Book review: Why corporate culture needs to embrace screwing up

Companies and workers can’t be innovative without making mistakes.

 

Since the days of the Apple II, we’ve been trying to isolate and bottle whatever’s in the water in Silicon Valley. The area’s boosters brag of a culture of innovation unmatched in the world, and the globe is scattered with public and private efforts to recreate the Valley’s magic.

But ask those who work there what’s different about the Silicon Valley culture, and they’ll often say the one key difference is a tolerance for mistakes. Even if you’ve driven three startups into the ground, you can still roll down Sand Hill Road with a good idea and find venture capital willing to take a chance on you. After all, people reason, you must have learned something from your screw-ups.

We’re told from childhood that we’re supposed to learn from our mistakes. But in our workplaces and elsewhere, the reality is that we’re often punished for them. We’ve come to abhor error and hesitate to acknowledge mistakes when we make them. That, in turn, creates a culture “where people spend enormous amounts of energy blaming each other when something goes wrong rather than finding a solution,” writes Alina Tugend. “It creates workplaces where taking chances and being creative while risking failure is subsumed by an ethos of mistake-prevention at the cost of daring and innovation. Or, conversely, workplaces where superstars are never challenged” but “rewarded for making really bad decisions.”

In Better by Mistake: The Unexpected Benefits of Being Wrong (Riverhead), Tugend—author of The New York Times’ ShortCuts business column—explores the disconnect between what we’re told about mistakes and how we feel about them. She advances from British psychologist James Reason’s contention that a mistake is distinct from an error (though she uses the terms interchangeably for readability’s sake). An error, she writes, occurs when a planned sequence of physical or mental activities fails to achieve its outcome, and chance can’t be blamed: “when we push a door instead of pull it to open it or, more frighteningly, step on the gas instead of the brake.” A mistake, on the other hand, “is when the plan itself is inadequate to achieve its objectives.”

Most companies like to think that they encourage risk-taking and innovation, and that they recognize mistakes as inevitable when people are working creatively. Almost universally, however, that’s not the case. Tugend cites a Harvard Business Review essay by academic and management consultant Paul Schoemaker, in which he argues that although organizations need to make mistakes to improve, their organizational attitudes do everything possible to discourage them. “That’s because most companies are designed for optimum performance rather than learning, and mistakes are seen as defects that need to be minimized,” Schoemaker writes. Companies (and employees) try to quickly distance themselves from slip-ups, and as a result, says Tugend, they “fail to uncover systemic problems that may be leading to the errors.”

From Schoemaker’s essay, she extracts four reasons why we resist taking chances that can lead to mistakes. The problem of confirmation bias—a tendency to place weight on data that back up our beliefs, which can prevent us from exploring alternatives—has recently been explored in a number of pop psychology books. Feedback bubbles are a second obstacle: failing to ensure we’re getting reliable feedback from a range of sources.

Then there is risk aversion due to the fact that “our professional and personal pride is tied up in being right” and because “employees are rewarded for good decisions and penalized for failures.” Finally, we tend to be overconfident in our abilities, which can blind us to the limits of our knowledge. Inexperienced managers, for example, are going to make mistakes as a matter of course; those of us with more experience may become so set in our habits that we don’t even recognize there are other ways of doing things.

So what should we do about this conundrum? Better by Mistake has broad ambitions, examining the way that fields with the highest stakes (medicine and aviation, to name two) deal with mistakes and exploring the dynamics of blame and apology. It even wades into parenting and schooling: praising and rewarding our children for reaching solutions rather than for their effort, Tugend writes, stigmatizes mistakes from the earliest stages of socialization.

As to how we can change a deeply embedded corporate culture that’s mistake-averse, the answers aren’t simple. Trust and openness are essential, and need to be propagated from the top—consistently. Too many executives and managers say they want honest feedback, then react poorly when actually faced with it. Ideally, companies should find ways to reward admissions of mistakes, if only in a tongue-in-cheek way. Tugend gives the example of a Michigan business association that presents Golden Egg Awards to members who got egg on their faces while trying something new.

The most important element, however, may be instilling in management and employees what Stanford psychology prof Carol Dweck calls a “growth” mindset, as opposed to a “fixed” one. With the latter, you’re prone to agree that “everyone is a certain kind of person and there is not much they can really change about that.” A growth mindset, conversely, reflects the belief that people can substantially change who they are.

Some of the best managers and leaders are emphatic believers in the growth mindset, and see few mistakes as so big to nullify the opportunity to learn. A talented IBM junior executive once lost $10 million of company money in a risky venture, then slunk into company founder Tom Watson Sr.’s office expecting to be fired. “You can’t be serious,” Watson famously responded. “We’ve just spent $10 million educating you!” Mistakes are valuable experiences, whatever the price tag.

EXECUTIVE SUMMARIES

FATAL RISK: A Cautionary Tale of AIG’s Corporate Suicide (Wiley) Roddy Boyd

American International Group gets its turn on the dissection table under the scalpel of Boyd, a Wall Street investigative reporter formerly of Fortune and the New York Post. In Boyd’s telling, former AIG chief executive Maurice (Hank) Greenberg is a titan, the visionary largely responsible for transforming a sleepy insurer into the global corporate juggernaut deemed too big to fail. For a story about an insurance company, the tale of Greenberg and AIG’s rise to ubiquity makes surprisingly compelling reading. More compelling, though, are the gory details of its downfall. As the company grows, Greenberg’s management fails to adapt; minor details get overlooked and become major problems. Greenberg is forced out after a 2005 accounting scandal, and the company, distracted by a full regulatory assault by then-New York attorney general Eliot Spitzer, allows its risk management to fail all but completely. But while AIG’s defenders have vilified Goldman Sachs for collateral calls that seemed timed to inflict maximum damage, Boyd pins the blame for the insurer’s downfall on a handful of AIG executives too fixated on securing power and maximizing their bonuses to realize that their company was lurching along on a death march.

SUITS: A Woman on Wall Street (Atlas) Nina Godiwalla

A Wall Street outsider in every conceivable way—a public school grad, a Texan from a visible minority, a woman—Godiwalla contended with more than the usual challenges when she moved to Manhattan in the ’90s and became an analyst in Morgan Stanley’s corporate finance group. Now, some years removed from investment banking, she offers a memoir both of her attempts to adapt to Street culture and of the upbringing that led her to try in the first place.

In alternating chapters, Godiwalla tells the story of her Persian-Indian Zoroastrian family in Houston, and her experiences with the culture of blue-chip investment banks. The long hours and intensive demands she was prepared for. But she also quickly begins to suppress her accent, shed any quirks of personal style and learn how to handle “celebrity” co-workers—the junior analysts able to work less because of family money and influence. She develops the habit of memorizing sports scores off the Bloomberg ticker first thing in the morning, knowing that her bosses will ask her about them later in the day. When she shrugs off a pornographic image being passed around at work, she’s all but high-fived. “You are so awesome,” a fellow analyst enthuses. “You are totally one of the guys!”

THE EXTRA 2%: How Wall Street Strategies Took a Major League Baseball Team from Worst to First (Ballantine/ESPN) Jonah Keri

Stuart Sternberg is a self-described “buy-low” guy: “If you pay the right price for something, I don’t care what it is, you can’t go very wrong.” So when offered a chance to buy into the Tampa Bay Rays, then the worst franchise in baseball, the Wall Street veteran held his nose, thought of the upside and wrote a cheque.

Bloomberg Sports writer Keri investigates how Sternberg’s business philosophies turned the Rays from laughingstock to World Series contender. The two lieutenants Sternberg hired to run the club were outsiders even by the standards of the post-Moneyball era, when Ivy League MBAs are the norm among baseball executives. Wall Street-trained, Matthew Silverman and Andrew Friedman had never been involved with the pro game in any capacity, so they were unconstrained by the sport’s conventional wisdom when looking for advantages. No front office in the game had so fully (or ruthlessly) embraced the concept of arbitrage, been so zealous about generating and guarding original analysis and intellectual property, or taken such a sophisticated approach to structuring long-term player contracts to give a club options. Their success has made them a case study for baseball’s other 29 teams.

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