Ballesteros, L., 2018, Innovation and Systemic Risks: Can Exposure to Exogenous Risks Affect Risk Taking within the Organization?
Systemic shocks are an important and increasing source of exogenous uncertainty in the life of the business organization. Phenomena, such as natural disasters, terrorist attacks, financial crises, political coups, and revolutions, affect markets’ status quo by disrupting national and international supply chains, triggering temporal or permanent institutional changes, or inflicting a direct damage to the human and capital resources of the firm. For the average multinational enterprise, exposure to systemic shocks is higher than ever and rising rapidly due to processes such as the internationalization of capital, global interdependencies, and the patterns of urbanization.
Can this increasing exposure to systemic or correlated risks affect managers’ risk taking, for instance, by investing more in innovation? One hypothetical argument is that organizations that are relatively exposed to systemic shocks embrace risky decision-making more often than firms with less exposure, ceteris paribus.
The central idea behind this argument is that risk propensity, which predisposes individuals to make risky decisions, is not a stable dispositional attribute, but a changeable characteristic that is “persistent” (Sutherland, 1989: 452) or “enduring” (Goldenson, 1984: 757) and can be “learned or inherited” (Corsini & Osaki, 1984: 542-543). This trait changes over time as a result of experience (Sitkin and Weingart 1995). Because systemic shocks are associated with high uncertainty and complex decision-making that occurs under severe time constraints (Bloom 2009, Kunreuther et al. 2002) and capabilities develop in part through practice (Helfat and Peteraf 2015), exposure to systemic shocks nay affect risk propensity. As an organization gains experience performing under the conditions associated with systemic shocks, the capacity, and thus willingness, to perform under risky situations tends to improve (Zollo and Winter 2002).