We often hear about the importance of failure when driving new ideas or new businesses. We’re given advice to Fail Early, Fail Often, and Fail Cheap. While this well-meaning advice is accurate on the whole the reality is that failure in most organizations comes with pretty heavy consequences. Within mature organizations a failed initiative can have a dramatic impact for both the individual and the long term success of organization itself.
This post is from an article that I originally published on April 1st, 2015 in Innovation Excellence.
Until the last few years not much has been published about innovation failure rates within organizations because everyone feared the stigma or repercussions that came with disclosing any failure. For publicly traded companies the idea of giving stock analysts any ammunition for a critical stock rating would be tantamount to committing career suicide. Instead most organizations would prefer to quickly sweep their failed initiatives under the proverbial rug and hope they are never discussed again.
A couple of data points can go a long way in helping us to understand the frequency of innovation failure. It is first worth noting that there are significant differences in the success/failure rates of 1) incremental innovation and 2) disruptive innovation.
Incremental innovation is most commonly thought of as product line extensions (e.g. new cereal flavors, new soda brands, etc.) which tend to have lower failure rates. Incremental innovation can more easily be tested with consumers because there is a benchmark to compare and contrast against. Disruptive innovation is frequently a new to market product, service, or business model (e.g. Apple iPhone, Uber, HP Touchpad, etc.) that is much more difficult to evaluate prior to launch. With that increase in uncertainty comes a higher rate of failure.
Data scientist Thomas Thurston (@thurstont) is CEO of the strategic consulting firm Growth Science. For years Thurston has been working with innovative startups, large corporations, and educators trying to better understand innovation success by studying failure. Over that time he has amassed a significant data set of over 1000 corporate innovation initiatives. In the data Thurston has found that 78% of those initiatives cease to exist seven to ten years after their initial funding. Stated differently, 3 out of 4 of those initiatives either failed to reach scale or to become self-sustaining. Many others in the industry hint that the 78% sounds accurate with their experiences.
Even world-class innovation organizations see a significant percentage of failed initiatives. Last year I had a discussion on this topic with Mark Payne (@MarkF212) the President and Co-Founder of innovation consulting firm Fahrenheit 212. At the time Mark was proactively trying to address the issue of innovation failure by sharing the lessons he and his firm had learned in a book How to Kill a Unicorn. Mark noted that even with all of the experience that his firm brings to an engagement they see a 20-40% failure rate for innovation initiatives. Earlier in 2014 Fahrenheit 212 conducted an informal survey of 100 Chief Innovation Officers asking “what percentage of their innovation initiatives made it to made it to market?” What they heard back was that two thirds of the respondents saw a 75% failure rate or three out of four of their innovation initiatives never made it to market.
When leaders don’t recognize these high failure rates and the corresponding risks involved to their individual employees they are setting their organizations up for difficult consequences when innovation projects do fail.
In a previous article for Innovation Excellence (Five Ways Organizations Lose When They Cover Up Innovation Failures) I highlighted some of these consequences:
Based on these high failure rates and the negative impact to employees many in the innovation community have suggested it is better to just outsource their breakthrough (e.g. disruptive) innovation work to external teams.
If something sparks from that work then the internal team can focus on building out the necessary capabilities to sustain the innovation initiative. But if the project fails there is less impact to the organization. Simply stated the resources can more easily be eliminated if the initiative fails.
I recently co-hosted a Twitter Chat (#InnoChat) focused on the innovation domain where I posed the question of “Should mature organizations hire external teams or leverage internal resources if they want to drive breakthrough innovation?” The participants provided some great insights and direction to this thinking.
This is just a portion of the insights gleaned from the #InnoChat discussion but it is a great example of the “wisdom of crowds” in action. Everyone brought their unique experiences, priorities and perspective to the conversation making it a robust exchange. Here is a link to the complete transcript including insights into how organizations can help their employees de-risk their decision to join internal innovation initiatives.
While we still have an “it depends” answer I believe that the group has identified four great criteria that can help any organization through the process of determining their innovation resourcing strategy.
image credit: alleywatch.com
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