Have you ever thought much about the phrase “center of gravity?” While more often used in a physics context, the idea of center of gravity is a very interesting concept when applied to approaching risk-laced decisions at credit unions. Before I dive into the concept, however, let’s pull in a clear description of center of gravity. I like this one from Encyclopaedia Britannica:
Centre of gravity, in physics, is an imaginary point in a body of matter where, for convenience in certain calculations, the total weight of the body may be thought to be concentrated. The concept is sometimes useful in designing static structures or in predicting the behaviour of a moving body when it is acted on by gravity.
From the standpoint of approaching risk, leadership teams have something similar at play, a certain center of gravity with respect to how a team in aggregate tends to approach and make decisions involving risk. Consequently, a team’s center of gravity, like in the world of physics, can be used to identify if not predict the team’s behavior when acted upon by outside influences.
For purposes of illustration, consider two teams. One has a center of gravity that falls in a category we’ll call “wary” while the other is in a category we’ll call “composed.” What are the upsides and downsides of each team’s category type? Let’s take a look.*
- Team Wary is cautious and anxious by nature, and keen to minimize risk.
- They will be alert to the potential risks in any idea or proposal.
- Conservative and conforming, they tend to comply with rules and procedures.
- They like to seek detailed information before making decisions.
- They are likely to carefully consider any feedback or advice they may receive.
- Enthusiastic and passionate, they invest a lot emotionally in their circumstances.
- Sensitive about their past mistakes, they will be anxious to avoid repeating them.
- Systematic and conscientious, they will likely have a planned and organized approach.
- Caution and emphasis on security may make them indecisive.
- They may miss opportunities by taking too long to weigh the options.
- Concerned with doing things by the rule book, they may seem reluctant to innovate.
- They may seem conservative, inflexible and resistant to change.
- Variable in their moods, enthusiasm may easily turn to disaffection.
- Feeling things strongly, their reactions may be fervent and emotional.
- Sometimes they will allow little things to irritate them.
- Having high hopes and expectations, they may tend to dwell on the past disappointments of the team.
- Team Composed is likely to be calm and level-headed in situations that unsettle others.
- They are able to remain effective and unperturbed when things go wrong.
- Whatever happens, they are likely to remain composed, consistent and even-handed.
- They don’t dwell on their mistakes or on past decisions that cannot be changed.
- They have confidence in their own ability.
- They are likely to be upbeat and optimistic about the future.
- They tend to be patient, purposeful and unhurried.
- They can be so optimistic that they fail to evaluate or anticipate risk.
- Certainty about their decisions makes them slow to pick up early signs of difficulty.
- Being so confident in their opinions, they may miss vital new information.
- They can appear oblivious to the level of risk associated with a proposal.
- They may ignore or dismiss negative feedback about their performance.
- They can be so sure of themselves that they may seem self-important or arrogant.
- Not much concerned about risk themselves, expectations of others (such as examiners) may be unrealistic.
There is nothing inherently wrong with the characteristics of each team, but they will approach risk differently. Let’s look at a likely strategic plan scenario for an example of what I mean.
Perhaps the respective boards of each credit union have established similar expectations that their credit unions migrate to digital-only financial institutions. With a project such as this, there is incredible risk. Closing branches might create ill will amongst members. Technology solutions may be glitchy. Potential vendors may oversell their capabilities and functionality. Staff may flee thinking that there might not be a place for them in the “new” entity. New avenues for fraud attempts may open up. The management team may be wholly unfamiliar with setting up and supporting a robust digital infrastructure.
Now how about each team? How will each approach the mandate? Which one is likely to move faster? Which one has a higher risk of failure? Which one has a higher risk of never finding a proper path?
The truth is that each has equal potential for finding success, but only if each is aware of how their respective teams approach risk — using their upside characteristics to their advantage while minimizing downside tendencies.
Looking at upsides, Team Wary’s path to success may involve spending more time creating a detailed and complete roadmap for digital transformation — something Team Composed may not endeavor to spend as much time doing. However, Team Composed’s success may involve more quickly bouncing back from inevitable plan execution challenges, allowing for consistent forward progress.
As for downsides, Team Wary may need to make sure it establishes mechanisms that keep them from overthinking decisions, and Team Composed may need to intentionally carve out time to identify potential decision-making and execution challenges rather than simply react to such challenges after the fact.
While each can be successful, whether each is successful will have a lot to do with their awareness of and respect for their tendencies when it comes to approaching risk. If, for example, Team Wary dwells excessively on past disappointments of the team, a fear of failure will set in to the point where they will likely pull back on forward movement and never fully execute the strategy. And, if Team Composed is oblivious to the level of risk a critical vendor or vendor proposal introduces, then they will likely sign contracts for technology promises that may never materialize.
The Risk Type Compass
While the scenarios I outlined are hypothetical, you may have actually recognized a tendency or two present in your own team. The background of what I am writing about here — the profile of a team, its center of gravity — is based on well-reasoned, scientific model of risk profiles, and you and your team have a center of gravity that, once you are aware of it, will establish keen understanding of team risk-based decision-making and action dynamics.
The model I am referring to is the Risk Type Compass**. Risk Type Compass is a psychometric model that captures the ways in which adults behave in risk-oriented situations. When multiple individuals from the same team complete an assessment and the results are aggregated, the team’s Risk Type Compass, or center of gravity, is revealed.
Let’s look at this in a little more detail. There are three measures provided as an outcome of a Risk Type Compass assessment:
- Risk Type: an individual’s disposition towards risk.
- Risk Attitude: an individual’s risk preference across five risk domains, including recreational, financial, health and safety, social, and reputational.
- Risk Tolerance: an individual’s overall capacity and tolerance for risk taking.
Individuals who must work and make decisions together each come to the table with their respective Risk Type Compass profile and the combination of these individual profiles creates a team’s center of gravity — again, where it sits in terms of risk assessment and risk response. For example, teams with a number of individuals with the exact same profile types, attitudes, and tolerance will act in ways strongly aligned with the profile type, whereas teams with a more distributed profile collection may act in more measured, diverse ways.
By the way, “wary” and “composed” are two of eight different points on the Risk Type compass. All eight are depicted in the adjacent compass image.
Going back to Team Wary and Team Composed, each team will approach risk-based decisions very differently (see how far apart they are on the compass), but if each team is unaware of their center of gravity, they each may take an approach that is heavily drawn from their natural profile downsides — meaning they’ll devolve to the “negative” tendencies of their profile type when confronting risk.
Your Credit Union’s Leadership Teams
Here is something interesting to think about. You have a management team with a Risk Type Compass center of gravity. Have you ever wondered if the board’s center of gravity is the same as the management team’s? While not a problem if the board and management team each have their own distinct profile, lack of awareness of this dynamic is a problem because it creates the potential to “devolve to the downside” behavior I just described above and potentially increases likelihood of board/management friction.
Think about it this way: what if, at your credit union, your board’s profile is Composed while the management team’s is Wary. If you’ve ever felt that management and board were from different planets, it is likely because of Risk Type Compass differences like this.
May I offer you a strategic suggestion? Develop institutional awareness of management team and board risk profiles at your credit union. Here’s how, with our support, you would do that:
- Have each individual management team member and board member complete a Risk Type Compass assessment.
- Develop each individual’s understanding of their personal Risk Type Compass profile.
- Establish board awareness of its Risk Type Compass profile (the aggregate of all profiles), and strategies for working effectively together given the profile.
- Establish management team awareness of its Risk Type Compass profile, and strategies for working effectively together given the profile.
- Establish collective board and management team awareness of each group’s respective profile, and strategies to leverage in intra-group (board/management) engagement, in particular whenever risk-based issues are being discussed and/or addressed.
In completing these steps, a much more informed “engagement dynamic” within each team and between the board and its management team will be established — with the overarching value being organizational strength in discussions and decisions involving risk.
As an aside, there are other organizational situations where this kind of profile knowledge will be very helpful, such as:
- In CEO succession, in particular if a board desires to shake up how the credit union approaches risk. If a board wants a CEO possessing more risk-taking sensibilities, it wouldn’t want to hire a CEO who is risk-averse by nature.
- In board succession, in particular if a board wants to maintain a certain dynamic when it comes to discussions and decisions involving risk.
- Pre- and post strategic planning, in particular if a credit union desires or has decided to head in a new strategic direction.
On that last point, I can tell you from experience that when naturally risk-averse management teams are challenged to take on more risk, they are rarely successful in meeting expectations if they do not understand and work past their profile “downsides.”
There is a lot to explore, a lot more that I can effectively cover in a post such as this. So, if you want to explore the details behind Risk Type Compass, or want to talk about how your credit union might benefit from this evaluation, let us know by filling out an online interest form. We’ll schedule some time to connect and address your questions.
My Profile Type
As I noted in a recent post on credit union HealthScore numbers, my profile type is adventurous and I’m willing to take a higher degree of risk than most people in certain areas. In fact, here is an interesting statement in my own assessment report about my profile type:
Their positive, upbeat outlook and desire for stimulating challenges allows them to pursue their adventures with equanimity.
As I shared in that same HealthScore post, I hiked Mt. Kilimanjaro this past May. The mountain is the tallest free-standing mountain in the world, topping out at 19,341 feet above sea level. At the summit there is approximately 50% of the oxygen available at sea level. I’m certainly not the first person to summit this mountain (about 30,000 people climb it each year), but I’ve talked to a lot of people who’ve said they could never envision such a climb let alone actually embark on one.
The climb is not technical, requires only basic physical fitness, and with the right guides can be done in a risk-controlled manner — so why is it that some people can’t fathom challenging themselves to lace up a pair of boots and start walking? Quite simply, their Risk Type Compass points them in a different direction. Whereas I can approach hiking a mountain with equanimity (mental calmness), others are terrified.
And that’s ok. We’re all different, and draw comfort from a variety of human activities, but in the case of being on teams, we all still need to work together, appreciating our differences yet aligning ourselves in effective ways so as to benefit those who are counting on us.
Want to get your own individual Risk Type Compass report? We charge a nominal fee for a report and 45-minute debrief. To get started, complete our online interest form.