by Erwin Danneels & Alex Vestal. in Journal of Business Venturing (2020)
• Calls into question the common recommendation to embrace failure in order to promote firm innovation
• Distinguishes two ways in which organizations cope with failure: (tolerance) and reflection (analysis)
• Only analysis promotes innovation, contingent on constructive conflict.
The popular business press and academic articles have promoted the virtues of failure, particularly in the pursuit of innovation. Surprisingly, there has been very little systematic empirical study to support this belief. This article distinguishes two organizational approaches to failure: normalizing it (tolerating failure as a necessary part of the innovation process) and analyzing it (purposeful attempts to convert failure experiences into knowledge). A longitudinal study of 106 U.S. manufacturing firms indeed finds that mere tolerance for failure has no effect on firm product innovativeness. In contrast, firms that make deliberate efforts to analyze past failures introduce more innovative new products. Further, this effect is contingent on a climate of constructive conflict within the firm. Hence, to foster firm innovativeness, organization members need to extract lessons from failure, and such analysis must take place in a climate of constructive conflict that enables open and honest discussion.
What did they study?
In order to grow in the rapidly changing business environment, companies are emphasizing entry into innovative business areas, or product and service innovation, but achieving innovation requires many challenges, and most of them fail is inevitable. It is not true.
As it is said that’every failure is a stepping stone to success’, many scholars and entrepreneurs alike stress the importance of failure. Of course, failure means when the intended target value is not reached, but it is not the result intentionally obtained for future success.
How should you approach this failure? Previous studies have made implicit assumptions. The experience of failure, of course, provides an opportunity for learning, and when we gratefully accept this opportunity for learning and view failure within the organization, it leads to success.
In this paper, we question the assumption that the experience of failure mentioned above automatically plays a positive role in future success. First of all, the authors looked at two approaches to dealing with failure.
First, it is a’Normalizing’ method that does not make any punishment for unavoidable failures from the organizational side, and does not mention past failures, and simply continues with new challenges. In other words, tolerate failure simply as a good learning experience.
Second, it is a way to tolerate failure, but to thoroughly analyze the cause of failure and find ways to improve it. This is referred to by the authors as the’Analyzing’ method.
Of course, this approach can lead to more active learning through failure, but it can be overwhelming for companies to use it. This is because during this analysis process, aggressive voices may come out about the competencies of the members who participated in the failed project, which may lead to rejection of new innovation projects in the future.
This study examines how the’Normalizing’ and’Analyzing’ methods of failed projects have an impact on the success of future innovation projects. In addition, this study attempted to confirm that the above relationship can be different depending on how tolerant the corporate culture is to the critical discussion method.
What did they discover?
This study was based on a total of 108 listed companies based in the manufacturing industry in the United States, and was conducted over a two-year period in 2007 and 2009. These companies have an average number of employees of 4200 and boast 38 years of corporate history. And the average sales was about 950 billion won per year. In the future, the innovation of the project was confirmed by the competitive advantage and differentiation of the product compared to other companies’ products. And the “Normalizing” method was confirmed by how tolerant of the project failure, and the’Analyzing’ method was to ensure that the company systematically responded to failure. Through the analysis, we measured the conversion of experience into knowledge Finally, we checked the ease of use of the critical discussion method in the corporate culture.
Through this, the researchers were able to confirm the following results. First, companies that did not have a systematic analysis of project failure showed no progress in terms of future innovation. Second, through the analysis of failure, it was confirmed that companies that used the experience of failure as more active learning showed high innovation in future projects. Lastly, it was found that the’Analyzing’ method has a stronger effect on future innovation, the easier it is for mutually critical discussions and more familiar companies.
What lessons do the findings teach?
Taking the results of the above research together, this assumption that we accept extremely simply, that learning is achieved through experience and that these experiences are helpful for future development may be wrong. This study has shown that continuing only new challenges without systematic analysis of failures does not significantly contribute to future innovation performance.
In other words, the experience of failure does not automatically lead to learning. Only if there is an active analysis of the experience of failure will help in future development. If you try to hide failure and simply regard failure as a valuable experience, then the findings of this study that failure will not help future development have great implications for not only existing companies seeking innovation, but also entrepreneurs seeking to create new ones. . However, if critical debate within a company is a culture that is uncomfortable, another result of this study that the analysis method for failure does not have a big effect can be said to remind us of the importance of a tolerant organizational culture.
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