A study from the University of Illinois Urbana-Champaign reveals that how organizations learn from failures depends on two key factors: the nature of the failures and the innovation capabilities of the firms involved.
The research examined organizational learning from failures by categorizing them into two types: process-related, which were mainly attributed to “slip-ups,” and design-related, which were mainly attributed to “knowledge gaps.”
The study found that there was more organizational learning associated with design-related failures than with process-related ones. These two types of failures—attributed to either “I should have known better” or “I had no idea I was making this mistake”—highlight distinct challenges in the learning process for organizations.
Types of failure
“A slip-up is when you know you should be doing something, but you don’t do it,” the researchers explain. “We know we should eat a healthy diet and exercise 30 minutes a day, but we don’t always do that, right? That’s a slip-up.
“The other failure is not knowing you were making a mistake. Not knowing, for example, that you shouldn’t be eating a certain food while taking a certain medication. That’s a knowledge gap, and we find that firms learn more from knowledge-gap failures than slip-up failures.”
The researchers examined information from voluntary product recalls involving over 100 publicly traded U.S. companies in the medical device and pharmaceutical sectors between 2000 and 2016.
Their analysis revealed that companies gleaned more insights from design-related recalls compared to process-related ones. Essentially, according to the findings, errors stemming from slip-ups didn’t enhance a firm’s ability to prevent future failures.
Unresolved challenges
“This implies that either slip-up failures do not create an impetus in firms encountering them or that it’s more challenging for firms to reduce the occurrence of slip-up failures,” the authors continue.
“In either case, it points to the unresolved challenge of maintaining continuous attention to compliance and the need for deliberate efforts to maintain compliance regardless of the presence or absence of any impetus from slip-up failures.”
The researchers also found that a company’s history of patents and its investment in research and development contributed to improved learning from design-related recalls.
“Firms that place a premium on innovation face a higher risk of failures, which stands to reason: if you’re doing more experimental work, you will inevitably have endured more failure,” they continue.
“But experimentation also provides a firm with a solid foundation of knowledge about their resources and capabilities, which ultimately serves to augment the firm’s knowledge infrastructure. So that helps firms recover from their failures much, much quicker. It also means they’re able to improve their product and their competitiveness much better in the future.”
Embracing innovation
One important lesson from the research is the importance of embracing innovation. While avoiding innovation might seem like a way to reduce failures in the short term, it can ultimately harm a company’s long-term competitiveness by stifling a culture of innovation.
Although the study focused on product recalls in the pharmaceutical and medical device sectors to identify different types of failures, the researchers noted that the categorization could be applied to failures in other regulated industries, such as automotive and toys, which also face recalls. Moreover, it could extend to industries with less regulation, like software platforms.
“A culture of innovation encourages the in-depth exploration of the root causes of problems instead of relying on superficial ‘Band-Aid’ solutions,” the authors conclude. “A real-world example of this is the problems Boeing is currently facing with their quality and safety. They may be suffering the consequences of applying Band-Aids.”
