Right now, many in the media, at watercoolers, and in the blogosphere are busy castigating a variety of CEOs and individuals at upper and mid management levels for a variety of failures. Although some individuals certainly deserve a virtual lashing, many were just being creative (inventing new hedge funds, derivatives, CMBS, etc.).
Excessive condemnation runs the risk of creating a broad-based workplace culture across a wide spectrum of industries in which leaders and brilliant thinkers only look to avoid risks rather than seek opportunities. Indeed, that is in part the nature of recession – collective attempts to minimize the possibility of failure.
While we all try to sort out how the world fell into this recessionary hole, it’s also important to remember the value that embracing failure can have in our 21st century economy.
Diane Jermyn in her Incubator column in the Globe and Mail did just that last week. She interviewed three specialists on business and entrepreneurial culture and asked about the role of failure in successful enterprises. Here are some noteworthy passages:
“If you’re going to have an innovative culture, you must understand that that comes with the acceptance of failure. Innovation comes with a lot of mistakes.” [says Tony Champman, CEO of communications firm, Capital C]
“You need a culture that allows failure for success because without it, people become anti-failure,” says Charles Plant [Managing Director of the Market Readiness Program for entrepreneurs at MaRS]. “Trying different things is the act of innovation. If you fail 14 times, hopefully you’re going to succeed on the 15th try. Without failure, we’re not going to be driving and growing the economy.”
“Everybody in theory embraces the concept of failure and risk but if the person at the helm is purely financially driven, there really isn’t a lot of tolerance for risk” says Chapman.
This last comment is an important one to monitor in uncertain times or in companies facing adversity – only looking to minimize expenses and cut costs may not be the right solution (how far has it gotten General Motors?). And in some knowledge-oriented industries, managing through risk minimalization isn’t necessarily an option.
“Anybody who’s in the business of inventing the future has to be more tolerant of risk and failure because the future hasn’t been created yet,” says Chapman. “If you’re in the business of creativity or innovation, software, technology or ideas, you have to be tolerant of experimentation and creativity.
But in these times, any organization needs to minimize the downside of failures:
Is there a permissible way to fail?
Everyone agrees that the key to successful failure is doing it in a sensible manner to protect against the downside. The trick to successful failures is to know when to quit.
“I think you have to quickly acknowledge when something is a failure and have a back up plan of what you’re going to do,” says Plant. “Don’t keep flogging a dead horse.”
Does your workplace appreciate and accept failure? Or do you work in fear of making a mistake?
Other thoughts?
April 6th, 2009 at 10:51 am
From previous work experience, one of the things I’ve noticed is that companies are okay with failing so long as they are doing it in a tried and true way. For example, we direct marketing or in store spending campaigns four times a year. Each time we would have the product department trying to convince us that they expected a 2% response rate on their campaign even though when targeting the same group of people 6-9 months previously they’d only had a .2% response rate.
Failing repeatedly at the status quo is very different and often more widely acceptable than failing when trying something innovative or new. I wish that we’d seen more of the later, because maybe then we might have discovered something new.
April 6th, 2009 at 11:20 am
Failure in the workplace happens whether we tolerate it or not. I feel the question you raise in this post should be directed less at the workplace level and more at the national economy. In the big picture, the question is not whether failure is tolerated, but rather if it is allowed to happen.
In a free market economy, companies should be allowed to fail. With all the recent bailouts, it is apparent there was nothing free about our economy in the first place. As it turns out, companies like AIG, GM, and Wall Street at large were operating under the implicit guarantee of the Treasury, which became explicit when these companies got into a hole.
“Too big to fail”? That is not my idea of a free market! This is what we really should be mad about.
Capitalism is all about relentless growth, often at a cost that is not immediately apparent. The question is whether you control this growth or let it run unbridled. If the latter, then get ready for big bailout every decade or two.
April 6th, 2009 at 7:39 pm
Miles – the moral hazard you speak of troubles many analyzing responses to this crisis. It’s a scary legacy.
As you suggest, GM is a good example of a company that has repeatedly threatened failure if it didn’t get its way — whether safety standards (they lobbied against seatbelts for years), the need for more roads and less transit, protection against foreign auto companies (who made a better product), and now protection against complete bankruptcy. Maybe it’s time to say no.
But, I think letting GM fail — which should have happened decades ago, or the government should have called their bluff and forced them to stand on their own four wheels — and letting the financial institutions that underwrite our entire economy fail are two different issues, unfortunately.
April 6th, 2009 at 7:41 pm
Jana good comment — some companies are so stuck in a rut of routine that they don’t recognize that their failures are not getting them anywhere.
Perhaps we need to distinguish between “productive failures” (somewhat like Schumpter’s “creative destruction”) and wasted failures, which sound like what you’re describing.
(nice to meet you at the MPI this afternoon).
April 6th, 2009 at 8:59 pm
I have not failed. I’ve just found 10,000 ways that won’t work. — Thomas Edison
April 6th, 2009 at 10:27 pm
I have to say that destroying the global economy deserves condemnation…
April 7th, 2009 at 12:27 am
I agree that failure should be an accepted outcome in all types of business. However, I don’t think that this argument, whilst constructive in creative industries, should be used to protect the class of people who have landed us in the current economic crisis.
Fundamentally, we’re not talking about a creative industry. Moving wealth around is not creating wealth. Wealth creation comes from innovation in making better things. It comes from engineers, scientists, artists and designers and not the inept class of managers and financiers who find themselves in the fortuitous situation of farming the rest of us who are the true talent. The true talent goes largely uncompensated.
For the creative class, our greatest strategic goal is to find someone to work for who is smart enough to not interfer too much in what we do.
April 7th, 2009 at 11:33 am
Well, I personally think that the subprime 120% equity option ARM interest only mortgage is one of mankind’s greatest inventions, but like nuclear weapons… be careful what you wish for.
Seriously, there was an incredible amount of innovation on Wall Street: options, derivatives, credit default swaps, mortgage backed securities, etc. Like nuclear weapons, once they were out of the hands of the inventors, wielded by people who perhaps didn’t fully understand their power, THAT’S when the trouble started.
And like nuclear weapons, perhaps it is better for us all to ban these inventions. Obama seems to want to ban nukes… but I haven’t heard anything about getting rid of credit default swaps and mortgage backed securities.
April 7th, 2009 at 6:50 pm
Banning something, whether it be nukes or credit default swamps or pot, just drives it underground.
Regulate it. All of it.
April 8th, 2009 at 2:51 pm
Buzzcut — I love the nuclear analogy. Nuclear engineers are smart, creative people who understand the power of that with which they work. Certain derivitives, Mortgage-backed securities, etc. do have some value and utility in an investment portfolio when employed by people who fully understand them.
But the ability to buy and sell them does not equal the ability to understand them. Therein created some of the financial crisis.
April 8th, 2009 at 7:20 pm
There is a difference between failure and flopping.
When you are pushing the envelope in your work you need to be constantly looking over your own shoulder, recognizing what did not work in the recent past and tweaking todays work to avoid making the same mistake.
What the worthies on Wall St and the banking industry were doing was justifying their own excessive risk by noting that everyone else was doing it. “These mortgage backed securities don’t make a lot of sense to me, but Moe & Curly seem to think they’re a great idea.”
You are not likely to learn anything from mistakes made by emulating Moe & Curly.
April 10th, 2009 at 1:56 am
Wendy I couldn’t agree more with your view on GM. Unfortunately, a lot of jobs are going to be vaporized with its bankruptcy, which is probably why we bailed them out at the time.
You are dead on in pointing out the fundamental difference between bailing out Wall Street and GM: one is the creditor, one is the credit-addict.
I would go further to suggest that Wall Street is what kept GM from failing decades ago. Perhaps Wall Street loans are not all that different from government bailouts after all, at least not to GM. For Washington this might have been something new, but perhaps for GM it was just business as usual.
Was GM no less subprime than home owners who borrowed beyond their means? If so, how many other industries or companies walked the same road? More poignantly, have we emerged from the American Century not only as the sole superpower, but also a subprime nation in disguise? When the American economy looks itself in the mirror, does it see GM? How about that family with the foreclosed home?
These are scary thoughts, and I’m not sure what to make of them. Nevertheless I just finished a blog post about this.. I would be honored by any insights!!
April 10th, 2009 at 9:25 pm
Miles, you might want to read Kevin Phillips. He makes some exceptionally interesting points in his latest two books.
Clearly, we’ve quite literally borrowed our prosperity, both on an individual level and a national level.
May 11th, 2009 at 9:33 pm
[...] always welcome in businesses. Wendy Waters, writing at Richard Florida’s Creative Class site, gets at this issue nicely. Here’s one of they key quotes: “If you’re going to have an innovative culture, you must [...]