Perhaps you have thought, “In five years, if we are still doing the same things we are doing now, we will be out of business.” I know I have. It is easy to accept that innovation and learning are increasingly vital in any growing industry. What is harder to accept is that they require a tolerance for failure, for trying and being wrong, and for being honest about it.

It is difficult to navigate the tension between the competing maxims “failure is not an option” and “fail fast, fail cheaply, fail often”. How do we tolerate failure as essential to learning and growth while keeping the motivational drive to always succeed? What can leadership do to help employees feel safe voicing ideas for improvements? Failure is going to happen so the question becomes how can our organizations fail more intelligently?

In the last four years, my company, Fail Forward, has worked with over 100 organizations as they strived to answer these questions and we have started to see some trends. The following are five attributes we have found to be most important to an organization’s ability to fail more intelligently and build the agility and resilience needed to stay competitive.

1. Leaders role model owning their failures. It is not fair but failure looks different depending on how much power you have. Leaders often have the power to shift blame to subordinates. They are also generally expected to know more than those working under them. When a leader admits a failure, it disrupts these power dynamics in a profound way. 

As one employee of a large foundation confided, “When I started working here, I was intimidated. I felt like I could never admit that I didn’t know something. That cracked open the day [the vice president] said in a meeting that he didn’t know the answer to a question. That was a huge moment for me. I realized that if someone like him could admit it, maybe I could, too.”

Leaders who acknowledge fallibility by taking ownership of their own, and their teams’, failures contribute to creating what Amy Edmondson, Novartis Professor of Leadership and Management at Harvard Business School, calls a “psychologically safe workplace”.  Psychological safety – and the trust, openness and willingness to admit errors that goes along with it – is vital for learning and innovation. 

2. Employees are encouraged and given adequate time to experiment, reflect and learn. Nick Swinmurn, founder of Zappos, had a theory that you could sell shoes online, so he experimented. He took pictures of shoes in local stores and posted them online. If people bought shoes from his website, he would go back and buy them from the local store then ship them to his online customers. If no one bought his online shoes, he would know his theory was wrong. We have all had ideas about how to improve our workplaces, whether by increased efficiency, a new product, or better management processes. Swinmurn’s idea became one of the largest online shoe companies because he found a way to test if his idea worked in practice.

We have always done it this way” is never a reason to keep doing it that way. But when we are already overworked with our core tasks it leaves little room for imagining, let alone implementing, new ideas. If we do find extra time, we do not want to spend it experimenting when there is no reward for the added effort. The same concept applies to learning from the projects we have already implemented. Too often we jump from one project to the next because we value getting things done over pausing to reflect. If we genuinely want to see our performance improve and innovation thrive it requires dedicated time for reflection and learning, and institutionalized rewards for putting innovative theories into practice.

3. Employees are constantly on the lookout for failures. Work is complex. Just about everything we do will have elements of both success and failure. Knowing and acknowledging this improves our ability to detect failures early. When we keep in mind that failure is always an option we go into new projects and tasks looking for the aspects that are not working and deal with them quickly.

Ray Dalio, Founder and CEO of Bridgewater Associates, one of the world’s most successful hedge funds, says, “Our greatest power is that we know that we do not know and we are open to being wrong and learning.” Dalio has developed organizational principles such as, “It is ok to make mistakes but unacceptable not to identify, analyze and learn from them” that set a culture that seeks to avoid the emotional, ego-driven responses to mistakes in order to learn faster. This agility meant they were one of the few firms to have positive performance during the 2008 financial crisis.

4. Processes for learning are appropriate for the size of the failure. DoSomething.org is one of the largest global organizations for young people creating social change. They are a great example of an organization that has figured out how to learn from their failures in a host of different ways. For instance, they host a regular Fail Fest to share stories of failure and learning internally with their colleagues. When they have more public facing failures you can see evidence they are dedicated to learning from them but also communicating this learning externally. My favourite example of this is the blog post they published titled: How to Piss Off 2.1 Million People – and How to Make It Better.

There are many formal processes for learning from failures such as having discussions about failures in meetings, writing failure reports, performing after action reviews, dedicating time for reflection, or hosting Fail Fests and publishing blog posts like DoSomething.org. Having a diversity of processes available provides the foundation and precedent for dealing with failures productively and allows employees to right-size their learning to the scale of the failure.

5. Employees are rewarded for effort, learning and improvements as much as successful outcomes.

Accenture’s 2013 research on corporate innovation found that 27 percent of the people studied have avoided pursuing a new idea because they feared negative consequences. Three out of four said their company only rewards entrepreneurial ideas if they work. Accenture goes on to make the suggestion that companies should “offer appropriate rewards for idea generation, not just successful implementation.”

Following this advice, the Mayo Clinic, as Sarah Lewis writes in The Rise “created a ‘queasy eagle’ award after their Innovation Work Group realized that a low tolerance for failure might preclude medical breakthroughs.” In the year after instating the award the clinic saw the number of new ideas generated go up from about two to two hundred per year. That is a two-orders-of-magnitude leap, simply because they found a way to reward the effort involved in generating and testing new ideas!

Failing more intelligently takes more than simply getting the incentives right. At the heart of building organizational resilience is shifting our mindset to start to see failure, not as a shameful event to be dealt with and moved on from as quickly as possible, but rather as an indicator of where we are pushing ourselves, taking risks and learning.

This shift in mindset allows employees to own up to mistakes and failures, knowing their leadership and peers will work with them to learn and improve. As an example, Air Miles started hosting Town Hall meetings for this purpose. These meetings provide a forum to share failures and be rewarded for learnings in a way that is supported by senior leadership.

How does your organization, department or team perform with respect to each of these five attributes? Which attributes are most important and influential on the behaviours and mindsets of your workforce? If there are one or more attributes where performance is low but importance is high, you have found your priority area(s) for improvement.

How you make these improvements is inevitably context-specific. In general we suggest hosting an ideation session to better understand the tensions that keep performance low, and to generate and pilot test practical ideas that are likely to increase performance and create room for smart risk taking, learning and resilience.

Publication does not imply endorsement of views by the World Economic Forum.

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Author: Ashley Good is the CEO and Founder of Fail Forward, which supports organizations to learn, innovate and build resilience.

Image: People stand on a platform at a train station in Tokyo December 8, 2014. REUTERS/Yuya Shino.