Return on Failure

One of the key issues in innovation is learning from failure. These applied learnings create a new type of intellectual asset few companies acknowledge or appreciate. How do we measure this asset? I propose creating Return on Failure (ROF). After all, we measure the return on other types of assets, why not this one? Perhaps a way to measure ROF is with a simple three-step process (bear in mind, simple ? easy!):

1. Identify the Failure(s)
2. Analyze the Failure(s)
3. Iteratively experiment and prototype based on #1 & 2

So, and check my ‘math’, ROF is the sum of Failure Identification + Failure Analysis applied over (and over…) Iterative Experimenting & Prototyping.

Failure Identification (FI) is proactively identifying what went wrong, what failed. Find ways to capture and share this information as and when needed. Feedback from employees, customers, and suppliers are also important. In most companies, the culture doesn’t tolerate failure too well, let allow make getting and sharing information easy.

Failure Analysis (FA) is not playing the blame game but discovering the Why. Be objective, don’t personalize or blame (not as easy as it sounds). Companies easily succumb to confirmational bias; we become inured, not realizing we’ve fallen into that trap. Analyzing is hard enough without clouding it further with blame and subjectivity.

Iterative Experimenting & Prototyping (IEP) involves creating a well designed experiment (remember the Scientific Method?) to limit and test the variables (ideas) and prototype. Test what could fail, try what does and doesn’t work. Try small, brief, inexpensive experiments and prototypes. Try virtual and thought experiments. This may not be easy, because many organizations are structured for experimentation and don’t incent, reward, recognize people to experiment – we incent being right, not trying to be right!

Designing experiments is hard, but critical to getting the right learnings. Start by explicitly documenting the assumptions and variables to be tested in each experiment. This helps understand WHY things didn’t work and perhaps even what could have been done to prevent or mitigate the failure. Keep experiments moderate in scope to make learning easier. Learn to experiment & learn quickly, reducing start to finish time so increase the ‘rate of learning’. Try running several experiments in parallel – in the real world, virtual reality, augmented reality, and simulations.

For most companies, ROF is counter-cultural (for many reasons that we won’t get into here). However, as we look at the Gen-Y’ers and Gen-Z’ers, I wonder if this won’t change. These kids have grown up with video games, continually trying, failing, trying, failing, iteratively, repeatedly, to get to the next level, to morph into a stronger avatar, to get it right (or ‘righter’). Failure is an accepted and expected part of achieving success. So maybe, in the not too distant future, institutional attitudes about failure will start to change because of Gen-Y/Zers. Maybe they will part of the increasing your organizations ROF!

If you interested in more discussion on this, please comment here and check out Stefan Lindegaard’s ongoing discussion on Smartfailing.

Editor’s Note: You might also enjoy this post – Don’t Fail Fast – Learn Fast

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Deb, founder of Mills-Scofield LLC, is an innovator, entrepreneur and non-traditional strategist with 20 years experience in industries ranging from the Internet to Manufacturing with multinationals to start ups. She is also a partner at Glengary LLC, a Venture Capital Firm.