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Does your Business Have a Tolerance for Failure?

Does your Business Have a Tolerance for Failure?

By: Yves Morieux and Peter Tollman, authors of Six Simple Rules: How to Manage Complexity without Getting Complicated (Harvard Business Review Press, 2014)

An organization is much more resilient when people know that it is in their individual interest to help others and to be transparent than when people are judged and rewarded on their ability to avoid mistakes in their own area.

One way to apply this simple rule is to adopt the principle established by Jørgen Vig Knudstorp, CEO of the LEGO Group: “Blame is not for failure, it is for failing to help or ask for help.”

When this is the rule, people become much more transparent about their weaknesses, uncertainties in their business forecasts, and opportunities they have for improvement.

When people work in this way, they will always have the help of others accountable for finding the solution to a problem. This is the strength of the Musketeers’ motto: “One for all and all for one.”

Reward those who Cooperate
This approach puts the vital issue of tolerance for failure in a useful perspective. Intolerance for failure is bad. It can lead to risk phobia: “Don’t take initiatives. Don’t try new ideas. Hide your mistakes!” Issuing a decree of zero tolerance for mistakes will not prevent them from happening. It will only cause people to hide the mistakes that do occur.

Still, tolerance for failure is not always good either, because it can often just lower the bar. The proper intent of tolerance for failure is not to provide greater leniency or make requirements less demanding. Just because people are given the right to make mistakes does not mean the eraser should be allowed to wear out faster than the pencil.

The right way to administer tolerance for failure is to use criteria that place demands where people can create the greatest impact for the organization and its performance -- where individuals have a margin of maneuver that could be combined with that of others to make a big difference.

By using criteria that reward decisions that would otherwise be risks for people individually, even when good for the company, pressure can be focused on the points that foster cooperation and therefore have more impact than pressure within silos. This kind of tolerance for failure makes the resulting system more tolerant of failure -- that is, more robust.

The result is reliability without the need to multiply control mechanisms. Attitudes toward risk are often described in terms of culture or mind-set. Our people are risk adverse. Our culture is not tolerant enough of risk. This is wrong. In fact all these issues usually have nothing to do with people’s particular psychology or mind-set. Most often they are organizational and practical matters of cooperation.

Risk is Not the Goal
Risk is not a goal in itself. What matters is the effect on organizational performance and individuals.

Risk-taking is a good thing only when there is cooperation. Only cooperation can make risk-taking a rational strategy for the individual. People take personal risk when they know they can count on the cooperation of others -- to compensate, relay, absorb, or provide a safety net in case things go wrong. And then risk also becomes fruitful for the company.

How does your organization administer the right to fail? Is it completely intolerant of failure? Does it verge on leniency? Or do you approach failure in a way that generates resilience?

 

Reprinted by permission of Harvard Business Review Press. Excerpted from Six Simple Rules: How to Manage Complexity without Getting Complicated. Copyright 2014. The Boston Consulting Group, Inc. All rights reserved.

Author Bios:
Yves Morieux
is a senior partner and managing director in the Washington DC, office of The Boston Consulting Group (BCG). He is a BCG Fellow and director of the BCG Institute for Organization.

Peter Tollman is a senior partner and managing director in BCG’s Boston office. He leads BCG’s People and Organization practice in North America.