Tenet of Innovation #1: Plan on failure; be delighted with success

Innovation is never without risk. In fact, it has become almost a basic premise of research and development that increased risk is a prerequisite to increased innovation. (This principle is at work in your personal financial investment portfolio just as it is in your product development portfolio. Just as you wish to have a balanced financial portfolio that represents a level of risk that reflects your overall financial goals, you want the same in your firm’s project portfolio.) To create an innovative environment, business leaders must come to grips with the fact that risk and the big rewards that innovation can bring go hand in hand. And the way in which we react to failure sends a strong message to the organization. Our level of tolerance of failure will determine our employees’ willingness to take well-judged risks. The more willing we are to expect failure but be delighted with success, the more risk our employees will be willing to take. If you truly want an innovative environment, you need to expect—in fact aim for—some measure of failure.

In The Principles of Product Development Flow: Second Generation Lean Product Development, Donald Reinertsen reminds us that the major output of the product development process is information. This is in contrast with manufacturing, where the main output is product. Reinertsen tells us that one achieves the maximum information content from an experiment with a 50 percent failure rate. Whether 50 percent is the right number or not is immaterial. The main point is that if you experience too few failures, you learn little that you didn’t already know. Suffer too many failures and you won’t generate sufficient direction for future experimentation. But somewhere in the middle lies the optimum failure rate that will make it possible to push forward our understanding and eventually develop breakthrough products and services. For your firm, there is an optimum failure rate for your innovation projects. I’ll bet it’s not zero. But how many of us, and how many of our sponsors, still expect it to be so? How often have you truly celebrated what is called a “null result” in science?

Let me describe a personal experience that comes from a technology group from many years ago. We were on the hunt for long-delay, low-noise devices for use in our electronic systems. Coaxial delay lines worked to a point, but the size necessary for a long delay became impractical. The best solutions to date had been SAW (surface acoustic wave) devices, but they were somewhat limited by the insertion losses and noise levels for very long delays. (To understand this story, you should know that this was the early eighties and SAW devices were very new. In fact, my group had been the first in the world to put SAW resonators into manufacturing.) I had another idea, and spent a significant amount of time trying to understand the value of bulk acoustic devices using zinc oxide transducers, with transmission through sapphire rod delay lines, which showed amazingly low noise and low loss. These devices were only being studied in the universities. There were no commercially available sources, and they needed significant work in design and the development of manufacturing processes. We would be the first to manufacture these devices. The technology group was abuzz, excited about the prospects. But in the end, these sapphire delay lines proved to have terrible harmonic performance in addition to other significant issues. In short, they were unsuited for the application.

The end result was that a lot of time was spent, but no economic benefit was obtained. Management could have responded by slapping me on the wrist for wasting its time and money. But my management thanked me for seeing the possibilities, stepping out to take a risk, and putting in the effort to come to the conclusion that this was not the right path for the application. If you were me, how would you respond to this feedback with your next high-risk venture? This was a group that knew its work was high risk. To drive its engineers and scientists appropriately and effectively, they needed to expect failure and be delighted with success. And they needed to demonstrate this every day in order to maintain the risk-taking environment necessary for innovation.

Can you think of an experience that contrasts with this one? I certainly can.

In reality, of course, your industry and your business strategy will determine the level of risk you can take and the level of innovative output you must generate. Many methods are available for determining if a given risk distribution in your portfolio is financially appropriate for your business. (See, for example, The Smart Organization: Creating Value through Strategic R&D, by David Matheson, Cambridge, MA: Harvard Business Press, 1997.) But this tenet reminds us of the strong correlation between our willingness to accept failure and the innovative environment we will create.