Failure is prevalent. No matter how well organizations are managed, some mistakes are inevitable and even seemingly ubiquitous.
According to U.S. Census Bureau data, business startups outpaced business failures until 2008 when 470,000 businesses failed compared to 400,000 newly started businesses. Indeed, no industry has more than about a 60 percent survival rate after the first four years.
But take an example of the opposite side of failure. What made Ivory soap famous? An engineer mistakenly over-poured air bubble in the manufacturing process, which helped produce lighter soap that could float and thereby satisfied the customers’ new needs. Ivory soap became not only a soap but also a toy for children in bath tubs.
Similarly, 3M and Johnson & Johnson have successes in business that were borne of failures. 3M’s development of the Post-it note is infamous. It was invented when the search for a super-strong adhesive didn’t work, and it was realized that a reusable, pressure-sensitive version might sell. At J&J, a crisis in the form of a Tylenol tampering incident led to tamper-proof caps, a decentralized organizational structure, and higher standards, all of which helped the company.
We can learn lessons from proverbs such as “every cloud has a silver lining,” “every crisis is an opportunity,” and “failure is the mother of invention.” But we must also ask ourselves these four questions to understand the benefits of failure.
1. Why do we learn from failure?
Failure teaches us what works and what does not. We often experience that learning is more effective in failure than in success. While success can make decision makers remain where they are, failures can help renew their strategic directions and practices.
2. How do we learn from it?
We can learn from failure by fostering an organizational system and culture that favors experimentation. For example, we can learn through trial and errors.
3. What do we learn from it?
Typically, failure teaches us about causes so as to correct errors and not to make the same mistakes in the future. Hence, examining causes of failure is basically retrospective because it focuses on the past or the root cause of a failed event.
4. How can we use it?
We propose that companies use a new prospective approach of “failure management” to more emphatically focuses on the beneficial impacts of failed events. Analyzing extensive cases, we found that that the different ways to make the most of failure can be summarized by the following:
- Learn new knowledge,
- Save internal resources,
- Reform internal hazard,
- Discourage external threats,
- Attract external supports, and
- Complement multiple forces.
Many already use other similar management tools such as risk management and crisis management when there is an issue with a company. So why we do need to focus on failure management, too?
The idea of failure management is based on different goals and philosophies. Risk management reviews and revises errors in order to predict and prevent them before failures occur, and crisis management controls and contains current failures.
In other words, risk management and crisis management are retrospective efforts to avert adversity by analyzing the causes of failure and trying to sustain in spite of failure. On the contrary, failure management cherishes adversity by re-evaluating failure and exploring new opportunities thanks to failure.
Such distinctive features of each management tool do not imply that they are mutually exclusive in practice. Rather, failure management can help risk management expand investment portfolios while also helping crisis management improve contingency planning by informing of paradoxical impacts of failure worth managing.
Risk is like control: the more control you give up, the more uncertainty you face, but the greater the potential success. In teaching, various pedagogies range in the degree of control and certainty of outcome; for instance, lectures have great control and certainty whereas open discussions give up control and force students to take personal responsibility for their learning.
The same tradeoffs can be seen with student presentations, field projects, simulations, and exercises. Hence, the teaching paradox is that developing future leaders requires us to do less and instead to create a learning environment and delegate the experience to the learners. Of course, this requires certain skills and attitudes of our students.
Ultimately, we can make a friend of the failure. The failure management framework may help us realize that failure often brings new presents and opportunities beyond what we expect.
Paul Miesing, Ph.D., is an associate professor of management and the founding director of CAUSE, the Center for Advancement & Understanding of Social Enterprises at the University at Albany School of Business. Junesoo Lee, Ph.D. is Assistant Professor in the KDI School of Public Policy Management in Sejong, South Korea who also teaches at the University Albany. They are the authors of “How Entrepreneurs Can Benefit from Failure Management.”