Innovative companies welcome and harness failure to drive new ideas. That’s a problem for managers. Many see screwing up as a bad career move. Fear of failure keeps managers from taking a step into the unknown. That means they can end up doing unproductive things. Like, for example, not even trying in the first place, or giving up part way through a project. That constitutes real failure. At the same time, companies know they have to be innovative to survive. So how should managers handle this?

Last year, I did a Management Buzz blog entry looking at what managers can learn from failure.

A recent report from the Economist Intelligence Unit  takes it one step further. It says that the most innovative companies embrace failure as a tool to create new innovations.

“Global companies that are furthest along the innovation path have put in place processes or cultural norms to foster good ideas and implement them quickly,’’ the report says. “By monitoring and analysing how initiatives develop, leading firms spot trends and create opportunities for innovation. They also have systems in place to learn from failed innovations.”

The problem is that 49 per cent of companies have no systems in place to learn from failure.

There are plenty of examples of innovative companies that use failure to create new ideas.
One example is fast-growing payroll services, migration, salary packaging and contract-management business Job Capital.  The company’s founder Jo Burston builds business that start out small, flexible and scalable, that learn from their mistakes and build their market from there.

She says: “In the businesses I have, I learned to fail quickly. Whenever we build anything, we always get to a base model before we then go to the market and test fail and look at the value proposition of it, and then look at the multiple of the value proposition to the consumer.”

Another example is the large Indian conglomerate, Tata Group. It gives out an annual award for the “best failed idea.” The goal is to recognize and reward failures. Without them, successes would be impossible. For Tata, failure has become a gold mine.

Then we have pharmaceutical company, Eli Lilly which hosts “failure parties” where employees come together to share their stories of failure and discuss what they learned from them. Eli Lilly assigns someone, usually a team of doctors and scientists, to retrospectively analyse every compound that has failed at any point in human clinical trials. For example, the experimental chemotherapy drug Alimta failed in several trials and Eli Lilly decided to dump it. But one of its scientists begged for two weeks to save the drug. He and a colleague then analysed blood samples and medical records and found what was wrong. Today Alimta is an approved treatment for mesothelioma, a rare type of cancer caused by exposure to asbestos and has been approved for treating lung cancer.

But managers should not just embrace failure. That would be as silly as ignoring it. What they need to do is learn how to manage it. Amy Edmundson and Mark Cannon from Harvard Business School say failures need to be put through meticulous and painstaking analysis.

Unfortunately, most systems tend to discourage this sort of analysis. Many people, they say, experience negative emotions when examining their own failures and prefer to put past mistakes behind them rather than revisit and unpack them for greater understanding.

And there’s the key lesson: ignoring failure is no way to manage it and learn from it.

What can failure teach us?