Why does an employee decide to take a risk? Perhaps environmental factors like company culture incentivize risk-taking. Or is risking-taking determined by employee personality?
The answer is a combination of both. Nike Professor of Supply Chain Management Carlos Mena has co-authored a research study asking how both company-level (“macro”) and individual (“micro”) attitudes regarding risk and resilience influence an individual employee’s decisions.
The authors found that employees who perceive their employer to be resilient — in other words, easily able to handle disruptions — feel more comfortable taking risks. Additionally, employees who have taken risks in the past are prone to continue taking risks.
With businesses facing high-stakes decisions in the wake of COVID-19, this timely research may provide a roadmap to maximizing supply chain performance.
The relationship between macro- and micro- decision-making
Macro supply chain risks are heavily scrutinized in the literature. Studies conducted on topics such as governance and reshoring help companies understand the risks they face and how to manage them. But internal performance has not received the same level of scrutiny, making Mena’s research unique in its focus.
This study acknowledges the circularity between company performance and individual risk-taking. Mena and his team found that resilient companies are a “safe space” for individuals to take sourcing risks, explaining that these risks often “translate into additional benefits for the firm.”
Conversely, companies experiencing setbacks may cause managers to make more more cautious decisions in an effort to bounce back. Mena predicts that as confidence in supply chains erodes, “managers’ risk-taking intentions will also diminish — they will be more cautious in the future, sourcing from multiple suppliers, using more local suppliers and increasing their safety stock.”
Why this matters
“Before the COVID-19 pandemic, many managers trusted their supply chains to deliver the goods on time. However, the significant supply chain disruptions during the pandemic (for products such as personal protective equipment, ventilators, and vaccines) have altered managers’ perception of resilience,” says Mena.
A traditional risk management approach entails scenario planning around known and unknown risks, but companies do not have that luxury in the midst of a massive disruption.
In a time of such upheaval, companies are scrambling to understand and implement all the necessary interventions for a coordinated strategy to mitigate risk. In the meantime, it is down to individual managers to make tough calls on the front lines.
These crunch-time decisions can be fraught and stressful. But the experience these individuals gain is priceless. After all, the manager’s “risk appetite,” or how much risk they are prepared to take, is directly informed by on-the-job experience and goes on to impact how they make decisions in the future.
Co-authors of this study include Steven A. Melnyk from Michigan State University, Milad Baghersad from Florida Atlantic University, and Christopher W. Zobel of Virginia Polytechnic Institute & State University.