Accelerate Failure

The Economist and Financial Times Columnist Tim Harford writes that, “Business success always begins with failure.”

Mr Harford’s thesis is that failure is a critical element of learning, and learning is the basis of improvement… continuous improvement generates business success. It’s a fundamental engineering principal that innovation can only be achieved through successive failures. Discovering the root cause of failure enable solutions to be found. Innovation therefore can be accelerated through the acceleration of the “failure/analysis” learning cycle. “Fail-Fast” as some have said. The faster you fail, the faster you learn.

Seems obvious, yet we find this behavior hard to locate, let alone evaluate it’s effectiveness in most organizations (i.e., learning cycle failure analysis) when it comes to strategic business planning and portfolio management. In other words, applying engineering principles to managing the business. As Mr. Harford discusses,“Most people do not react well to the prospect of making their own mistakes. We subconsciously deploy a well documented range of strategies from excessive caution to denial to reckless loss chasing.”

The We find this is particularly true in business strategy formulation and in its translation into new product portfolios. We often observe products that have missed their market window, continuing to be developed even though forecasted ASP, Margin, and Revenue all have dropped below an acceptable level in order to justify the project’s business case or ongoing funding. Yet these late projects continue “sucking” valuable resources and focus from other projects that could potentially reach their market window sweet-spot. Since resources are finite, the loss of resources cause these promising projects to slip as well, further accelerating the downward cycle for all subsequent projects in the queue. Managers don’t kill things once started. Killing them would be an admission of a mistake (i.e., failure).

Strategy and portfolios must be refreshed. The same “fail-fast” process used in technology innovation must be applied to assessing the effectiveness of a business strategy and the product portfolio it generates. We observed this in our best practice studywith high performers; they accelerated cycles of learning; do it, try it, fix it. Similar to fast-prototyping, the goal is to quickly discover failure and rapidly make corrections. The fast teams went through multiple learning cycles to every one that slow teams experienced. Fast teams knew that failure and analysis resulted in learning, and the faster they learned, the faster they found solutions.

The same logic applies to strategy and portfolio selection/prioritization. Realistically assessing strategy and the project portfolio is painful since it requires the outcomes to be measured and evaluated. One line of logic says that if you never measure it, the strategy is always effective… since it is in a perpetual “pro-forma” state (i.e., unmeasured). Measuring it would require an admission that it wasn’t working and therefore would need to be changed. In “failure unfriendly” cultures, having to “fix it” is a career limiting experience. As Mr. Harford writes, “They prefer to keep gambling and give themselves some chance of redemption.”

However, if the strategy is critically refreshed periodically (1-2 times a year) and the project portfolio is also refreshed (1-2 times a quarter), the chances are better that incremental course corrections can be made, rather than having to make major “right angle” directional changes every 3-5 years to pull a business out of a “strategic tail spin.” The cost of delayed action is especially substantial in CAPEX-intensive segments like Semiconductors as one example.

Accelerating failure will cause accelerated learning. The faster you learn, the more rapidly you can adapt to directional changes in customers and in markets. Stay vested in failed strategies and/or projects and eventually“auto-asphyxiate,”another Harford concept I like.

And my favorite idea from Mr. Harford is… “Success and failure become indistinguishable; one long, vague slump into mediocrity.”We’ve seen it go both ways, yet inherent in each success story is a continuous process for refreshing and reassessing strategy — dynamically, and one that is based on making failure transparent and culturally encouraged, in order to accelerate learning cycles.

  • Admit and fix, rather than hide and stay the course.

  • Create a culture that encourages fail-fast behavior.