Better Ideas Through Failure

Companies Reward Employee Mistakes To Spur Innovation, Get Back Their Edge.

To pitch a prospective client for her ad agency, Amanda Zolten knew she a had to take a risk. But the client's product—kitty litter—posed a unique challenge.

Lucy Belle, Ms. Zolten's cat, furnished the answer.

Before she and her team met with six of the company's executives, Ms. Zolten buried Lucy Belle's mess in a box of the company's litter and pushed it under the conference-room table. No one noticed until Ms. Zolten pointed it out—and the fact that no one had smelled it.

A growing number of companies are explicitly rewarding failure - giving cash prizes or trophies to people who foul up. Sue Shellenbarger has details on Lunch Break.

Shocked, several executives pushed back from the table. Two left the room. After a pause, those who remained started laughing, says Ms. Zolten, a senior vice president with Grey New York. "We achieved what we hoped, which was creating a memorable experience," she says.

She won't know for a few weeks whether Grey won the business. But her boss, Tor Myhren, has already named Ms. Zolten the winner of his first quarterly "Heroic Failure" award—for taking a big, edgy risk.

Amid worries that we are becoming less innovative, some companies are rewarding employees for their mistakes or questionable risks. The tactic is rooted in research showing that innovations are often accompanied by a high rate of failure.

"Failure, and how companies deal with failure, is a very big part of innovation," says Judy Estrin of Menlo Park, Calif., a founder of seven high-tech companies and author of a book on innovation. Failures caused by sloppiness or laziness are bad. But "if employees try something that was worth trying and fail, and if they are open about it, and if they learn from that failure, that is a good thing."

Amanda Zolten with the 'Heroic Failure' trophy from her employer, a New York advertising company.

Grey's Mr. Myhren recently started handing out the "Heroic Failure" award because he was worried that fast growth at the agency, a unit of WPP's Grey Group in New York, was making employees "a little more conservative, maybe a little slower," he says. Creator of E*Trade's talking-baby ads, Grey New York has more than doubled to 900 employees since 2008.

"I thought rewarding a little risk-taking was potentially an answer," Mr. Myhren says. The award is for ideas that are "edgier or riskier, or new and totally unproven," he says.

Mr. Myhren acknowledges that Ms. Zolten's prank could have gotten his eight-member team "kicked out of the room and told never to come back." He adds, "There was enough chaos in the room that we weren't sure whether it was a good or bad thing." Nevertheless, he calls the idea "absolutely brilliant" and deserving of the garish two-foot-tall "Heroic Failure" trophy. Regardless of how it turns out, he says, "we're proud that we had that idea."

Many people succeed at producing innovations because they churn out a very large number of ideas, both good and bad, says Dean Keith Simonton, a psychology professor at the University of California, Davis. "The most successful people tend to be those with the most failures," says Dr. Simonton, author of more than 500 studies and articles and 12 books on creativity and innovation.

Extracting lessons from foul-ups is the focal point of Michael Alter's "Best New Mistake" awards at SurePayroll, a payroll-services company in Glenview, Ill. Only people who are trying to do a good job, make a mistake and learn from it are eligible for the $400 annual cash award.

To test new functions of SurePayroll's systems in 2009, project manager Kate Vick created a fake company with imaginary employees. She flagged the data as a "test" before processing it, and the trial run went smoothly.

But Ms. Vick failed to foresee that the system would automatically report the fake employees to a state payroll-tax agency as if they were new hires at an actual company. A few days later, she was stunned by a phone call from an Illinois official asking her to confirm that her "company," named "Product Kate Test," had just hired someone named "Salaried Employee One" with a phone number of 555-555-5555. For a painful 15 minutes, "he went through my entire list of fake employees and wouldn't let me interrupt," she says. The official eventually hung up after she explained and apologized. But he made the issue seem so serious that "I felt like a very small human being," she says.

When Ms. Vick confessed to her boss, Steve Kania, he had a laugh at the official's "FBI-esque seriousness" about "completely ridiculous data," says Mr. Kania, a vice president, product management. They now train others to avoid using hypothetical new hires during tests.

Mr. Alter describes the fallout as "paying tuition. As opposed to saying, 'You screwed up,' or, 'You messed up,' we say, 'Let's talk about what we learned.' That drives a lot of innovation," he says.

Employers use a variety of tactics to foster innovation. Grey New York blocks off a "no meeting zone" every Thursday morning, to allow employees sustained time for work on creative projects. Procter & Gamble Co. has set up a division for innovation, called FutureWorks.

Some add game or nap rooms, expansive art-filled atriums, hiking trails or private meditation rooms with music and adjustable lighting.

Intuitive Surgical, a Sunnyvale, Calif., maker of surgical robots, limits work teams to five members "like jazz bands," says Gary Guthart, president and chief executive. Team members tend to share ideas easily, respond quickly to problems and hold each other accountable, he says.

However, all innovative companies tend to be alike in certain ways, Ms. Estrin says. They encourage coworkers to trust each other, comment on each other's work and take criticism in stride. Also, managers encourage intelligent risk-taking, tolerate failure and insist that employees share information openly.

At the 150-employee Consumer Electronics Association, an Arlington, Va., trade group, Gary Shapiro, president and chief executive, tries to make it safe to fail by talking openly about screw-ups. In his eight-page manifesto called "Gary's Guidelines," writes Mr. Shapiro, co-author of a book on innovation: "Mistakes are OK—hiding them is not."

Thanks to Sue Shellenbarger / Dow Jones & Company, Inc.
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