The Art of Admitting Failure – Charlene Li – The Conversation – Harvard Business Review

Dealing with failure is part of being a leader. Rather than expend enormous energy to avoid it, you should build an organization that is resilient in the face of inevitable failures. Here are three steps that you can take:

1. Create a culture of sharing failures as well as success. When then-new Ford CEO Alan Mulally held his first staff meeting, he asked members of his team to give an assessment of their businesses as a “green,” “yellow,” or “red” light. They all gave their businesses a green light — and Mulally challenged each of them to come back the next week with a more realistic assessment of their businesses. The first executive to stand up and say “I have a red light” received a standing ovation from the CEO. They then sat down to tackle the problem as a team. Mulally had to create a new culture that could admit when something was going wrong, and do so early enough so that the organization could still have an impact on the outcome. Creating this culture has to come from the top. As a leader, you have to think about how you will set the stage for failures to come forward.

2. Reward the act of risk-taking. How many times have you heard a leader exhort, “We have to take more risks!” and then walk off the stage? In one organization, the executives decided that words had to be backed by action. They started highlighting when risks were being taken and showcased people who were sticking out their necks. They then came back and celebrated the results — regardless of whether it was a success or a failure. Without this, no one is going to take a risk that is meaningful — people will act only if they think there is a high chance of success.

3. Define the limits. While the admission by Domino’s was refreshing, the company didn’t open the door to everything it was doing. To make transparency and risk-taking more palatable to risk-averse executives, create “sandbox covenants.” Figure out how what risks and failures are acceptable. Clearly define the walls of this sandbox and communicate the rules of engagement within those walls. Also explain what the consequences are if people step outside of the sandbox, both to them and to the company. By agreeing to these covenants in advance, there is greater confidence and security in knowing that the risks — and the failures — will be accepted.

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