Thongcharm

Hedging the Upside

In finance class, we are taught about hedging. Hedging is not only a topiary term, but also a way of protecting yourself against a negative outcome.

So, for example, you could buy a stock for $10 a share, and hope it goes up to $15. But, it could just as easily drop to $5 - so you buy a hedge - an option to sell it at $9. With a guaranteed out at $9 (at a loss of $1), you hedge the downside risk of the stock.

In business, however, I see the opposite behavior. Everyone wants to define their roles and bailiwicks and responsibilities so tightly that they’d like to hedge the upside. They want to prevent any risk of exceeding expectations.

For example - you might insist on a certain specific list of deliverables for which you are accountable. Or you might set a metric for total blog posts. Or you might make a list of requests you’re willing to entertain.

By capping your required output, you basically remove from yourself the responsibility of being agile, flexible or creative. You meet your basic check-box items, and nothing more. And the more you lock down - content, format, length, structure, stakeholders - the more you hedge the upside.You are preventing yourself from making $15. you lock yourself in to $10.

Now, some bond investors among us might think - great - but no downside risk either! But consider this.. absent a major organizational reorg or some major failure, people are rarely punished for taking risks or being creative. Their ideas may not get adopted, but, fundamentally, there IS NO DOWNSIDE.

Still, the vast majority of corporate creatures painstakingly work to hedge the upside… and then complain about the low return on investment.