Failure May be an Option After All

UAlbany study provides framework for using failure to improve results

ALBANY, N.Y. (July 24, 2017) -- Can entrepreneurs benefit from failure and can they use failure systematically? The answer, from University at Albany graduate Junesoo Lee and associate professor of business Paul Miesing is a resounding ‘yes.’

According to U.S. Census Bureau data, 470,000 business fail per year. With 400,000 new businesses launching each year, the odds of new businesses not working out are quite high. In fact, no industry has more than a 60 percent survival rate after the first four years.

“Learning is, in fact, more effective in failure than in success,” said Miesing, who teaches management at UAlbany’s School of Business. “Failure teaches us what works and what does not and failures may be the only way to learn about the underlying issues with a business. Failures may help improve process reliability, reduce error-related costs and improve the composition of a business’s projects through trial-and-error learning.”

Researchers Paul Miesing, left, and Junesoo Lee, explored the potential benefits of failure in a new paper for Organizational Dynamics.

Writing in Organizational Dynamics, Lee and Miesing examine how most prior ideas on failure have left gaps. “Existing research does not comprehensively explain prospective benefits from adversity within an integrated framework,” said Lee.

Their paper, “How entrepreneurs can benefit from failure management,” outlines a failure management framework for creative decision-making in paradoxical situations at both the individual and organizational levels.

The study took multiple steps to answer the following questions: 1. How are the major concepts such as ‘failure’ and ‘failure management’ defined operationally? 2. What are the types of failure and is there any benefit to managing them? And, 3: What distinguishes failure management from other related management tools such as risk management and crisis management?

The result is a framework for failure management in 16 propositions, nine of which appear below:

• Failure (deficiency, excess, or inconsistency) can function as a test bed under extreme conditions. Examples: Encountering a big quality control problem in 2009, Domino’s Pizza dramatically grew after it issued a quick apology and undertook full-scale reform. Some premature SONY products, such as its LED TV or pre-smartphone PDA, failed in terms of sales, but played a role in familiarizing customers with such devices, thereby increasing willingness to buy later.
• Deficiency can help save resources by forgoing an inferior opportunity. A missed chance due to insufficient resources can actually help avoid chasing an inferior opportunity and thereby save resources. For instance, in the early 1950s Lockheed participated in a new bomber development project but had to fund itself because it joined the project too late to get government grants. As a result, Lockheed was able to privatize the technology developed for the project, which led to enormous profits.
• Excess can help saving for a superior opportunity. Surplus resources can be used for new purposes or hidden assets can be reevaluated and released to exploit new opportunities. New York City brought new life to an abandoned railroad track as a city oasis. The re-created railroad, now the famous ‘High Line,’ became a public park with features for children, education, community-building, and local economic growth.
• Inconsistency can help conserve resources and spread risk. Inconsistent patterns of resources or information can help reduce risk. For instance, diversifying products, customers, markets, suppliers, technologies, etc. are a hedge against unforeseen variability. Personnel policies that employ part-timers help employers save costs while offering flexibility to employees. When used appropriately, having a part-time workforce addresses such key staffing issues as covering hard-to-fill positions and helps recruit, retain, and engage valuable employees.
• Deficiency can help improve effectiveness and efficiency. Having insufficient resources can eliminate harmful or needless redundancy. One reason is that it rallies the troops. For instance, Komatsu entered the U.S. market in 1967 with its rallying cry of ‘Maru-C’ that roughly translated into English as ‘Encircle Caterpillar!,’ the largest bulldozer maker.
• Excess can help stimulate innovation. Trying to resolve an ‘embarrassment of riches’ can be an impetus for innovation. Stretch goals, AKA BHAGs for ‘Big Hairy Audacious Goals,’ can help organizational performance by facilitating the use of slack resources, spurring creativity and innovation, prompting new product development, and tightening the budget. BHAGs, which require confidence, enhance team spirit and create visionary goals by stressing high commitment and working outside a comfort zone.
• Deficiency can help reduce risk or external threats. Deficient resources can allay opponents’ willingness or capacity for depredation. Before Steve Jobs’ premature death, iPhone 4S had been much criticized but Apple succeeded in deflecting such criticism and having Jobs’ death eclipse iPhone 4S problems. As a result, iPhone 4S sales soared.
• Inconsistency can help discourage threat through instability. An unstable condition or inconsistent and unreliable information can help remove undesirable or ineffective activity, behavior, or threat that is vulnerable to a changing environment. Behavioral economists have described such impact of inconsistency on human relations. For instance, inconsistent information in a message can confuse observers or recipients, causing them to blunder. Many nonprofit organizations use their tenuous financial situations as an excuse to have their ineffective board members resign voluntarily.
• Deficiency can help induce external help. Insufficient resources can prompt the willingness of reciprocal help and attention from stakeholders. A recent human resource management study showed that employees with deficient capability tend to feel indebted and work harder than those with sufficient capabilities who can rather easily become complacent. Stephen Hawking confessed that his disorder helped sell books. Similarly, reverse psychology marketing arouses customers’ curiosity with intentionally deficient information and ‘Today only!’ advertising that gives the ‘appearance of limitation,’ which can incite a run on stores.

About Junesoo Lee:

Junesoo Lee is an assistant professor at KDI School of Public Policy and Management (South Korea). He received his Ph.D. in Public Administration and Policy from the Rockefeller College of Public Affairs and Policy at UAlbany. His research is mainly about strategic management in the paradoxical contexts where systems are sustained by beneficial failure and also challenged by harmful success.

About Paul Miesing:

Paul Miesing is the Founding Director of UAlbany’s Center for Advancement and Understanding of Social Enterprises (CAUSE). He received his Ph.D. in Strategic Management from the University of Colorado at Boulder. His current research interests are in social entrepreneurship, environmental sustainability, and corporate governance. He has published dozens of articles and papers in both academic and practitioner journals, most recently co-editing Educating Social Entrepreneurs: A Workbook of Cases, Exercises, and Commentaries (Principles for Responsible Management Education). Miesing was a Fulbright lecturer at Fudan University in Shanghai, has won numerous awards, and has served on several peer review boards.

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