Failure has been part of business for as long as businesses have existed. Sydney Finkelstein of Dartmouth’s Tuck School of Business published the results of a comprehensive study of business failure more than a decade ago. His work continues. More recently, as companies have turned to innovation as a source of competitive advantage, executives have been busy learning to “fail fast” and “fail smart” as breakthrough products and services rarely succeed on the first try. In their new book, The Other “F” Word: How Smart Leaders, Teams, and Entrepreneurs Put Failure to Work (Wiley, 2015), John Danner and Mark Coopersmith have taken a more comprehensive look at how organizations can understand, appreciate, and benefit from failure. Danner is a member of Berkeley’s Haas School of Business and Princeton’s professional faculty, and his Berkeley colleague Coopersmith is a veteran entrepreneur and executive. I recently sat down with Danner to learn more about his framework for executives seeking to maximize the lessons of failure.
S+B: Why the “other F word”?
DANNER: Mark and I found that despite all of the praise for entrepreneurial risk taking, the failure that often accompanies it still remains something like the original “F” word: You don’t talk about it in polite company. In established organizations, it can be even worse. Failure of any type can be a career-limiting experience. But try fostering innovative thinking in an environment where you can’t speak openly about failure — it can’t be done.
We look at failure as a phenomenon, like gravity. It does no good to deny it, ignore it, or try to wish it away. Instead, organizations should not only acknowledge its existence, but treat it as a resource on a par with the financial, technological, and human resources they manage. It is experience they have already paid for. What they need to do is get the maximum return on that investment. You don’t have to become a “failure fanatic” — you just have to be open to discussing and using it.
S+B: How did you come to focus on failure?
DANNER: It took a long time to gestate. I was in a seminar with Warren Bennis at the Aspen Institute discussing leadership successes. Afterward, I suggested to him that it would be interesting to see what could be learned from failures of leadership. He was enthusiastic and that planted a seed. Several years later I was teaching at Princeton and realized that students, particularly those pursuing careers in innovation where failure would be a fact of life, would benefit from discussing the topic candidly. So I started an “Other F Word” speaker event, which was widely attended. That led to an MBA course and other popular related events at Berkeley. We don’t celebrate failure—“Good for us, we failed!”—but we liberate it. We try to take it from “trial and terror” to “trial and error.”
“We don’t celebrate failure — ‘Good for us, we failed!’ — but we liberate it.”
S+B: How can executives go about managing failure as a resource?
DANNER: In the book, we present a seven-stage cycle that is designed to give the consideration of failure some structure and coherence. This helps reassure people who are accustomed to only thinking of failure in negative terms. The steps are:
· Respect that it exists
· Rehearse how to handle your most common failures
· Recognize it early
· React effectively and quickly
· Reflect thoroughly and openly to get at root causes
· Rebound from the after-effects
· Remember to embed the learning in the organization’s cultural memory.
It is not a linear process — you can enter at any point, though each stage builds on the ones that precede it.
For example, Netflix was thrust into a buzz saw of negative publicity and customer feedback when it tried to spin out its DVD rental business as Qwickster. The company had never faced that kind of failure before so executives didn’t respect or rehearse it. They didn’t recognize it early enough. They entered the cycle at the react stage; but, to their credit, they rebounded well, and the memory of that recovery experience has served them well since.
S+B: Who does the entire cycle well?
DANNER: Google. Failure as a source of success is embedded throughout the organization. Google isn’t perfect, but it is one of the few well-known poster children for this. Another great example, though it’s not as high-profile, is the global dental and medical supply wholesaler Henry Schein. When its conversion from paper records to an automated system failed spectacularly — something on the order of healthcare.gov in 2014 — it almost collapsed the company. Instead, everyone at the company rolled up their sleeves and tackled it head on. It took a year to fix, but they did it. Today it is a leader not only in financial performance but also in social responsibility and employee engagement. And people there still talk about that failure. They continue to apply the lessons when things don’t go as planned. They have become really good at detecting problems early and swarming to fix them fast.
S+B: What does rehearsing failures entail?
DANNER: Most businesses rehearse their response to a calamity of some sort. Almost everyone, for example, conducts fire drills. Many test their business continuity contingency plans. The problem is that most organizations do not rehearse for the real threats that are most likely to have a significant impact on the business. How many companies run a drill for a product launch failure? Or an M&A bomb? A high-profile bad hire? These failures can have a significant, material impact on your financial condition or even imperil your ability to operate. If you don’t prepare for them, you are more likely to fumble the response. Look at Arthur Anderson after the Enron meltdown; apparently it had not rehearsed for a major client collapse that threatened its bedrock reputation of trust. If you are an audit firm, engaging in a tabletop exercise [in which teams analyze hypothetical crises to come up with possible solutions] with that situation would be a really smart thing to do.
Many firms engage in scenario planning, but that tends to be an intellectual exercise. A good rehearsal involves emotional stress as well because an actual failure is a highly charged experience. You need to identify your “crown jewels” — your reputation, a signature product, certain intellectual property, or whatever — and know how you will protect them when it looks like the walls are crumbling around you. That is what rehearsal buys you.
S+B: How do you start the conversation?
DANNER: It is easiest if it comes from the top down. The CEO of Hyatt Hotels, for example, continually tells people that “version 0.5 beats version 1.0” as a way to encourage informal, rough prototypes as a starting point rather than going through formal channels that tend to stifle innovation. It lowers the pressure to take the first step. Brad Anderson, the former CEO of Best Buy, used to go to the selling floor and talk to associates about their challenges and their ideas for making things better. This made it easier for those at the front lines to creatively address customer needs. Both of these executives encouraged iteration — with the attendant missteps — as a productive way to improve the business.
Another place to start is with the value of trust. We worked closely with the Great Place to Work Institute, the research people behind the 100 Great Places to Work lists. They have found that a high level of trust is the foundation of employee engagement, which can translate into superior company performance and more engaged customers. How you talk about and deal with failure is a crucible in which you can build trust…or watch it evaporate. The trust conversation puts failure in a context that executives and employees can understand and appreciate.
S+B: Where do you most often get pushback?
DANNER: The bookends of the failure value cycle are toughest: respect and remember. Once you accept that failure is a fact of life (the foundation of the respect component), it is much easier to get people to look at how to deal with it productively. If you are in a culture where failure is an eternal black mark on someone, people become scared to death to talk about it. Remember is hard for the same reason. One way to overcome that is to think back to how you dealt with failure and became stronger as a result. This reframes failure as a byproduct of taking chances in the pursuit of innovation and growth, and your recovery from it as a badge of resiliency. Failure is evidence that you have been experimenting.
S+B: Do you see variations among cultures in the willingness to discuss failure?
DANNER: Absolutely. In Asia, Europe, and South America — from India and Korea to Italy and Brazil — the fear of failure is one of the top two or three organizational challenges limiting real innovation and growth for many companies. What we tell these executives is that if you want innovation as a source of growth, you have to talk about failure and how to recover from it. If a senior leader is willing to discuss his or her own screwups, it helps a lot. Sharing that vulnerability is so powerful. When someone at the top is genuine about how they have failed and lived to tell about it, it makes an enormous difference.
Our Haas School colleague Henry Chesbrough likes to ask, “Who has successfully survived a failure in your organization?” Having examples to point to is evidence that you are on the right track. You aren’t encouraging failure, but building resilience. People are going to fail, so help them understand it and navigate through it. That’s when you get to use failure as a strategic resource.