Digital Transformation: Learn to Fail Smart

Failure is a word that fits uneasily to management vocabulary. Admitting failure even less so. We have been taught to pursue and celebrate only success so what is all this talk about learning to fail fast and fail smart?

Unsplash / Geetanjal Khanna

The logic is quite simple; failure is the flip side of innovation. If you wish your organization to become more innovative and adopt explorative and experimenting approach to business, you cannot avoid failure. And that is, exactly what is holding people and their imagination back from becoming innovative. The fear of failure, fear of reprimand and being punished for not achieving objectives.

We tend to build our management processes such as budgeting, resource management and controlling risks in a way that brings stability, predictability and efficiency. Management performance criteria focuses on these processes and we get appraised by how well we have planned and stick to our plans. This reveals an interesting insight; no matter how much you keep telling people that it is ok and in fact, they are expected to fail, people and especially management will do everything possible to avoid it. How do we go then and increase the tolerance for risk in the organization? To achieve this, the first thing to do is adopting knowledge sharing practices where key lessons from initiatives or projects are shared within the organization.

“No matter how much you keep telling people that it is ok and in fact, they are expected to fail, people will do everything possible to avoid it.”

You can call it post-mortem, retrospective, profit and loss statement, or whatever suits you best but the idea is still the same. For each completed project, we should record and share lessons learnt from the project. The same can be applied for any development initiative, sales assignment or strategic transformation program that has formal objectives set out for them. Increasing you return on failure ratio can happen in two ways – by minimizing the downsides of projects but also by maximizing the upsides.

On the plus side we add all the things we have learned. These could be learnings for example from our customers’ needs and preferences or on our current markets. Based on these findings we might need to change some of our previous assumptions. Consider also what we have learned about future expectations? Insights into future trends which will help us change our forecasts. How about internal processes, did we learn something about our ways of working? How effective is our organization? Do we have a culture that supports what we are trying to achieve? And finally, one of my personal favorites; how did we grow our skills individually and as a team? Did we identify any gaps where we need to focus our development?

“Increasing you return on failure ratio can happen in two ways – by minimizing the downsides of projects but also by maximizing the upsides.”

Then, in turn, we need to assess our costs, direct costs such as time spent, materials and production but also indirect costs. To analyze external costs we should ask; did we damage our reputation in the markets or with our customers or did we weaken our competitive position? Absolutely critical questions but just as important are those we consider internal costs; did the project do internal damage in form of lowered morale or engagement to the organization, did people decide to leave because of the project thus causing intellectual capital or knowledge lost? These are tough questions to answer yet we should aim to be absolutely honest and transparent in our retrospective.

All of this, however painful, is generating insights and key takeaways for our business. People that have been directly involved in the project, are less likely to repeat the same mistakes again in any future projects. But to really increase your return on failure, we must share the knowledge with others. Some companies have chosen to celebrate the blunder of the year with award ceremony, others arrange semi-formal workshop days where the lessons are shared and some have professional groups arranging their own events for knowledge sharing.

Whatever the venue, the thing to keep in mind is that management will need to lead the way and openly present their own mistakes and stories for others to follow. By showing example they will pave the way for more risk embracing culture.

Digital transformation requires more risk embracing and experimenting organization culture. But consider this; if the company’s internal systems from metrics to resource allocation systems to incentives and investment strategies are all set up to support the existing business model and the focus continues to be on profitability and top-line revenue growth, how will we measure the things we have discussed here?

Number of items produced or goods delivered, levels of utilization and billability are all good and relevant output based metrics but what do they tell us about our capability for digital innovation, risk taking and experimentation? Changing performance metrics is a key factor in managing digital transformation. If you want to start seeing some changes in your organization culture, this is exactly where you need to start. Sounding like a good challenge for next year?

So go on – lead the way. Take a leap. You never know what you might learn.