Increase Your Return on Failure

• Julian Birkinshaw
• Martine Haas
FROM THE MAY 2016 ISSUE
HTTPS://HBR.ORG/2016/05/INCREASE-YOUR-RETURN-ON-FAILURE

The article offers great insight on the major barrier to growth—fear of failure.

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…… 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 a return on failure ratio, the denominator is the resources you’ve invested in the activity. One way to raise your return is by reducing this number—by keeping your investments low. Or you can deliberately sequence them, starting with small amounts, until major uncertainties have been resolved. The numerator is the “assets” you gain from the experience, including information you gather about customers and markets, yourself and your team, and your operations. Increasing these is the other way to boost your return. 

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 FailureBegin by getting people to reflect on projects or initiatives that disappointed 

Step 2: Share the LessonsWhile it’s useful to reflect on individual failures, the real payoff comes when you spread the lessons across the organization 

Step 3: Review Your Pattern of FailureThe third step is to take a bird’s-eye view of the organization and ask whether your overall approach to failure is working