Many large companies perform poorly when it comes to changing what they are used to: They only to change only when responding to smart initiatives or when they are forced by external factors or competition.
Many of them struggle when they have to unleash imagination of employees and to create an inspiring work environment for flourishing new ideas and projects and for encouraging entrepreneurial behaviour. The reason is that conservative organisational cultures prevent innovation and create firms where failure is stigmatised and penalised and as a result, entrepreneurial behaviour is suppressed.
Many such companies have developed a short-term fear of failure when it comes to projects or experiments that have no guaranteed outcome of improving the bottom line of a firm. This fear is manifest both in companies not being willing to invest in projects that may not deliver sufficient return on investment and in talented individuals avoiding certain risky projects because of the stigma of being associated with a failed project.
Consequently, only less risky and business as usual projects are well resourced, leading to less experimentation and less advancement of the firm. Over time, sustainable competitive advantage is eroded and not replaced, renewal is not fostered and the company loses out to its competitors who have more entrepreneurial company cultures.
The solution lies in building an entrepreneurial and experimental organisational culture which is failure tolerant, in demonstrating that failure has its benefits, in rewarding failure, and in changing the perception of failure to encourage risk-taking.
The key elements of this culture might be the following:
- A culture of collaboration rather than control;
- A competitive exchange of ideas and information, brainstorming sessions, informal gatherings;
- Instilling confidence in sharing ideas in groups and reducing pressure to succeed;
- Listening to employees’ ideas;
- Being open about mistakes at all levels. Encouraging leaders to admit and demonstrate their mistakes to employees. Expected benefits are that employees perceive their managers as more human which helps to foster closer relationships;
- Creating a risk-friendly environment where people are comfortable with failure;
- Nominating “Innovation managers” who specifically care about the systematic generation of innovation.
Another solution to change a conservative company’s culture might be to set-up a separate wholly-owned venture for experimenting with new projects and ideas or partition the company into divisions with different governance regimes with regard to failure management.
Innovation managers should look into finding more high risk and high return projects and experiment more. The meaning of success and failure should be clearly defined with a differentiation made between “good” and “bad” failures (namely failures notwithstanding good preparation and organisation and those resulting from sloppiness) and ways of praising “good” failure found. The lessons learnt from an unsuccessful project should be documented and shared.
Whether or nor a failure is “good” or “bad” can only be assessed by management engaging directly with employees.
Developing a more failure-tolerant culture is a prerequisite to innovation. A business can breakthrough if it encourages risk taking and if it learns from subsequent mistakes. Cultural change can lead to faster, cheaper and more experimentation. The more risky projects the company undertakes, the larger number of successful projects it is likely to realise. It will also receive a benefit of learning by doing and get better at experiments. It can also reduce waste of resources and avoid extra costs through earlier identification of doomed projects and preventing repetition of them. The company will then become more innovative and competitive on the market.
To start the process we need to:
- Create a failure-tolerant culture
- Agree criteria for measuring success/failure
- Revise incentives to allow for “good failures” – e.g. obliquity
- Indentify examples of success in terms of stopping failing projects
- Be able to quantify the success of a stopped project in terms of value saved