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Companies have a great deal to learn from failure—provided they manage it successfully

BUSINESS writers have always worshipped at the altar of success. Tom Peters turned himself into a superstar with “In Search of Excellence”. Stephen Covey has sold more than 15m copies of “The 7 Habits of Highly Effective People”. Malcolm Gladwell cleverly subtitled his third book, “Outliers”, “The Story of Success”. This success-fetish makes the latest management fashion all the more remarkable. The April issue of the Harvard Business Review is devoted to failure, featuring among other contributors A.G. Lafley, a successful ex-boss of Procter & Gamble (P&G), proclaiming that “we learn much more from failure than we do from success.” The current British edition of Wired magazine has “Fail! Fast. Then succeed. What European business needs to learn from Silicon Valley” on its cover. IDEO, a consultancy, has coined the slogan “Fail often in order to succeed sooner”.

There are good reasons for the failure fashion. Success and failure are not polar opposites: you often need to endure the second to enjoy the first. Failure can indeed be a better teacher than success. It can also be a sign of creativity. The best way to avoid short-term failure is to keep churning out the same old products, though in the long term this may spell your doom. Businesses cannot invent the future—their own future—without taking risks.

Entrepreneurs have always understood this. Thomas Edison performed 9,000 experiments before coming up with a successful version of the light bulb. Students of entrepreneurship talk about the J-curve of returns: the failures come early and often and the successes take time. America has proved to be more entrepreneurial than Europe in large part because it has embraced a culture of “failing forward” as a common tech-industry phrase puts it: in Germany bankruptcy can end your business career whereas in Silicon Valley it is almost a badge of honour.

A more tolerant attitude to failure can also help companies to avoid destruction. When Alan Mulally became boss of an ailing Ford Motor Company in 2006 one of the first things he did was demand that his executives own up to their failures. He asked managers to colour-code their progress reports—ranging from green for good to red for trouble. At one early meeting he expressed astonishment at being confronted by a sea of green, even though the company had lost several billion dollars in the previous year. Ford’s recovery began only when he got his managers to admit that things weren’t entirely green.

Failure is also becoming more common. John Hagel, of Deloitte’s Centre for the Edge (which advises bosses on technology), calculates that the average time a company spends in the S&P 500 index has declined from 75 years in 1937 to about 15 years today. Up to 90% of new businesses fail shortly after being founded. Venture-capital firms are lucky if 20% of their investments pay off. Pharmaceutical companies research hundreds of molecular groups before coming up with a marketable drug. Less than 2% of films account for 80% of box-office returns.

But simply “embracing” failure would be as silly as ignoring it. Companies need to learn how to manage it. Amy Edmondson of Harvard Business School argues that the first thing they must do is distinguish between productive and unproductive failures. There is nothing to be gained from tolerating defects on the production line or mistakes in the operating theatre.

This might sound like an obvious distinction. But it is one that some of the best minds in business have failed to make. James McNerney, a former boss of 3M, a manufacturer, damaged the company’s innovation engine by trying to apply six-sigma principles (which are intended to reduce errors on production lines) to the entire company, including the research laboratories. It is only a matter of time before a boss, hypnotised by all the current talk of “rampant experimentation”, makes the opposite mistake.

Companies must also recognise the virtues of failing small and failing fast. Peter Sims likens this to placing “Little Bets”, in a new book of that title. Chris Rock, one of the world’s most successful comedians, tries out his ideas in small venues, often bombing and always junking more material than he saves. Jeff Bezos, the boss of Amazon, compares his company’s strategy to planting seeds, or “going down blind alleys”. One of those blind alleys, letting small shops sell books on the company’s website, now accounts for a third of its sales.

Damage limitation

Placing small bets is one of several ways that companies can limit the downside of failure. Mr Sims emphasises the importance of testing ideas on consumers using rough-and-ready prototypes: they will be more willing to give honest opinions on something that is clearly an early-stage mock-up than on something that looks like the finished product. Chris Zook, of Bain & Company, a consultancy, urges companies to keep potential failures close to their core business—perhaps by introducing existing products into new markets or new products into familiar markets. Rita Gunther McGrath of Columbia Business School suggests that companies should guard against “confirmation bias” by giving one team member the job of looking for flaws.

But there is no point in failing fast if you fail to learn from your mistakes. Companies are trying hard to get better at this. India’s Tata group awards an annual prize for the best failed idea. Intuit, in software, and Eli Lilly, in pharmaceuticals, have both taken to holding “failure parties”. P&G encourages employees to talk about their failures as well as their successes during performance reviews. But the higher up in the company, the bigger the egos and the greater the reluctance to admit to really big failings rather than minor ones. Bosses should remember how often failure paves the way for success: Henry Ford got nowhere with his first two attempts to start a car company, but that did not stop him.

Source: The Economist: Schumpeter

EPD Activity Report April 20 2011

IS IT TRUE? April 21, 2011

IS IT TRUE that the Evansville Housing Authority Board of Directors has or may have to return $2 Million to $3 Million dollars to the Federal Government because they didn’t put together a meaningful financial package to develop the “Crown Jewel” property located in the Center City?….that property was to have been known as “ERIE Housing” for low income families and is located on the corner of Governor and Lincoln Ave?….that if this property was properly developed, this could have been a major success story for the Weinzapfel Administration, the Evansville Housing Authority and the Evansville Department of Metropolitan Development and its Front Door Pride program? ….instead of being a political success story, this vacant property is now considered an example of “Bad Public Policy”?

IS IT TRUE that this is the same Weinzapfel Administration that recently announced plans to proceed with low income housing that is priced at nearly $240,000 per apartment that could be bought and refurbished in the private sector for less than $25,000 per unit?…that between the Vision 1505 project, the Cedar Trace Apartments III project, and the 40 new RENTAL HOUSES in the Front Door Pride area that commit to spend nearly $23 Million dollars to build only 120 dwelling units ($191,666 each) that could be done in the private sector for $8 Million or less that there will be an influx of $500 hammers, $200 sheets of drywall, and a fleet of Baghwan style Rolls Royce’s headed for Evansville?…that all tax money is our money and that just because it comes from the feds does not make it okay to overpay by 8 times what local markets will bear?…that the Evansville Housing Authority is the developer of record for the Vision 1505 project that is the most wasteful of the three recently announced projects?

IS IT TRUE that there is an apartment complex located at 1526 South Green River Road that has 320 dwelling units offered on Loopnet for $5.6 Million?…that this amounts to only $17,500 for each unit in this complex that offers 1, 2, and 3 bedroom models?…that anyone who can use a calculator and think has to just by mystified by the intention of the City of Evansville to spend $239,916 per unit for something that can be purchased on the open market for $17,500 each without haggling?…that this is a 1,271% premium over market value?…that with all due respect offered to government housing a premium like this is the equivalent of paying $137.10 for a hamburger and a beer at one of our local restaurants?…that this would be a certain way to go broke?

IS IT TRUE that Superintendent Dr. Vince Bertram has announced that he will be leaving his job at EVSC to become the CEO of Project Lead the Way for the entire United States?…that Project Lead the Way is recognized as the premier program for technology training at the high school level?…that one of the top schools in America in the Project Lead the Way group of schools is Pike Central High School in Petersburg, Indiana?…that the students at Pike Central have won several national championships and are working with the engineering team at Crane Naval Weapons center and Indy Power Systems on a truly high technology project?…that the Pike Central kids are so recognized for their accomplishments that they will be featured in FAST COMPANY MAGAZINE’s upcoming issue?…that Dr. Bertram has just been hooked up as the CEO of a program of national significance that is a rapidly rising star and that Pike Central and a few other Southwest Indiana schools are the fuel behind that star?…that the City County Observer wishes Dr. Bertram well in his desire to make a nationally significant contribution to the education of our young people?

IS IT TRUE we hear that at least two (2) incumbent Evansville City Council members up for re-election are very happy with City Council attorney John Hamilton’s on the job performance? ….they would like him to be retained by the soon to be elected City Council members? ….that the CCO completely agrees with them and find that that Mr. Hamilton is hard working, honest, knowledgeable, and has done an outstanding job and should be retained?

Libertarians speak against Obama’s War on Poker

WASHINGTON – Following the Obama administration Justice Department’s April 15 shutdown of three online poker sites and indictment of their executives, Libertarian Party Chair Mark Hinkle said, “The Obama administration has just trampled on the rights of millions of Americans.”

Hinkle continued, “This is also a scary reminder of President Obama’s vision of a government with the power to shut down websites it doesn’t like, before a trial has even started.

“Even worse, shutting down this peaceful, honest commerce further weakens our economy.

“We Libertarians believe that adults have the right to gamble with their own money. Government has no business interfering. The Obama administration should drop these charges and restore the websites. Congress should repeal the laws that prohibit gambling, whatever the format.”

The Los Angeles Times recently reported on the crackdown.

The following are planks from the Libertarian Party platform:

1.0 Personal Liberty

Individuals should be free to make choices for themselves and to accept responsibility for the consequences of the choices they make. No individual, group, or government may initiate force against any other individual, group, or government. Our support of an individual’s right to make choices in life does not mean that we necessarily approve or disapprove of those choices.

2.0 Economic Liberty

Libertarians want all members of society to have abundant opportunities to achieve economic success. A free and competitive market allocates resources in the most efficient manner. Each person has the right to offer goods and services to others on the free market. The only proper role of government in the economic realm is to protect property rights, adjudicate disputes, and provide a legal framework in which voluntary trade is protected. All efforts by government to redistribute wealth, or to control or manage trade, are improper in a free society.

For more information, or to arrange an interview, call LP Executive Director Wes Benedict at 202-333-0008 ext. 222.

The LP is America’s third-largest political party, founded in 1971. The Libertarian Party stands for free markets, civil liberties, and peace.

By: Phil Stott, Vault.com

Today is National Hiring Day. Well, at McDonald’s anyway—the fast food chain is seeking to add up to 50,000 employees at neighborhood restaurants throughout the nation.

On the surface, that sounds like great news for an economy that’s struggling to create enough jobs to speed this sluggish recovery up. According to the National Urban League, the target of 50,000 hires “means that McDonald’s and their franchisees will generate more than $1.4 billion in consumer spending at a time when the U.S. economy needs the boost and our communities need jobs more than ever.”

Forbes’ Susan Adams points out, however, that the company has said the salary budget for those 50,000 employees is just $518 million. And, while she notes that a McDonald’s executive says it’s “not fair or accurate to simply divide that by 50,000, it does break down to little more than $10,000 per worker.”

While the McDonald’s exec may be correct that it’s not an accurate measure of what salaries will look like, there’s no easier way to slice the figure. At $10 per hour, the company can hire almost 25,000 full-time workers (defined as having a 2,080 hour working year). And that’s just salary—no benefits included.

At minimum wage, the number of full time employees that budget allows rises to a little over 34,000.

It’s clear, then, that many of the McJobs* are going to be part-time. And that none is going to come with an overly generous salary. Add to that the short average tenure of an employee in the fast food industry, and you could be forgiven for arriving at the belief that this initiative is more about publicity for the house that Ronald built than it is about job creation.

Of course, the firm points out that many of its managers and franchisees—and even the occasional senior exec—started behind the counter in one of its restaurants. But the scale of the current hiring push—50,000 employees in a single day–somewhat undermines the strength of that message.

While many will jump at the opportunity to get a foot onto any kind of ladder in this economy—and the National Urban League again praises the firm here for the opportunities it offers African American teens in particular—it’s difficult to view it in a purely positive light simply because of the reputation of the type of work involved.

(Full disclosure: during my college years, I spent many long, demoralizing hours flipping burgers, tending fryers and mopping up grease in the kitchen of one of McDonalds’ competitors. For all the positive spin that McDonald’s USA President Jan Fields can offer about gaining “a solid foundation in the basics of business,” I can attest to having learned three main things: that it’s all but impossible to get that kitchen smell out of your clothes; that levels of customer politeness enjoy an inverse relationship with those of hunger; and that the happiest day of your employment is the one where you realize you don’t need to do this—or take this—anymore.)

In that light, perhaps the best way of assessing this particular piece of news would be to revisit the issue at some point in the future and find out how long the hires being made today lasted—and whether any of them have made any sort of career advancement.

Ten Inventory Management Questions from Bain Management

Inventory management is often the Achilles heel of an organization. It is perhaps the biggest material risk that a business takes with respect to operating capital. Holding too much inventory depletes cash and keeps a business from being able to invest strategically while holding too little inventory can depress sales. Another often overlooked aspect of inventory management is spoilage or obsolescence which literally takes good money and makes it worthless.

Bain has developed a simple ten question tutorial on the basics of inventory control. The link below will take you too it.

http://www.bain.com/bainweb/PDFs/cms/Public/BAIN_Industry_Brief_Inventory_management.pdf

Source: Joe Wallace, Hadannah Business Solutions

IS IT TRUE? April 20, 2011

IS IT TRUE that the City County Observer has an unwritten policy that it shall not endorse any political candidate for elected office? ….you can expect “9 CCO MOLES” to make their predictions known to whom they think will win in upcoming primary races? …we understand the final judge who shall be elected rests with you, the people of Evansville?…that the CCO urges you to go to the polls and cast your vote for the candidates worthy of being a “good steward of public policy” in the coming year?

IS IT TRUE that the United States Department of Justice-Civil Rights Division shall be looking into the minority hiring practices of the City of Evansville Fire and Police Department sometime next week?

IS IT TRUE that the landlords of Evansville are now being trained in how to spot meth labs?…that one good clue is when the Vectren bill for a one room apartment is dramatically higher than is typical?…that even with the high use of electricity in the meth making process and the excessive rates that Vectren charges (188% higher than Henderson) that it does not seem to drive meth makers across the money saving bridge to operate?…that some products are so addictive that production costs do not matter?…that meth is a scourge of this area and that the City County Observer applauds the Evansville Police Department for the instruction it is providing to the Property Owners and Managers Association?

IS IT TRUE that the IRS released a statement yesterday that headlined across America that the 400 highest earners income tax rate is only 17% down from 26% in 1992?…that has the “east the rich” crowd seething?…that beyond the headlines was the fact that 45% of the American people who file an income tax return pay no taxes or pay a negative tax in the form of getting an earned income credit?…that beyond the headlines was the statement that the top 3% of earners pay 57% of all income taxes?…that publishers can send different messages by choosing how to present the same facts?…that there is nothing wrong with achieving financial success?…that the tax code has been made so complicated and that there are so many “write offs” of various types that high earners seem to be able to pay accountants to legally pay less taxes?…that has the sound of redistribution from the IRS to Accountants and Lawyers to it?

IS IT TRUE that all people rich and poor will a support fairness of taxation?…that no one really knows what is fair?…that fairness to most people means some other guy gets taxed more while they get taxed less?…that FAIRNESS STARTS WITH SIMPLICITY and will only be achieved by SIMPLIFICATION OF THE TAX LAWS?…that when the tax preparation fees absorbed by the people of America goes to ZERO instead of the current $120 Billion per year, that whatever the rates are that the FAIRNESS will INCREASE?…that it is UNFAIR that working people have to spend $200 or so to have their taxes done?…that it is equally UNFAIR that wealthy people have to spend millions to get their taxes done?

IS IT TRUE that we are all in this together and that we cannot drive the poor from our borders any more that we should drive the rich from our borders?…that many of the so called rich come from poor and humble beginnings?…that while that is possible in other countries it happens every day in the United States of America?…that as long as we are the land of opportunity and attract the world’s best and brightest that we will continue to be an economic leader?…that as long as a poor kid can get a good education, work hard and become one of the highest earners that America will remain an attractive country?…that we must be perceived as FAIR to keep the American Dream alive?

Thoughts on the Future of Roberts Stadium
By: Pete Swaim, Candidate for Republican nomination for at-large City Council seat

As many Evansville residents have pointed out over the last couple of years, Roberts Stadium has been more than a memorable fixture in our community for over 50 years. Those same folks have offered up a number of alternative uses, since the notion of ball fields has now been taken off the table. I became very familiar with the building and its operation during my time on the Sheriff’s Department, having worked security at events there for nearly three decades. I realize that any further use for Roberts, in its current configuration, must, first of all be made from a good business standpoint and that any of those uses should not conflict with the new downtown arena. I have compiled a partial list of events from the thoughts of others and some of my own that could extend the usefulness of the Stadium for many years to come. These would include, but are not limited to the following: A return of I.H.S.A.A. high school basketball regular season games and tournaments. During the hay days of a single class tournament, the building was packed during sectional, regional and semi-state play. The popular Great Lakes Valley Division II tournament was literally kicked out of town due to exorbitant rental prices. With reasonable fees, I can’t imagine they couldn’t be lured back to Evansville. Perhaps the Christian College Tournament, that’s now played in Oakland City, would be interested, not only in the building, but having additional hotel rooms and restaurants on the east side available to their fans. Other events such as monster trucks, tractor pulls and rodeos would be better suited to continue in Robert’s Stadium, allowing more time for total clean-up between events. I can also imagine the Jehovah’s Witness conferences, if given a choice, would rather be on the east side for the same reasons, if that event were not a conflict.

Even with events scheduled for Robert’s Stadium, it could also be kept as a regional disaster emergency center and house F.E.M.A.’s local offices, vehicles and emergency supplies for hundreds of potentially displaced residents.

The water being pumped from the water table beneath the floor is no longer a problem, since cleanouts were installed in the PVC pipes now in place. I’m proposing the 12,000 gallons per minute of 50 degree aquifer water, be channeled into geothermal heat exchangers to help defray the costs of heating and cooling the building. In theory, with this amount of water, the system could also incorporate Swonder Ice Rink into the loop. I will soon have the figures on the initial start- up costs for that equipment from a local company that specializes in this. So, these are some of the possibilities. I would be interested in hearing some more of your thoughts and ideas for additional events. Please forward your ideas to me at my campaign e-mail address…pete4council@gmail.com. Thanks for your interest in keeping the old gal a viable part of our community.

Pete Swaim
Republican Candidate for City Council at large

EPD Activity Report April 19 2011