What causes so many companies that once dominated their industries to slide into decline? In this article, two Harvard Business School professors argue that such firms lose their touch because success breeds failure by impeding learning at both the individual and organizational levels. When we succeed, we assume that we know what we are doing, but it could be that we just got lucky. We make what psychologists call fundamental attribution errors, giving too much credit to our talents and strategy and too little to environmental factors and random events. We develop an overconfidence bias, becoming so self-assured that we think we don't need to change anything. We also experience the failure-to-ask-why syndrome and neglect to investigate the causes of good performance. To overcome these three learning impediments, executives should examine successes with the same scrutiny they apply to failures. Companies should implement systematic after-action reviews to understand all the factors that led to a win, and test their theories by conducting experiments even if "it ain't broke."
It's hardly news that business leaders work in increasingly uncertain environments, where failures are bound to be more common than successes. Yet if you ask executives how well, on a scale of one to 10, their organizations learn from failure, you'll often get a sheepish "Two-or maybe three" in response. Such organizations are missing a big opportunity: Failure may be inevitable but, if managed well, can be very useful. A certain amount of failure can help you keep your options open, find out what doesn't work, create the conditions to attract resources and attention, make room for new leaders, and develop intuition and skill. The key to reaping these benefits is to foster "intelligent failure" throughout your organization. McGrath describes several principles that can help you put intelligent failure to work. You should decide what success and failure would look like before you start a project. Document your initial assumptions, test and revise them as you go, and convert them into knowledge. Fail fast-the longer something takes, the less you'll learn-and fail cheaply, to contain your downside risk. Limit the number of uncertainties in new projects, and build a culture that tolerates, and sometimes even celebrates, failure. Finally, codify and share what you learn. These principles won't give you a means of avoiding all failures down the road-that's simply not realistic. They will help you use small losses to attain bigger wins over time.
Lafley, the former CEO of Procter & Gamble, is regarded as one of the most successful chief executives in recent history. But like everyone else, he's had his share of mistakes. Politicians and winning sports teams draw their biggest lessons from their toughest losses, he says, and the same has been true for him. The company learned more from its failed new brands and products than from its successes. Among Lafley's favorite examples is the color-safe low-temperature bleach that P&G test launched in the 1980s under the brand name Vibrant. It chose Portland, Maine, as the test market, hoping to escape notice from Clorox, which was headquartered in Oakland, California. But Clorox got wind of the plan in time to distribute free gallons of Clorox to every household in Portland, making all P&G's advertising dollars, sampling, and couponing irrelevant. "Game, set, match to Clorox," Lafley says. But the good technology behind Vibrant remained, and when, a few years later, Clorox tried to enter the laundry detergent business, P&G modified that technology to create Tide with Bleach, which grew into a business worth more than half a billion dollars. Lafley also talks about systematically analyzing 30 years' worth of failed acquisitions to uncover five root causes: no winning strategic reason for the acquisition; integrating poorly or too slowly; expecting synergies that didn't materialize; incompatible cultures; company leaders who "couldn't play together in the same sandbox." That analysis led to changes that informed P&G's highly successful acquisition of Gillette in 2005.
Most business failures-such as engineering disasters, product malfunctions, and PR crises-are foreshadowed by near misses, close calls that, had luck not intervened, would have had far worse consequences. The space shuttle Columbia's fatal reentry, BP's Gulf oil rig disaster, Toyota's stuck accelerators, even the iPhone 4's antenna failures-all were preceded by near-miss events that should have tipped off managers to impending crises. The problem is that near misses are often overlooked-or, perversely, viewed as a sign that systems are resilient and working well. That's because managers are blinded by cognitive biases, argue Georgetown professors Tinsley and Dillon, and Brigham Young University's Madsen. Seven strategies can help managers recognize and learn from near misses: They should be on increased alert when time or cost pressures are high; watch for deviations in operations from the norm and uncover their root causes; make decision makers accountable for near misses; envision worst-case scenarios; be on the lookout for near-misses masquerading as successes; and reward individuals for exposing near misses.
Failure is a familiar trauma in life, but its effects on people differ widely. Some reel, recover, and move on with their lives; others get bogged down by anxiety, depression, and fear of the future. Seligman, who is known as the father of positive psychology, has spent three decades researching failure, helplessness, and optimism. He created a program at the University of Pennsylvania to help young adults and children overcome anxiety and depression, and has worked with colleagues from around the world to develop a program for teaching resilience. That program is being tested by the U.S. Army, an organization of 1.1 million people where trauma is more common and more severe than in any corporate setting. Nevertheless, businesspeople can draw lessons from resilience training, particularly in times of failure and stagnation. The program is called Comprehensive Soldier Fitness, and it has three components: the Global Assessment Tool, a test for psychological fitness (administered to more than 900,000 soldiers to date); self-improvement courses following the test; and "master resilience training" (MRT) for drill sergeants. MRT focuses on enhancing mental toughness, highlighting and honing strengths, and fostering strong relationships-core competencies for any successful manager.
Seven CEOs, entrepreneurs, and venture capitalists tell stories of personal failures-and what they learned from them. Doug Rauch, a former president of Trader Joe's, admits to being a "control-aholic" and recounts how his micromanagement hindered the chain's East Coast expansion. Linda Rottenberg talks about her mantra, "Go big, or go home," and how she made the call to close her business in India. Anthony Tjan describes the ups and downs of his start-up when the irrationally exuberant dot-com boom went bust. Roger McNamee frankly discusses his failed bid to change the world. Wayne Pacelle, head of the Humane Society, talks about the importance of closing the deal. Peter Guber recounts a life-changing experience with Muhammad Ali. Whitney Johnson looks back on her first venture: investing in a friend's dream. Dave Strubler, a mountain climber and business professor reflects on making it almost to the top.
China's economic progress has been so dazzling that people often forget that China, Inc. has seen its share of failures too. Just look at the first cross-border acquisitions that Chinese companies made. Many of those high-profile deals-including TCL's acquisition of France's Thomson, SAIC's takeover of South Korea's Ssangyong Motor Company, and the D'Long Group's purchase of America's Murray, Inc.-ended badly. But for the Chinese, failure is not about falling down; it's about refusing to get up. They quietly changed course, altering the kinds of targets they pursued and their rationale for M&A. Chinese acquirers have learned to steer clear of deals that involve costly turnarounds or tricky integration. Instead of buying brands, sales networks, and goodwill, they now look for hard assets, like mineral deposits and oil reserves, or state-of-the-art technology and R&D. And where they once tried to buy market share abroad, today they focus on acquisitions that will help them strengthen their share in China. Most telling of all, they're more willing to walk away-perhaps one of the surest signs of M&A sophistication.
Handling failure and blame is key to managerial success. But roughly 70% of Americans have a personality type that tends to react inappropriately when things go wrong. Some people are extrapunitive, always pointing a finger at someone else. Others are impunitive, denying there's a problem or that they played any role. And still others are intrapunitive, heaping too much blame on themselves and seeing disasters where none exist. Fortunately, there are ways to fix such flawed responses. The first step is to cultivate self-awareness; several personality tests can help you assess your interaction style. Next, deepen your political awareness to better understand what messages others are receiving. Once you've identified your bad habits, you can move toward more-adaptive responses. Dattner and Hogan describe several strategies that can benefit any of the personality types. You should make sure to listen and communicate well, reflect on the situation and the people involved, think carefully before acting, and look for lessons when mistakes do happen. Using detailed examples, the authors illustrate how people with the various personality types are apt to react to specific failures and explain what they might do differently. They also offer insights to help you recognize when your bosses, peers, or subordinates fit into one of the problematic categories and suggest ways to influence their behavior. The taxonomy and tactics they present will help you approach failure with an open mind and react in a balanced, constructive way.
After many shorter stints abroad, and extensive experience in China, Linda Myers took a job in human resources with Korean firm SK Holdings - but was unprepared for the culture clash. In her two years in Seoul, Myers not only experienced social isolation at the office but also found that, like many change agents, her ideas went unimplemented. Yet as one of the first American female executives at a Korean firm, there was no one she could turn to for advice. The experience drove home several lessons: Learn as much as possible about the obstacles you'll face and acknowledge when they might be too much for you, understand your mandate and communicate in advance about the scope of your position with your employer, don't let day-to-day misunderstandings bother you, and take more time than you think you need to introduce even small changes. What she learned - the hard way - will be helpful to anyone considering an expat assignment or working for a foreign firm.
When a set of giant robotic arms developed for the International Space Station breaks down during a crisis, project manager Samantha Van Sant finds herself in the hot seat. Did her team compromise quality by pushing the contractors too hard on speed? How can she prevent future mishaps-should the arrangement with the contractors be renegotiated to include different incentives or more safeguards? Gary L. Moe, a director of McKinsey's Business Technology Office; Tom Quinly, president of aerospace contractor Curtiss-Wright Controls; and HBR readers weigh in on the speed-versus-quality quandary.
Comedian Ricky Gervais on office dysfunction, creative control, his controversial comedy and why the greatest failure in life is not enjoying what you do.
When a set of giant robotic arms developed for the International Space Station breaks down during a crisis, project manager Samantha Van Sant finds herself in the hot seat. Did her team compromise quality by pushing the contractors too hard on speed? How can she prevent future mishaps-should the arrangement with the contractors be renegotiated to include different incentives or more safeguards? Gary L. Moe, a director of McKinsey's Business Technology Office; Tom Quinly, president of aerospace contractor Curtiss-Wright Controls; and HBR readers weigh in on the speed-versus-quality quandary.
When a set of giant robotic arms developed for the International Space Station breaks down during a crisis, project manager Samantha Van Sant finds herself in the hot seat. Did her team compromise quality by pushing the contractors too hard on speed? How can she prevent future mishaps-should the arrangement with the contractors be renegotiated to include different incentives or more safeguards? Gary L. Moe, a director of McKinsey's Business Technology Office; Tom Quinly, president of aerospace contractor Curtiss-Wright Controls; and HBR readers weigh in on the speed-versus-quality quandary.
People vary enormously in how they perceive and respond to failure, and those perceptions and responses are shaped by the cultures in which they grew up or now work. Western multinationals are sinking a huge amount of money into India, China, and Brazil, and emerging giants in those countries are setting up operations in world markets as well. Any business with global aspirations must take seriously cultural differences in general and around failure in particular. Drawing on the findings of a global survey that has been ongoing for 30 years, Trompenaars and Woolliams have identified the dimensions along which people from various cultures differ regarding failure. They discuss the five most important of those dimensions: (1) Do we view our environment as internally or externally controlled? (2) Which is more important-rules or relationships? (3) Are failures the responsibility of the individual or of the team? (4) How much do we identify with our failures? (5) Do we grant status according to performance or to position? The authors describe how some forward-looking companies are managing to reconcile cultural differences to create a powerful platform for innovation.
This case describes Latvia's transition from a Soviet republic into an EU member, its economic boom and subsequent bust in 2008, and its policy response. After implementing significant economic and political reforms in order to qualify for EU membership in 2004, Latvia had turned its sights toward joining the single-currency eurozone, pegging its currency to the euro in 2005 as a step toward that goal. From 2000 to 2007, Latvia achieved faster GDP growth than any EU state. However, when large inflows of capital suddenly dried up in 2008, Latvia had to obtain a financial rescue package from the IMF, World Bank, EU, and several regional countries in order to avoid a full-blown financial and currency crisis. Latvia then adopted an aggressive economic adjustment program centered on maintaining its currency peg, which meant competitiveness would have to be restored by reducing domestic prices, wages, and public expenditures in order to drive down the real exchange rate. Latvia's policy program and initial results are discussed in the case.
On October 26, 2004, Norman Nicholls ― partner of the consulting company "Seattle Management Consultants" in London (UK) ― received a phone call from Jesper Lind, board member of Telco-Equipment-Experts. Jesper told Norman: "If you don't change your recommendation on the outsourcing job you are doing for Damotel, our business relationship might suffer in the future."
Fraunhofer is one of the largest applied research organizations in the world. With 17,000 employees and a 1.6 billion euros budget, Fraunhofer has 60 institutes in Germany that cover most fields of science. The case examines the consequences that Fraunhofer has for the competitiveness of the German economy. It also explores whether the organization of R&D is affected by the size distribution of firms as well as by institutions in labor and financial markets.
How the International Monetary Fund (IMF) defined and carried out its mandate has evolved considerably since 1944, when it was founded to serve a vital but narrow function in maintaining the global foreign exchange system and thus enabling international trade. This note gives an overview of the IMF's evolution by describing key phases in its history, including the Bretton Woods system and its collapse, the international debt crisis of the 1980s, the Washington Consensus era, and reform efforts in the 2000s.
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