More and more often colleges and universities invite me to give a guest lecture or a seminar on the themes of mistakes, the culture of failure and constructive management of failure in companies.
Apart from the fact that this somewhat unusual theme sparks considerable interest and that I invite my students to deal constructively with entrepreneurial and personal failure, the question of if and how failure can be avoided almost always arises. A simple answer would be just to do everything right. What exactly does doing everything right entail? How can it be accomplished? Some of my audience argue that we could prevent mistakes and failures by making rational or sensible decisions. Is this actually the case? The term rationality refers to a rational, goal-oriented way of thinking and acting, i.e. calculating, analytical, logical, reasoned. Hence rationality can be defined by the pertinence and justification of a decision. As it were, the antithesis of intuitive gut decisions. Yet does rationality really help us to avoid mistakes and failures?
At first glance this might seem obvious enough. Rationality and pertinence often refer to an existing idea of how something is supposed to be and how our environment perceives our behaviour and our decisions. And as long as we act within these expectations, we can’t make mistakes (at least not major ones) or fail. We have all gone through this at school.
Rationality is not enough
A second look at the concept of rationality doesn’t so much focus on expectations as on the fact that we can take as many facts as possible into account in a decision-making process and thus better weigh up, justify and make decisions. It’s definitely true that a good and comprehensive factual foundation is important in order to avoid mistakes. But it is by no means enough.
A large number of failed innovation projects and product launches can attest to this. One of the biggest flops in automotive history was the introduction of the Ford Edsel to the North American market in 1957. The Ford Motor Company wanted to fill a gap in the North American market with the Edsel. So they first prepared its launch onto the market with market research that was detailed and wide-ranging for that time. Technically, the car had a number of innovations that should have made it attractive from that angle as well. In addition to these extensive market studies, competitions were set up for employees to think up the best name for the new model. Nothing was left to chance. And despite all of this rational preparation, the car ended up a flop.
Deceased member of the family
Why? Of course, one could now concede that marketing was bad, despite the very extensive market research. Seeing that, even before the cars were at the dealerships, Ford had raised expectations way too much. And that the name had been poorly chosen and much more. If the key managers had behaved so rationally back then, why did they make these mistakes? Because rationality can also be exaggerated. Because Ford’s management had the choice between thousands of suggestions but decided to go with the name of a deceased member of the Ford family – Edsel Ford. Regardless of the fact that the name was associated with terms such as weasel (i.e., a devious person). Because Ford was so confident about this car that their promotion of it created the highest expectations. Inevitably, these were also bound to disappoint.
How is it that rationality and irrationality can be so tightly intertwined? How is it that the senior management of a global corporation designs a new car model in a rational, sensible and fact-based way, just to ruin everything again with irrational decisions, ignorance and hyperbole?
Because to me, people are not rational. Daniel Kahnemann described this in detail in his best-selling book ” Thinking, Fast and Slow.” We humans think and act rationally as long as our emotions allow us to. And because we are only partially able to rationally grasp the complexity of our environment. As a consequence, we always depend on heuristics in our decision making. Even though abandoning heuristics and consciously disregarding information doesn’t diminish the quality of decisions, but could even improve them.
Ready to dare try something new
My answer to my students’ question as to whether failure can be avoided through rational thinking is therefore regrettably always no. I have to say no. And that’s just as well. Failure transcends the quality of decisions. Failure has to do with venturing into new, unpredictable areas and taking calculable but unavoidable risks. Whoever only ends up doing what they always do out of sheer force of habit, will invariably be unsuccessful. Successful people are the ones who are willing to dare try new things and take risks in the process. In doing so, they inevitably have to push past notions of what’s reasonable and appropriate. As well as abandon the assumed security of rationality and sense. Seen in this light, success and failure are two sides of the same coin.
The Ford Motor Company lost about $3 billion (current value) due to the Edsel. At the same time, the failure of the Edsel marked the birth of the Ford Falcon, one of the company’s long-standing success stories.