Risk Management

Increase Your Return on Failures: 3 Steps

Never let the fear of failure keep you from playing the game. Failure is only one of the fastest and most direct ways to learn how to improve. In an article for Harvard Business Review, Julian Birkinshaw and Martine Haas explore how organizations can both overcome the fear of failure and maximize the gains to be had from it.

Finding the Silver (and Gold) Lining

In a 2015 Boston Consulting Group survey, 31% of respondents claimed that a risk-adverse culture is keeping them from innovation. In retrospect, failure should not be feared because there is value that can be found even in the worse of failures. If you think about it, the returns-on-failure ratio places the resources you have invested in the denominator, while the numerator is the “assets” you have gained from the overall experience.

Organizations can improve their ratio by both minimizing the downfalls and maximizing the successes. Some failures illustrate valuable market analytics that can improve the organization. Other failures are less significant but still indicative of personal growth. There are three steps you can follow to improve your organization’s ratio:

  1. Learn from every failure.
  2. Share the lessons learned.
  3. Review failure patterns.

When a failure occurs, it can sometimes be discouraging to look back on your diligent work to analyze what went wrong. But when things go awry it is a wonderful opportunity for you to test the boundaries of what you believe and learn to better yourself and the organization:

We recommend spelling out what the project has taught you about each of these things: customers and market dynamics; your organization’s strategy, culture, and processes; yourself and your team; and future trends. These insights, of course, are the assets. Our exercise also has you compile a list of the associated liabilities—the project’s direct costs in time and money, any external costs (reputation, for example), and any internal indirect costs (such as excessive consumption of management attention).

Individual failures can cause reflection and self-growth, which are great things. What is even better is when you share these realizations across the organization so that everyone can have the opportunity to learn from the failure. Not only does this improve the quality of new knowledge, but it additionally inspires future initiatives. Sharing lessons helps to build trust in the relationships within the organization. Some organizations have even created a formal structure for sharing the lessons learned, but an informal system will work too, as long as the message is shared.

Is there one failure that seems to be reoccurring? This could be indicative that your organization’s approach to failure is not working. It is good to periodically take a step back and see what is working well and what needs improvement. Ultimately, perhaps the emphasis should not be on making individual good decisions, but rather on developing a process that can be statistically trusted to arrive at good decisions.

You can view the original article, with examples for each of these steps, here: https://hbr.org/2016/05/increase-your-return-on-failure

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