Why companies must learn the value of failure in order to innovate
Any organisation that is serious about innovation should maximise its return on failure through regular “failure reviews”, according to Julian Birkinshaw, Professor of Strategy and Entrepreneurship, and Academic Director of the Deloitte Institute of Innovation and Entrepreneurship at London Business School (LBS).
“These reviews should be fast, frequent and forward-focused,” he told an LBS audience at the Increase Your Return on Failure event. Businesses should draw up a balance sheet of “assets” – gains from the exercise that might include new insights and knowledge leading to new opportunities – and “liabilities” – obvious losses such as money and dents to a company’s reputation.
Professor Birkinshaw stressed that such reviews are only made possible if teams can gather to share their failures in a psychologically safe environment, where they don’t fear judgement or reprisals. He said it is up to bosses to set the tone and quoted Pixar’s President Ed Catmull: “Mistakes aren’t a necessary evil. They aren’t evil at all. They are an inevitable consequence of doing something new and should be seen as valuable.”
Michel Brodbeck, Patent Attorney at Roche, described how in an effort to find new ways of being innovative, he led a nine-month experiment in which 20 teams from eight countries – 156 participants in total – systematically shared their failures in a programme called Phoenix: Success Beyond Failure.
“A key element was that the leaders went first: we shared our own failures. We walked the walk,” said Brodbeck. The programme’s initial hypothesis was proved correct: “We found that when a structured approach for sustainable sharing of failures is provided, it improves psychological safety and team efficacy, which in turn improves organisational learnings and willingness to take risks.” Brodbeck concluded: “Failure is an innovation accelerator.”
“Companies should build innovation into the operating process,” said LBS alumnus Kal Patel, and former Group Director at Home Retail Group. “Good leadership means giving the individual the courage to make the change in the right moment.”
Patel recounted how as head of Best Buy’s Asian operations he accelerated Best Buy’s development in China through a series of experiments in six stores, framed as “ventures”. After six months, he closed all Best Buy’s branded stores in China but used the insights gained to grow and improve the Chinese retail chain Five Star, acquired a few years previously.
He also spoke candidly about how organisations can have blind spots when it comes to innovation – he was briefly in charge of a retail chain that continued to push DVDs even though all the stores’ young staff had switched to streaming music.
How a company reacts to failure has a big impact on future initiative, said Professor Birkinshaw. People will behave differently based on what they see. If a risky project fails and the immediate reaction is, “This can’t happen again!”, the knock-on effect is an unwillingness among staff to try anything new. If, instead, the immediate reaction is, “We can learn from this!”, they pick up a different message: it is good to try risky things.
The event was organised by LBS Executive Education in partnership with Harvard Business Review (HBR). It was moderated by the Editor of HBR, Amy Bernstein.