Henry Ford said that failure is the opportunity to begin again, more intelligently.

But many of us begin again with no increase in intelligence. Or, we don’t get smarter because we won’t risk failure in the first place.

We covered how organizations fail at failure in our last post. Here, we will look at how leaders create organizations that fail productively – a necessary step on the path to innovation.

Innovator’s Sweet Spot

Relative to “smart failure,” there are two dimensions for innovators to optimize: (1) rate of non-fatal failure (experimentation that does not kill the organization) and (2) amount learned from any given failure.

1) Increase the rate of non-fatal failure with small, fast steps. As you may know, Bloomberg L.P. is a vast business media empire, founded by Michael Bloomberg, now mayor of New York. In his pre-political days, he once was asked how his corporation managed to complete such large information technology projects. He replied that they were successful precisely because they did not undertake large projects; they undertook lots of little projects.

At a time when huge IT projects were all the rage, this insight was piercing. The many-small-projects approach bestows powerful benefits, central to which are that failures are small and learning is frequent. Brilliant investor that he is, Bloomberg had found a way to minimize risk while maximizing outcomes.

In our own work assisting clients with strategy planning and execution we’ve learned that grand and perfect strategic plans are a waste. To paraphrase a military adage, no strategic plan survives contact with reality. It’s better to get your grand plans 60% right and then start an execution cycle of rapid, small steps that makes you smarter, fast – adjusting and refining the plan as you get smarter. As long as you’re going to be wrong (most often you are), you might as well be wrong sooner, with lots of instructive failures in the short-term instead of a few terminal ones in the long-term.

2) Increase the amount learned from failure. When an employee takes an educated whack at a problem, and the problem remains unsolved, that employee and her boss are at a crossroads. One path is to deflect responsibility, such as claiming that she had no choice. Or that it didn’t happen. Or that it was someone else’s fault.

The other, better path is to pick the bone clean, with the employee learning every possible lesson from the tuition paid. Better yet, the lesson gets spread and learning is celebrated so that everyone in the team, department, or organization goes to school on one person’s tuition.

Innovation How-To for Leaders

Leaders can improve their organizations’ performance on both dimensions – frequency of productive failure and amount learned per failure – with some reasonably simple straightforward techniques. Here are a few to consider.

• Nix any project that does not sharply define its intended outcome. Your team will never learn what works and what doesn’t unless they have spelled out in advance the result they’re aiming for. It may be impossible, in advance, to specify exactly how something will be done (especially if innovators are improvising!) but it’s generally quite possible to spell out the result you are after. Without a crystal clear target, too much after-the-fact rationalization creeps in and then everything is an alleged success and nobody learns anything.

So, for example, next time someone wants to re-organize a department, ask him exactly what outcomes he’d like to produce, what side-effects he’d like to avoid, and how he’ll know if he’s been successful. Press hard for precision (blog regulars will be familiar with the Bar Bet as a litmus test of clarity).

• Make learning – rather than performing – the first task. When entering new territory, assume that you and your people are smart enough to learn, but not smart enough already to know exactly what you’re learning (otherwise, it wouldn’t be “new territory”). Define the task as one of learning before you define it as performing.

Goal researchers have found that performance improves on difficult tasks if your initial aim is simply to learn how to perform the task. In other words, there’s a time when perfect performance isn’t the key; at first, the key is learning how to perform well, which is different from performing well.

Good management consultants always enter uncharted waters with a “discovery phase” of the project before the “performance phase.” In the beginning, only the discovery phase can be clearly spelled out. How could it be otherwise? You have to learn what you need to do before you try to do it.

• Watch your language. Call innovation projects “experiments,” or “learning pilots.” Make it clear from the onset that the point is to figure out what works; or at the very least, figure out what doesn’t work. You can’t just give people “permission to fail and learn.” That permission has to permeate your language.
• Limit Your Losses. Target initial efforts that won’t kill you if they fail; don’t bet the farm until you’ve bet a few acres. For example, if you have a theory that putting a design team and an engineering team under one boss will produce more marketable products, then try one project that does just that; don’t change the whole organization until you’ve lowered your risks by upping your knowledge. Likewise, break your big, slow, risky projects down into lots of fast, little ones. Take a clue from Bloomberg and decrease the impact of failures while increasing the speed of learning. In theory, this approach should take longer, but in reality it doesn’t; but how many mega-projects do you know that came in on time? On budget? How many weren’t disasters? Think: “fast, small, and low risk.”
• Banish happy talk. Demonstrate that you are looking for truth, not Prozac. And then don’t punish the truth-tellers. When Alan Mulally took over as Ford’s president and CEO in 2006 he apparently got fed up with the deflected lessons that dodged both learning and accountability. As Economist tells the story: “He asked managers to color-code their progress reports – ranging from green for good to red for troubled. At one early meeting he expressed astonishment at being confronted by a sea of green, even though the company had lost several billion dollars in the previous year. Ford’s recovery began only when he got his managers to admit that things weren’t entirely green.”

Incidentally, we have to wonder if part of the problem was that “green” had not been defined.

• Make “Aha!” and “Doh!” part of every progress brief. While you look to your subordinates for results, also look to them for learning. When people brief the boss (that’s you), they need to know that part of the way to get an “A” is to share discoveries. If all you get is happy talk, then prod them: “Surely not everything has gone well; what have you learned from the glitches?” Assume glitches and applaud learning.

Everyone wants to look good in front of the boss. Just change the rules a little so that looking good includes excavating negative experiences for lessons. Just like at school, make learning something to talk about and evaluate – in addition to results.

• Feed forward lessons learned. Don’t just capture lessons learned. Require that plans for new initiatives demonstrate how they are incorporating past learning. One of us (Wendi) did that with project managers whose “lessons learned” exercise had become a useless bureaucratic exercise. By requiring new projects to demonstrate use of lessons learned, the learned lessons became applied lessons, leading to consistently smarter, more innovative projects.
• Embrace DISproof before you embrace proof. The point of experimentation is to get smarter, not to be right. So rather than tasking your team to prove that an idea works, task them to disprove it instead. For example, if a vendor you love has a new “solution,” find where it fails instead of looking for evidence that it works. Scientific philosopher Karl Popper taught us that we get much smarter by trying to disconfirm our theories than by looking for cases where we are right. This is a big deal.

Rapid, ongoing innovation demands that leaders treat intellectual capital like any other capital: accumulate it, nurture it, and use it. Requisite to that game is the organizational capability for frequent, productive failure. And that kind of smart failure requires smart leadership.

NOTE: Okay, we’ve emphasized here one type of innovation, the type in which a specific problem needs to be solved. We obviously aren’t touching on serendipity-based innovation, in which prepared minds get lucky, as when Columbus found America, or Fleming found penicillin. There’s a lot to be said for noodling around with your eyes open. But that’s a different topic. Or perhaps it isn’t? What do you think?

Successful innovation requires successful experimentation, and successful experimentation requires eagerness to learn from failure. This has become a cliché because it holds true, time and time again.

The great experimenter Thomas Edison is famous for comments such as, “I have not failed. I’ve just found 10,000 ways that won’t work.” The design firm IDEO keeps up that spirit with their now-famous phrase, “Fail often in order to succeed earlier.”

Successful Failures

But let’s distinguish between two different kinds of failure: instructive failure and terminal failure. Apple’s Newton (PDA) and Lisa computer were of the instructive variety: they were failures to grow on, not failures to stop on. Circuit City was a electronics store chain that failed terminally because they didn’t have enough instructive failures. Failure is inevitable, but you can choose whether it’s instructive or terminal.

Early on, Hewlett Packard exploited the power of instructive failure. According to Peter Sims, “Hewlett Packard cofounder Bill Hewlett said HP needed to make 100 small bets on products to identify six that could be breakthroughs. So, little bets are for learning about problems and opportunities while big bets are for capitalizing upon them once they’ve been identified.” Sims’ “small bets” are what we’d call experiments: exposure to non-fatal failure that can teach you something.

The entrepreneur’s challenge can almost entirely be summed up as ensuring that the learn rate exceeds the burn rate: those who don’t learn fast enough go under.

Deliberate, inquisitive exposure to failure is an experiment. And a clever experiment is like a clever investment: your downside (risk) is manageable, and your upside (lesson) is spectacular. Of course, there is a time to bet the farm, but that’s after you’ve learned which farm to bet on.

Failing at Failure

Some people fail at failing: they fail without gaining anything. What’s the difference between failure that’s experimentation and failure that just failure? Maybe this: if you make a non-fatal mistake and learn from it, then it was “experimentation.” But if you make a mistake and deflect any lessons, then it was simply a failure. Lessons learned lead to innovation; lessons flunked, as in school, tend to be repeated.

Here are some ways to flunk at failing:

• Finger pointing. When the question is, “Who screwed up?” instead of “What did we learn?” then the only thing that’s learned is how to keep your head down.
• Reasons, stories, and excuses. When an organization’s lousy results allegedly stem from “the poor economy,” or “difficulty finding talent,” or “tough competition,” then nothing is learned or even speculated about what the organization can do better. Part of Warren Buffet’s initial fame stemmed from his annual reports in which he gave blunt assessments of what he and Berkshire Hathaway could have done better. It showed shareholders that lessons were not wasted on him.
• Unclear success. Like a scientist with an untestable hypothesis, a leader with an unclear goal can spend a lot of time and money without learning much. For example, when any given organization consolidates two departments to “capture synergies,” what does “synergies” mean? Lower costs? Faster product development? Quicker response? What? Without some sense of the measurable goal, it will be impossible to get the Edison advantage of learning ways that won’t work. (And we’ve nixed the trick of defining success after the fact in an earlier post.)
• Activity-based success. Of course, you can be clear about your success, but define it as an activity rather than as a result. In which case, failure and learning are equally unlikely. Again, no hypothesis is tested. For example, government officials often declare success after they’ve added programs or increased spending. That’s it! Nothing about goals set, goals met, or lessons learned. Costs go up, but learning stays flat.

All these problems function as organizational learning disabilities: dysfunctions that block learning and therefore block innovation. In the next post we’ll suggest some cures.

Meanwhile, what have you done that works? How have you overcome your own organization’s learning disabilities? How can you create a failure friendly environment, where team members feel comfortable with experimenting and learning from their failures? 

Addendum: We commend your attention to this excellent TEDx talk by Brian Goldman, MD, in which he contends that physicians would make fewer mistakes if only they could admit to their mistakes. Powerful stuff.

A scowl crosses the face of some people when they hear the term “strategic planning.” These people have been to the off-sites with bright ideas and sticky notes, they’ve seen the slick “final plan” with cool clip art, and then they’ve seen . . . nothing. Nothing happening. Nothing changing. And then they realize: This was a stupid waste of time. Strategy execution isn’t part of the deal. Leadership wasn’t serious.

For leaders who are serious, for whom strategy execution is part of the deal, we’ve always seen these three ingredients work.

1. A steady accountability drumbeat. Even leaders who are terrific at communicating their goals and strategies will come up short if they don’t build in an accountability cycle. Each member of the leadership team must regularly (say, monthly) stand in front of boss and peers and report progress on his or her piece of the strategic plan. The conversation flows like this:

• “This is the measurable impact I committed to achieve.”
• “Here is how I’m doing.”
• [optional] “These are the changes I’d suggest to our direction,” and/or “This is the help I need from my boss or peers.”
• See ya next month!

This is a great conversation, and it’s what drives everyone to realize, “Oh crap! The stuff in this plan is actually my day job!” Also, these conversations create self-correction and improvement in the strategic plan. That means that your strategic plan doesn’t have to start out perfect; you can settle for the 60/40 solution and get going!

This group readout not only helps the organization stay focused, but it also keeps leaders aligned with each other and constantly mindful of how they are affecting each other.

Of course, your strategic plan must spell out what each team member is supposed to accomplish. Otherwise, you have a wish list, not a plan, and accountability is impossible.

2. Strategic initiatives managed as projects. Strategic plans almost always name something new that has to be accomplished. Regardless of industry, there will be “initiatives,” each with a beginning, middle, and end – and an outcome. That’s a wordy way of saying that there are projects to be managed. As soon as you realize you’ve got some projects on your hands, you can lean on the well-known body of knowledge called “project management.” Here are some of the more salient points.

• Put ONE person in charge of the project. There’s a reason ships don’t have two captains. Even big ships.
• Establish a clear goal, a clear timeframe, and a budget. Progress reports (we’re back to the accountability cycle) need to be couched relative to (a) work accomplished vs. schedule and (b) work accomplished vs. budget. Make sure you get both.
• Stand up a project team with team members who have clear accountabilities and clear understanding that for this project, they work for the project manager. (Obviously, the project manager must have some clout. We covered this topic when we discussed the perils of accountability without authority.)

There’s plenty more to say on this topic, but this’ll get us started for now.

3. Innovation Switched On. Many organizations’ plans identify gaps between where they are and where they want to be – and they cite “innovation” as the way to close that gap. In an earlier post, we discussed Prahalad’s prescription for quantum innovation (See “We Can All Play In The Innovation Sandbox”). In addition,

• Encourage constructive failure. The innovators’ dictum to “fail fast, fail often, and fail cheap” boils down to this formula: non-fatal failure + learning = discovery. You need discovery for innovation, and the more discovery the better.
• But failure + blame (or stories, reasons, and excuses) = uh, FAILURE. When you see this happen, at least act annoyed.
• Reward innovative solutions, reward learning from failure, reward people for reaching across boundaries to create solutions.
• Contests work for a while (so use them), and demonstrating that you take “different thinking” seriously – whether or not you use it – always works.

These three ingredients do a pretty good job of turning strategy into results. Any that you’d add to the list?

By Bill Casey and Wendi Peck

“Innovation sandbox” is a term coined by the late C.K. Prahalad. The gist: For a truly quantum innovation in either goods or services, (1) set a really high bar for what “good” looks like, (2) identify a small handful of aggressive constraints, and then, within that “sandbox” (3) begin a radical re-examination of your assumptions and self-imposed limits as you develop your breakthrough design. That combination forces you to, as Apple says, “think different.”

Prahalad’s many examples focus on impoverished markets, at the “base of the pyramid”(BOP), where the average person earns a couple of bucks a day. He describes innovations in cars, hotels, communications, and other areas that achieve world-class quality, yet remain affordable to society’s poorest – and they turn a great profit for the entrepreneurs providing them. Now, that’s sustainability! Seth Godin recently described BOP powerfully, as only he can.

One example Prahalad describes is absolutely world-class cardiac surgery costing $1500 (including profit) that is the equivalent of $45,000 surgery in the US. Oh, and he describes a companion product: innovative health insurance, also profitable, that enables entire villages in India to have access to the surgery, and other medical services, when needed. A high bar, aggressive constraints, and radical re-examination all spur dramatic innovation, again and again.

But Prahalad’s innovation sandbox isn’t just for wealthy entrepreneurs and multi-nationals serving vast third world markets. Actually, anyone can play in the sandbox. We were reminded of this recently in a conversation with our friend, Pamela Giusto-Sorrells, president Pamela’s Products, a producer of popular gluten-free foods.

Pam loves developing products, and she loves a good challenge. One new product she’s feeling good about is her single-serve, gluten-free brownie mix for kids, soon to be released on their Amazon store and retail outlets. Watch for the sandbox in this plucky lady’s own words:

“A lot of other bakers think that gluten-free products have to taste like sawdust, and I literally grew up in a health food industry that believed that. But it’s just plain wrong. I’ve spent a lot of time developing gluten-free recipes that taste really great. So here was my latest challenge: you raise your children on a gluten-free diet, and then you send them off to college and their buddies are doing something else, eating pizza, pretzels, cookies, and whatever else other teenagers eat. Unfortunately, a lot of their snacks will make the gluten-intolerant kid sick.

So my goal was to make something gluten-free that the wheat-eating college kid wants to eat. It’s got to be that good. So, first I asked myself, what does everybody like? Chocolate. What’s a great all-American food? Brownies. People love brownies. They’re a perfect late-night snack. But I had to work within constraints. For cooking, college kids probably have only a microwave; but I figured that they can get water from the bathroom, and they can keep a bottle of oil in their dorm rooms. It’s all about making really great food with limited resources.

So, how do I do it with limited resources? Take our brownie mix, package 100 grams, and mix in two tablespoons of oil and two tablespoons of water. Everybody’s got a spoon. Everybody’s got a bowl or a mug to mix it in. And everybody’s got 60 seconds – one minute to instant gratification. Because it’s so fast and easy, kids show it to other kids and – eh voila! – the wheat-eaters are eating the gluten-free kid’s snacks. Touchdown!”

Other sandboxes: Do you know someone who’s set a high bar, imposed tough constraints, and then radically re-examined assumptions, so they could serve a market that everybody else ignored?

20 July 20011 addendum: Take a look at Seth Godin’s quick riff on constraints. Addendum to the addendum, 6 November 2011. We love this topic. So, too, do others. See Thomas Friedman on India’s Innovation Stimulus, which surely needn’t be confined to India!