Successful innovation will always have failed ideas along the way. The key is maximize the value of those mistakes, and minimize the risk.
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The term “smarter mistakes” is an oxymoron at first blush. A mistake is something that is misguided or incorrect, and it is also usually unanticipated. Thus, it feels impossible to plan for making a smarter mistake. No company or person ever knowingly plans or wants to make a mistake, but still, mistakes happen.
The role of management is to reduce the likelihood of mistakes through a thoughtfully crafted business plan. An important part of that charge is to evaluate the risk in each course of action and determine which courses of action have the lowest cost of remediation should mistakes occur. I would suggest that for this process, the cost of remediation should have two components: the first would be actual capital cost to reverse the mistake and the second would be an evaluation of how much time the unwind would take, which has a cost of its own.
A management team can evaluate this general cost of remediation at the outset. Making smarter mistakes requires adding an upfront evaluation of the risks of each alternative initiative being discussed and debated. The output of the risk assessment must be added into the calculus for determining whether any company initiative should be approved. Adding risk into the management debate of strategic alternatives might also include an actual scoring of which alternative pursuit has the cheapest and fastest likelihood of remediation should something go wrong.
This is also a critical up-front part of the process. Perhaps there is a 1-5 score for cost of remediation and another 1-5 score for the time it would take to undo the initiative. Scoring ensures the team’s eyes are wide open when accepting an initiative that is, for instance, rated a 5 for remediation cost, and a 5 for time needed to unwind if the initiative fails. While mistakes can’t be avoided altogether the cost of failure can be known in a relative sense and taken into consideration.
How can a healthy and highly functioning senior team easily add into their calculus of alternatives an assessment of the risks inherent in each idea, should it blow up, along with a cost assessment of remediation if the idea fails? Here are 3 actions to help companies move towards a more proactive approach to evaluating initiatives based on risk and cost of remediation:
1. Separate ‘One-Door’ and ‘Two-Door’ decisions.
In order for the senior team not to become bogged down in a big process where each contemplated initiative goes through a robust, time-consuming evaluation, a couple of new vocabulary terms need to be added to the corporate lexicon. The initiatives need to be sorted into one group that are easy to reverse, meaning they are not too costly or time consuming to unwind when it is realized that the initiative will fail. Amazon calls this action the Two-Way Door assessment.
Two-way door decisions can be reversed easily. You can walk through the door, see if you like it, and if not, go back. These decisions can be made fast or even automated. Two-way doors by definition are easier, faster and cheaper to remediate and don’t really require top management involvement. A One-Way Door decision, on the other hand, is a decision that cannot be easily reversed. It will cost an enormous amount to reverse and take a long time to get reversed. These decisions need to be made carefully and should rise to the most senior management levels for discussions and decisions. This group is paid to make the toughest decisions and is the most experienced for just these assessments.
2. Have a designated champion.
Every announced initiative should have a champion, an announced owner with accountability for the success or failure of the effort. That person presents and advocates for the business case being discussed. They own the presentations, the alternatives assessment and answering each and every concern expressed by the team. They know they will wear the risk for the initiative so they must be objective as all eyes will be on them if the initiative stumbles. They know the entire team has discussed, rated and debated the initiative from all angles and was satisfied that the owner could follow up and follow through to succeed.
3. Have a designated skeptic.
Here is the kicker. As part of the process, there should be a “Designated Skeptic,” another announced member of the team whose role is to be coldly objective about each alternative being presented by the owner and to report the skeptical view of risks of each alternative. This title cycles through the entire senior team so that every member of the team, from time to time is the designated skeptic. Risk of failure is a critical component to evaluate and there needs to be a person who might bring up risks not covered in the champion’s presentation.
Building insurance that creates smarter mistakes into the process indeed is worth the effort to install. It is a win-win-win-win for a company:
1. The first win is that team members below the most senior level begin to learn the process used for strategic alternatives assessment by the senior team. They get to organize and install the same processes as the most senior team, so when they get promoted, nothing about evaluation of potential initiatives process is new and they settle into new roles more quickly. It is a great addition to leadership growth and development plans.
2. The second win is that the entire organization begins thinking about plans with a new, important accent on the attendant risks of anything and the formalized approach to bring focus to risk. Throughout the company, all team members begin to understand that risk of failure, while accepted, is weighed carefully.
3. The third win is that the senior team gets to focus on only the toughest, most intractable and most critical parts of the corporate business plan, leaving precious time for other duties.
4. The final win is that a new leg of the corporate culture stool is created and implemented. This new leg recognizes that a) mistakes are a part of any business and that b) this company, through smarter processes will end up creating smarter mistakes. Not a bad message for a company to send to its team members.
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