The most innovative companies embed experimentation in their strategy and extract maximum learning from their mistakes. How can you be more like them?
There are two classic approaches to failure. One, epitomised by Winston Churchill, is bullish and relentlessly cheerful. “Success consists of going from failure to failure without loss of enthusiasm.” The Silicon Valley entrepreneurs who wear their failed startups as badges of honour are in this camp. The pharma giant Eli Lilly used to be in – in the 1990s it launched “failure parties” to honour fantastic research that flopped. But the word ‘failure’ proved just too demoralising and the regular “celebrations” were scrapped.
The second approach is best summed up in the words of Johnny Cash: “You build on failure. You use it as a stepping stone. Close the door on the past, don’t dwell on it. You don’t let it have any of your energy, or any of your time, or any of your space.” This is many big corporations’ default response to failure: keep it quiet, ignore it and hope it goes away.
Most businesses fall somewhere in between. Leaders know that failure is meant to be valued, embraced – even celebrated. They buy into the theory but don’t know how to pull it off in practice. Old habits die hard: bosses hold post-mortems when projects or products fail, grimly seeking to pin down lessons learnt. Admitting defeat doesn’t come easy because of what Matthew Syed, author of Black Box Thinking
, calls the “stigmatising attitude towards error”. Mistakes generally incur punishment and disapproval. Who wants that?
There’s bad news, though, if you’re tempted to hide your failures and just carry on trying to “get it right”. According to Julian Birkinshaw, Professor of Strategy and Entrepreneurship and Academic Director of the Deloitte Institute of Innovation and Entrepreneurship at London Business School, that in itself would be an epic fail.
“I have seen several companies adopt a zero-tolerance approach to failure – the person who failed gets fired, the failure gets swept under the carpet and everyone gets the message that this must not happen again. But this creates a fear culture – people follow the rules, whether they make sense or not, and no-one dares try anything new. Not a recipe for success in today’s fast-moving business world.”
Experimentation takes courage
How can you give your business the best chance of survival through innovation? Tim Harford, author of Adapt
, said there were three essential steps: try new things, in the expectation that some will fail; make failure survivable, because it will be common; and make sure that you know when you’ve failed. Professor Birkinshaw advocates an essential strategic shift for business leaders: fail methodically, through robust experimentation – and learn to maximise your return on failure. This sounds like an excellent plan. So why don’t more people do it?
“When you actually take a business person with responsibilities and a budget and sit them down and say, why don’t you do this as an experiment? They’ll say, ‘No, that won’t work: let’s pilot it or do some more research’,” says Professor Birkinshaw. “Experimentation is beautiful in concept but it’s very difficult for people to have the guts to follow through. An experiment says, let’s run two different pilots. You have to admit that you don’t know the right way forward – and nobody likes to admit that.”
Rajesh Chandy, LBS Professor of Marketing, Tony and Maureen Wheeler Chair in Entrepreneurship, has studied how innovative companies incorporate failure in their corporate culture. He says: “Innovative companies often have asymmetric incentives for enterprise. Enterprising employees in these companies understand that the rewards for success will be much higher than any punishment for failure.”
“It’s not the case that failure has no negative consequences in these companies,” he points out. “Those responsible for failure may get their wings clipped, or may face higher burdens of justification the next time they propose something. But the incentive structure is such that if they succeed, the rewards will be disproportionately higher than any negative consequences should they fail.”
“Moreover, innovative companies manage risk by having a diverse portfolio of innovation projects – some that are quite risky, and many others that are quite safe. They also look outside and capitalise on the risks that others are taking. By letting the ecosystem do some of the risk-taking, they reduce the risks to themselves.”
Professor Birkinshaw recommends drawing up a balance sheet to assess a project’s return on failure. On one side, consider your ‘assets’. These might include: What have you learned about your customers’ needs and preferences? Do you need to change any of your assumptions? What insights have you gained into future trends? What have you discovered about how you work as a team? On the other side, look at your ‘liabilities’: costs, both financial and less tangible costs such as damage to reputation or morale. Bottom line: What are the key insights and takeaways for your business?
Costas Markides, Professor of Strategy and Entrepreneurship and Executive Education Faculty Director at LBS, agrees that experiments are crucial in identifying which of your ideas will fly, especially if you’re trying to innovate in a company that’s resistant to your big ideas.
“How do you select the good ideas? Try them out. Get the data and then you can say, ‘Look, what do you think about it now?’ Design clever little experiments to try your ideas. Small-scale, low-cost experiments, that get results quickly.”
Great idea – now prove it
This is the tricky part. “You have to bring the learning into the workplace,” says Adam Kingl, Executive Director, Thought Leadership at LBS. “Realigning our position on failure, risk and experimentation is key. You’re not going to spot every single thing that’s coming over the horizon – the next key threat or opportunity. Better to build a capability throughout the whole organisation so that as many people as possible have a chance to spot and respond to what’s coming in the distance. Leadership is about enabling your team continually to respond, experiment and get in front. If you experiment, by definition you will be more agile.
“Aristotle said, if you want to be a braver person, find a brave person and imitate them. Just by imitating ‘brave’, you will automatically be braver. That’s what experiments are. They give you the opportunity to try or even just imitate ‘agility’. In so doing, you will be more agile in a year’s time. Why do you need to be agile? Because, as one CEO put it, business used to be like trying to spot trends and opportunities when you’re on a swing – you’re are always moving but you can still keep an eye out. Today, it’s like trying to do so while you’re on a rollercoaster. So you need to experiment to build your agility muscles.”
Still feeling a little nervous? Here is a four-step risk-mitigation framework Professor Birkinshaw suggests you keep in mind when you’re designing experiments:
1. Make your hypotheses explicit
– a good experiment is designed so that whatever the outcome, you’ve learned something new. It’s much better to be able to say your hypothesis wasn’t supported than to say the project failed.
2. Limit the scope of the experiment.
In the world of IT, the ‘sandbox’ is the offline testing environment where you try out new code. The same concept applies in business more generally – try the experiment in a limited way and make sure to run the new in parallel with the old.
3. Start at home.
You want to stay under the radar during the early days of your experiment, while you figure out if it’s really a good idea. So this means trying it out in your own department or business first, and using volunteers to help you. You don’t want to expose yourself to formal review until you’re well down the track.
You never get everything right first time. So learn the power of iteration and continuous improvement. James Dyson famously tried more than 5,000 prototypes before his bagless vacuum cleaner worked. Hopefully you won’t need quite that many.
Ultimately, what’s required is a shift in mindset. Kingl carried out a survey in June 2016, asking more than 100 UK HR directors about their company’s reaction to failure. Answers ranged from “A: Anyone who fails is quickly fired” through “B: We never speak of it – it’s shameful”, “C: ‘Good’ failure is tolerated but not shared” and “D: Failure is shared to a point, but there’s a stigma” to, finally, “E: Failure is shared and even celebrated”. Only 3% of the HR directors said their company’s attitude was an E.
The attitude you want to emulate is that of Tom Watson, CEO of IBM, in the company’s 1960s and 70s heyday. When a top salesman lost US$5 million on a project, Watson didn’t fire him. “Why would l fire you?” he said. “I’ve just spent five million dollars on your education.”