surveys I have been involved in are just as rich, but have been sorely underutilized by academics. I doubt there isn’t a single researcher out there who wouldn’t chew their right arm off to have access to datasets with several hundred thousand cases and so much demographic information.