More than 50 percent of small US businesses and 90 percent of high tech start ups fail. But not all failures are equal. Some are catastrophic, while others smaller. More vitally, the catastrophic failures are often proceeded by smaller ones. Entrepreneurs and CEOs who direct resources to understanding why failures occur–as opposed to focusing on blame–successfully re-emerge from failure and enjoy economic success. Learn six steps to instill a discovery culture in your organization and thrive through adversity.
While many business failures occur due to poor economic conditions, faulty business models, technology problems, and lack of timely credit and innovation, researchers are increasingly finding that senior leadership’s inability to overcome these problems pose the greatest risk to any business.[i] Executives need to effectively diagnose business problems and seek changes to prevent catastrophic failures.
My InnovationOne business colleague, C. Brooke Dobni, PhD, and his research colleague, Grant Alexander Wilson, have recently published an academic paper on the importance of organizational learning and how it drives business success.[ii] They and other researchers, like Edmondson, show clearly that organizational learning promotes successful strategic re-emergence from failure and business success.[iii]
Wilson provides a six-item construct for learning from failures–what many non-academics call a learning or discovery culture.[iv] Firms that succeed in instilling a discovery culture do these six steps.
First, prioritize learning from failure, especially “intelligent failures” that push the frontier of knowledge. Many CEOs and organizations have a negative attitude towards failure. According to Peter Senge in 1990[v], firms with a learning orientation, those committed to continuous learning and the incorporation of new knowledge, have a sustainable competitive advantage. Therefore, the most important function of executives is to shape an organization’s culture. The implementation of a learning orientation needs to be initiated and supported by senior leadership.
Researcher Edmondson identifies three types of failures, and notes that not all failures are created equal. They are the following:
- Preventable failures. Preventable failures are not encouraged, as they occur as a result of inattention, negligence, inability, or deviation. These failures are the bad ones, and they can be prevented with adequate protocols, attention to detail, and competent employees.
- Complexity-related failures. Edmonton maintains that complexity-related failures are a result of the various unknowns of the task. He suggests that larger failures can be mitigated by the identification and subsequent rectification of smaller complexity-related failures. As such, this type of failure is not problematic if identification occurs and corrective action is taken.
- Intelligent failures at the frontier of learning. Intelligent failures are defined as failures that generate knowledge and made in the pursuit of innovation, should be encouraged, and even celebrated. These types of failures can lead to disruptive innovations, serving as a sustainable competitive advantage.
Second, encourage all employees to openly discuss failures. Firms that do not support a learning culture, open to all employees, suffer from organizational grief. This is similar to the very way individuals experience a grief cycle, following the loss of a loved one. Therefore, if firms are going to overcome their failures, they need to get over the denial, anger, depression, and bargaining cycle and get to acceptance. To overcome grief, executive leaders need to promote learning and recovery quickly in their organizations and also include their external partners.[vii]
Third, believe that failing fast is the key to success. If organizations are to avoid catastrophic failures, they need to rapidly experiment and prototype to learn the causes of their smaller failures. Then the question becomes, “what did we learn today, and what is tomorrow’s experiment?” Failing fast requires resources and a solution-orientated approach. CEOs interviewed by C. Brooke Dobni unanimously agreed that failing fast to succeed faster requires adequate financial, scientific, and human capital resources as well as a solution-oriented approach.[viii] Specifically, CEOs described how all employees must be willing to abandon their pet ideas by falling out of love with their currently admired technologies, processes, or methodologies.
Fourth, focus on why failures occur as opposed to who is responsible and the effect of organizational rewards and punishments on learning and risk-taking. CEOs dislike the word failure and look for blame. Learning from failure requires shifting away from the blame game. Specifically, learning from failure necessitates the why and the how, as opposed to the who.
The effect of rewards and punishments cannot be overlooked. CEOs described how the organizational context, both rewards and punishments, must change in order to move away from the blame game and support a discovery culture. With respect to rewards, these CEOs underscored the importance of linking successful risk-taking to monetary incentives and unsuccessful risk-taking to organizational acknowledgment. Such acknowledgement requires talking openly about failure in public internal forums to promote organizational learning.
In different ways, negative consequences need to be removed, or at least significantly reduced, in order to foster a learning culture. In Dobni’s research, one CEO said “negative consequences make people play it safe” and went on to emphasize the risks of avoiding such endeavors, suggesting the greatest risk may be risk avoidance. Risk avoidance is worse than risk taking, as it will only ensure an organization is overrun by its competition. However, it is important to distinguish between strategic risk-taking and uncalculated risk-taking. Consequences should not be removed for negligence or hasty decisions.
Fifth, strategize how to move forward from failures. In order for leaders to learn from failure, researchers Cannon and Edmondson propose that there are three post-failure learning requirements:[ix]
- Firms must adequately identify and define failure.
- Failures need to be analyzed.
- Finally, firms need to create strategies to move forward based on the knowledge they have gained from failures. The appropriate use of resources and capabilities furthers the successful implementation of a discovery culture and enhances its ability to create a sustainable competitive advantage.[x]
Sixth, believe learning from failure is a source of competitive advantage. As stated at the beginning of this article, companies that have learning, or discovery culture, overcome their small failures before they become catastrophic and financially thrive. CEOs who have this belief already have an advantage over their competition–as long as they act! It is essential that companies build open and collaborative cultures to learn from their small failures before they grow to be catastrophic ones. Avoidance of learning from failure puts firms at a greater competitive threat.[xi]
The evidence from the 1990s and the past five years is clear. It shows clearly that organizational learning promotes successful strategic re-emergence from failure and business success. Does your organization have a discovery or learning culture?
You can learn more about learning organizations by downloading, “Implementing a Failure Learning Organization. ”
Victor Assad is the CEO of Victor Assad Strategic Human Resources Consulting and managing partner of InnovationOne. He works with companies to improve their recruiting, HR operations, and develop extraordinary leaders, teams, and cultures of innovation. His new book is Hack Recruiting: the Best of Empirical Research, Method and Process, and Digitization. Subscribe to his weekly blogs at www.VictorHRConsultant.com.
[i] Grant Alexander Wilson and C. Brooke Dobni, “Implementing a Failure Learning Organization,” © 2020, The Authors. The International Technology Management Review. Published by Atlantis Press International B.V, March 26, 2020. https://www.researchgate.net/publication/340251686_Implementing_a_Failure_Learning_Orientation.
[iii] Edmondson, A.C. Strategies for learning from failure. Harvard Business Review, 89(4) (2018) 48-55.
Cannon, M.D. and Edmondson, A.C. Failing to learn and learning to fail (intelligently): How great organizations put failure to work to innovate and improve. Long Range Planning, 38(3) (2005) 299-319; and Cope, J. Entrepreneurial learning from failure: An interpretative phenomenological analysis. Journal of Business Venturing, 26(6) (2011) 604-623; and Shepherd, D.A. Learning from business failure: Propositions of grief recovery for the self-employed. Academy of Management Review, 28(2) (2003) 318-328.
[iv] Wilson, G.A. Failure learning orientation and technology start-up performance. Journal of High Technology Management Research, 30(2) (2019) 1-9.
[v] Senge, P. The leader’s new work: Building learning organizations. Sloan Management Review, 32(1) (1990) 7-23.
[vi] Edmondson, A.C. Strategies for learning from failure. Harvard Business Review, 89(4) (2018) 48-55
[vii] Shepherd, D.A. Learning from business failure: Propositions of grief recovery for the self-employed. Academy of Management Review, 28(2) (2003) 318-328.
[viii] Dobni, C.B. and Sand, C. Strategy shift: Integrating strategy and the firm’s capability to innovate. Business Horizons, 61(5) (2018) 797-808.
[ix] Cannon, M.D. and Edmondson, A.C. Failing to learn and learning to fail (intelligently): How great organizations put failure to work to innovate and improve. Long Range Planning, 38(3) (2005) 299-319;
[x] Barney, J. Firm resources and sustained competitive advantage. Journal of Management, 17(1) (1991) 99-120.
[xi] Dobni, C.B. and Sand, C. Strategy shift: Integrating strategy and the firm’s capability to innovate. Business Horizons, 61(5) (2018) 797-808.