Business-school research: Failure to launch

By The Economist online

What managers can learn from exploding satellites

IT CAN be surprisingly hard to tell when an organisation has failed. Businesses have products that never quite got off the ground, investments with ugly returns and once-promising managers languishing ineffectively for years. But when outside observers, including well-intentioned researchers, come calling, companies are not in a hurry to talk about it.

Peter Madsen, of Brigham Young University in Utah, and Vinit Desai, of the University of Colorado at Denver, ran into this problem while trying to investigate how organisations learn from both successful and failed ventures, and how that knowledge is retained over time. Their solution was to examine firms, private and public, that launch rockets designed to place satellites into orbit around the Earth. As the authors explain in a recently-published paper in the Academy of Management Journal, when a satellite fails it is easily identifiable (either the rocket makes into space, or it doesn't); costly; and “often very loud”.

Moreover, the pair were able to take a large sample: all orbital launch attempts between October 1957 (the deployment of the first Sputnik) and March 2004. They wanted to see how, for any given company, its successes or failures, and those of its rivals, influenced its ability to get subsequent rockets into space. The authors also wanted to measure whether success depended on how long had passed since the previous launch. This, they hoped, would measure of whether the company was retaining the lessons that needed to be learned.

They found that failed launches reduced the risk of future problems more than successful ones. What is more, the knowledge acquired after successful launches also seemed to be lost more rapidly than after failures. The effects of learning from other orbital-launch companies' successes and failures were smaller, but similar. In sum, a bad launch proved a better teacher. (Although as mergers or political disruption can interrupt this learning process the authors had to adjust their calculations to account for the fall of the Soviet Union and the resulting shakeup of satellite-launching agencies.)

The professors are understandably reluctant to recommend messing up as a learning tool. “Managers don't need to go out and seek failure, necessarily,” says Mr Madsen. Instead he suggests trying to extract lessons from smaller, less costly mistakes. Companies stand a better chance of being able to learn, even in the absence of disaster, if they can show greater flexibility towards meeting set goals. Focusing too tightly on certain deadlines or profit margins give workers an incentive to overlook or explain away failures. An organisational culture that holds managers accountable for identifying, and seeking lessons from, small failures can also help.

Unfortunately culture can get in the way of learning, as Messrs Desai and Madsen acknowledge in pointing to American space exploration. In 2002 NASA, having recovered (and learned) from the loss of the Challenger space shuttle, saw a launch marred by a small piece of foam breaking free and striking the shuttle. That was the Atlantis, which returned safely and was considered a success. The next shuttle to lose a piece of foam was the Columbia, a fatal failure.