Failing by Design

by Rita Gunther McGrath

The Idea in Brief

If you’re launching a new business, creating a new product, or developing a new technology, the principles of intelligent failure provide both logic and a safety net.

Decide what you’re trying to do and what success would look like.

Be explicit about the assumptions you’re making and have a plan for testing them throughout the project.

Design the initiative in small chunks so that you learn fast, without spending too much money. Don’t try to learn more than one significant thing at a time.

Create a culture that shares, forgives, and sometimes even celebrates failure.

It’s hardly news that business leaders work in increasingly uncertain environments. Nor will it surprise anyone that under uncertain conditions, failures are more common than successes. And yet, strangely, we don’t design organizations to manage, mitigate, and learn from failures. When I ask executives how effective their organizations are at learning from failure, on a scale of one to 10, I often get a sheepish “Two—or maybe three” in response. As this suggests, most organizations are profoundly biased against failure and make no systematic effort to study it. Executives hide mistakes or pretend they were always part of the master plan. Failures become undiscussable, and people grow so afraid of hurting their career prospects that they eventually stop taking risks.

I’m not going to argue that failure per se is a good thing. Far from it: It can waste money, destroy morale, infuriate customers, damage reputations, harm careers, and sometimes lead to tragedy. But failure is inevitable in uncertain environments, and, if managed well, it can be a very useful thing. Indeed, organizations can’t possibly undertake the risks necessary for innovation and growth if they’re not comfortable with the idea of failing.

What Are Your No-Fail Zones?

Leaders need to be clear about where failure will be tolerated—and where it won’t.

Mike Eskew, the former CEO of UPS, put the customer experience out of bounds: “We fail in such a way that it never touches the customer,” he said. In practice this meant that UPS didn’t experiment with moving, paying for, or otherwise interacting with a package. In all other respects it permitted—even encouraged—entrepreneurial experiments that stretched the century-old company.

An alternative to ignoring failure is to foster “intelligent failure,” a phrase coined by Duke University’s Sim Sitkin in a terrific 1992Research in Organizational Behavior article titled “Learning Through Failure: The Strategy of Small Losses.” If your organization can adopt the concept of intelligent failure, it will become more agile, better at risk taking, and more adept at organizational learning.

How Failure Can Be Useful

Some of the failures I’m about to describe were the results of intentional experiments. Others were completely unplanned and unexpected. But all of them provide valuable takeaways. A certain amount of failure can help you:

Keep your options open.

As the range of possible outcomes for a course of action expands, the chances of that action’s succeeding diminish. You’ll improve your odds if you make more tries. This is the logic driving businesses that operate in highly uncertain environments, such as venture capital firms (whose success rates range from about 10% to about 20%), pharmaceutical companies (which typically create hundreds of new molecular entities before coming up with one marketable drug), and the movie business (where, according to one study, 1.3% of all films earn 80% of the box office).

Learn what doesn’t work.

Many successful ventures are built on failed projects. Apple’s Macintosh computers emerged in part from the ashes of a now-forgotten product called Lisa, which introduced a number of the graphical user interfaces and mouse operations in today’s computers.

In truly uncertain situations, conventional market research is of little use. If you had asked people in 1990 what they would be willing to pay for an internet search, no one would have known what you were talking about. A massive amount of experimentation was needed before workable search engines emerged. Early entrants sought to be paid for doing the searches themselves. Later, companies explored business models based on advertising. Later still, Google developed a system to maximize the profitability of the ad-based model. Without all that trial and error, it’s highly unlikely that Google could have built the algorithm-based juggernaut so familiar today.

Create the conditions to attract resources and attention.