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Increase Your Return on Failure

By Julian Birkinshaw and Martine Haas

One of the most important—and most deeply entrenched—reasons why established companies struggle to grow is fear of failure. Indeed, in a 2015 Boston Consulting Group survey, 31% of respondents identified a risk-averse culture as a key obstacle to innovation.

Senior executives are highly aware of this problem. On one hand, they recognize the usefulness of failure. As 3M’s legendary chairman William McKnight once said, “The best and hardest work is done in the spirit of adventure and challenge…Mistakes will be made.” Pixar’s president, Ed Catmull, has a similar point of view. “Mistakes aren’t a necessary evil,” he has said. “They aren’t evil at all. They are an inevitable consequence of doing something new….and should be seen as valuable.”

On the other hand, management processes for budgeting, resource allocation, and risk control are built on predictability and efficiency, and executives get promoted by showing they’re in control. So even if people understand that they can and should fail, they do everything possible to avoid it.

But there’s a way to resolve this conundrum: Rigorously extract value from failure, so you can measure—and improve—your return on it, boosting benefits while controlling costs.

In the 10-plus years we’ve spent researching team and organizational dynamics and working with more than 50 companies across a dozen industries, we’ve found that when people adopt the right mindset, they can increase this ratio—not just by minimizing the downsides of projects but also by maximizing the upsides. Some failures provide immediate value in the form of market insights that can be capitalized on. Others provide broader lessons that lead to significant personal or organizational development.

There are three steps you can take to raise your organization’s return: First, study individual projects that did not pan out and gather as many insights as possible from them. Second, crystallize those insights and spread them across the organization. Third, do a corporate-level survey to make sure that your overall approach to failure is yielding all the benefits it should.

Step 1: Learn from Every Failure

Begin by getting people to reflect on projects or initiatives that disappointed. When something doesn’t go as planned, it’s an opportunity to challenge your default beliefs and adjust accordingly.

Step 2: Share the Lessons

While it’s useful to reflect on individual failures, the real payoff comes when you spread the lessons across the organization. When the information, ideas, and opportunities for improvement gained from an unsuccessful project in one business area are passed on to another, their benefits are magnified.

We recommend bringing senior leaders (across a unit or the whole organization) together on a regular basis to talk about their respective failures. These reviews work best when they are fast and to the point; take place frequently, through good times and bad; and are forward-looking, with an emphasis on learning. We call them Triple F reviews.

Step 3: Review Your Pattern of Failure

The third step is to take a bird’s-eye view of the organization and ask whether your overall approach to failure is working. Are you learning from every unsuccessful endeavor? Are you sharing those lessons across the organization? And are they helping you improve your strategy and execution?

Failure is less painful when you extract the maximum value from it. If you learn from each mistake, large and small, share those lessons, and periodically check that these processes are helping your organization move more efficiently in the right direction, your return on failure will skyrocket.

(*) Julian Birkinshaw is a professor of strategy and entrepreneurship at London Business School and Martine Haas is an associate professor of management at the Wharton School at the University of Pennsylvania.

(**) This article was originally published in may 2016 issue of Harvard Business Review.

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