How accepting errors can give your firm the competitive edge

Almost all successful and ground-breaking innovations – from penicillin to the post-it-note stickers – have a backstory of errors that came before them

PUBLISHED : Friday, 10 June, 2016, 12:36pm
UPDATED : Friday, 10 June, 2016, 12:36pm

Former British prime minister, Winston Churchill, once said, “All men make mistakes, but only wise men learn from their mistakes”.

Making mistakes and learning from them is integral to entrepreneurs.

Their development is a story of trying to do something new, making mistakes and then – crucially – trying to improve.

Take Alibaba Group’s co-founder Jack Ma, for instance. He told his employees that he would rather see them make mistakes than not do anything.

Li Ka-shing echoed this view when he remarked in an interview that one should not dwell on past mistakes, but take the opportunity to learn from the errors as there are always new opportunities.

The message is clear: Learn from your mistakes. It’s something we’ve often been told since young. But how many of us actually take that through to adulthood and apply that to our working lives?

In many areas of the business world, mistakes or errors are often seen as something to be feared or shameful of. They are reflective of a lack of competence.

Indeed, the negative consequences of errors – for instance, the meltdown at the Fukushima Daiichi Nuclear Power Plant – can gather much attention.

Perhaps this emphasis on the negative is the reason why many firms focus exclusively on a policy of error prevention.

But almost all successful and ground-breaking innovations – from penicillin to the post-it-note stickers – have a backstory of errors that came before them. Penicillin, one of the most important medical discoveries of the 20th century, was developed as a result of a mistake in the lab – just one example of the positive effect of errors.

Rather than focus solely on eradicating errors, the lesson for firms is to embed within their operating culture ways to reduce the negative consequences of errors and enhance the positive – a process we call error management.

My research at the National University of Singapore Business School has demonstrated that firms with a systematic approach to error management embedded in their organisation consistently perform better than those without such error management.

Indeed, my findings show that on average, firms categorised as having high error management culture see approximately a 20 per cent higher return on their assets than those that do not.

This is not to say that firms that make more mistakes will be more profitable. Rather, firms with a proactive and open approach to managing errors are likely to handle them better, be more innovative and more productive.

A prerequisite to enhancing and emphasising this positive effect of errors is an acceptance that errors will occur and can never be completely eradicated.

This does not imply that errors should not be taken seriously nor that error prevention is unimportant.

For managers, this undoubtedly involves walking a fine line. There are strong business benefits to accepting that errors will occur, and approaching them in a pragmatic, open and constructive way.

Consider the example of organisational culture demonstrated by this quote from a manager of a firm in one of my studies with low error management:

“I don’t want to discuss errors at length… I indicated this shouldn’t happen again and that was the end of it.”

By allowing no room for discussion, there is no room for learning. Errors are seen as inherently bad and there is no incentive for the firm’s employees to try anything new.

The only real incentive is for staff to try to cover up errors – an outcome that not only blocks opportunity for learning but which also opens the way to further inefficiencies, like simply repeating the same error further down the line.

This can lead to what we call error cascades – a succession of spin-off errors, potentially even worse than the first, that sees one relatively small error quickly snowball into something larger and harder to manage.

In contrast, consider a manager of a firm with high error management, who creates an open atmosphere to discuss errors as a way to control damage.

Such a culture takes errors seriously, but is open, accepting and non-judgmental about them once they have occurred. It allows errors to be quickly identified, analysed and recovered from, as well as providing an environment in which they can be discussed and learnings extracted.

Moreover, firms following this approach can lay the groundwork for coming up with more radical innovations.

These would not be possible without making errors because the innovation process implies entering a new and therefore unknown environment.

Having a practise of error management, in tandem with error prevention, helps firms and individuals deal with unexpected events, show more initiative and behave more proactively. All of these are critical factors in improving productivity and profitability.

Considering Alibaba’s global success, it would be worthwhile taking a leaf out of Jack Ma’s approach to setting up a culture of getting the job done without the fear of failure.

Indeed, as well as learning from our mistakes, we should in fact actively welcome them in the practise of being constructive towards errors in the organisation.

Michael Frese is Provost’s Chair and Professor of Management & Organisation at the National University of Singapore (NUS) Business School