Failures can be funny. The Pontiac Aztek. New Coke. Microsoft Zune. These have all been the butt of jokes. But the companies responsible for them weren’t laughing with the rest of us.
There’s been a lot written about the need to accept failure as part of developing a culture of innovation. Companies are often criticized for encouraging managers to take risks and experiment with new ideas but abandoning them if the new growth areas fail to take hold. The future success of managers who take on innovation assignments is often tied to the idea they pursue rather than to the process they execute. So if the idea doesn’t take off fast enough, or at all, the manager sees their professional support and future opportunities dissolve.
Why is failure so toxic in large organizations? Because innovation is approached from a causal standpoint rather than an effectual one. Effectuation limits the amount of resources lost in a failure. This takes the sting out of failing.
The causal approach is based on predicting what the future holds and lining up resources to be the first to capitalize on the opportunity when the forecast comes true.
The effectual approach eschews forecasting for control. Managers create opportunities rather than find them.
A critical component of the effectual approach is Affordable Loss. Before setting out to innovate, the parties involved determine what they’re willing to invest with no expectation of return.
The initial assumption is that the innovation will be a failure. So the company invests the minimal amount required to validate that assumption. If, however, that assumption proves to be false, and the idea does in fact gain market traction, the company has the ability at that point to put more investment into the concept. That level of corporate commitment then increases as the idea gains greater market validation.
Innovation and failure go hand in hand. The method of business forecasting most companies currently use for innovation leads them to overinvest in ideas that seem great in the boardroom but often fail to live up to expectations in the market.
Effectuation takes the opposite approach. It uses small bets to bring big results. The organization gains more comfort with innovating because the financial risk is reduced, managers are more confident taking on innovative roles because the downside is limited, and the culture of innovation thrives through effectual experimentation.
This seems like something worth celebrating.
--Written by Sara Whiffen, Founder & Managing Partner, Insights Ignited LLC