Creating an entrepreneurial culture.

The price of failureOver the last few months I’ve been meeting executives from the third sector. One of their biggest challenges is also a commonly asked question in business: how do we create more innovation and more “entrepreneurial” behaviour in our teams? Of course we talk about processes and practices, but the question that’s most informative is this: “How do your people think they will be treated if they fail?”

Innovation is the creation of something new. Something that hasn’t been tried before, at least, not in the way you intend to try it. And that means there’s a good chance that it might not work - the more innovative the idea, the less likely you’ll get it right first time. Entrepreneurs, like the inventors of old, they just “get it”. They know it will take trial and error. They know they will fail, fail and fail again before they get something that works. For them it’s not an issue, it simply comes with the territory. Entrepreneurs take risks. It’s what they do. But for an “employee”, that’s generally not the case.

When researcher Richard Thaler asked 25 divisional heads in a global organisation if they would risk half of their budget on an idea that had a 50% chance of failing, and a 50% chance of doubling their revenues, virtually all of them said “No”. The personal risk was way too big. But the CEO, when asked, would have wanted them to take the chance: the half that doubled-up would more than pay for the half that lost out.

The larger the organisation, the more critical it is to be able to accept local failures; to see them as a necessity for global success. That might sound obvious in the executive suite, but it’s a whole different ball-game if there’s a chance you could be that local failure. If the people you need to “be innovative”, at whatever level in the organisation, think for one second that taking a risk, and failing, puts their job, their chance of promotion, or even just their reputation at risk, they will say “No” too.

Bottom Line:  People in large organisations can be entrepreneurial, but they rarely are. In a traditional “performance management” culture it’s simply too risky for them to behave that way.

So here’s the advice: If you genuinely want your people to be more innovative and more entrepreneurial, the first thing you need to do is to completely rethink your approach to performance management. You have to change their perception of “how we treat failure around here”. Crack that, and the rest will take care of itself.