Tolerating failure: A key to creating sustainable business

The idea of creating sustainable business is not new to business executives. They all should be creating shared value (Kramer and Porter 2011),¹ which in simpler terms means making money and doing good, and they all should be writing the new story of business (Freeman 2017)² by transforming their companies to become responsible citizens and changing the world for better.

But where are the real-life examples of such transformations? With issues such as global warming, water scarcity and rickety supply chains representing dire threats to human societies, the absence of corporate action to date is startling. Scientists have calculated that humans must decrease carbon dioxide output by around 1.4 percent each year to prevent catastrophic warming. Yet the world’s 500 largest companies increased their emissions by 1 percent between 2010 and 2015.³ Water scarcity is getting worse, contributing to famine, military conflicts as well billions of dollars in losses for companies. Yet a 2016 survey of hundreds of companies found that they are moving slowly, with performance not “improving markedly” year over year.⁴ Only 15 percent of companies had a “comprehensive water policy,” and only two-thirds were even measuring their water usage.⁵

Over the past five years, we have visited dozens of large, publicly listed firms and spoken with hundreds of employees, middle managers and senior leaders. We have also ventured outside of corporate headquarters to the front lines, visiting factories, mines, retail stores and other facilities across the globe. In addition, we have engaged in-depth with at least thirty large, multi-national corporations as part of the Sustainable Business Roundtable – a unique, peer-to-peer learning network one of us founded (CB Bhattacharya), one of us manages (Joanna Radeke), and one of us is part of (Ernesto Ciorra).

Our extensive research has revealed that best-in-class companies galvanize their workforces around the future and the common good by making it worthwhile for individuals, both from a financial or career standpoint and from the standpoint of their identities as professionals (Bhattacharya and Polman 2017).⁶ They try to create workplaces in which employees do not have to check their humanitarian or environmental commitments at the door, and where sustainability and profitability objectives go hand in hand (Polman and Bhattacharya 2016).⁷ Employees in such companies are engaged to serve a larger purpose – creating a better world.

The cases of enlightened companies show that this engagement around the common good often happens at unexpected moments and in unexpected places. When one of us (Bhattacharya) interviewed the Enel CEO in June 2016, and he told us about his personal epiphany at a desert, we knew the company is one to watch out for. When one of us (Bhattacharya) found himself at a big ceremony in the Enel headquarters in Rome, where employees were receiving awards from the same CEO for their business failures, we knew we are onto a new story of business.

Letting Them Fail: The Enel Case

Fear is the main obstacle and the worst enemy to change, and if companies want to innovate and to experiment in order to stay competitive, but also respond to the challenges such as climate change or scarce resources, they have to take risks and work on spreading a blame-free culture within the corporate environment.



Three years ago Enel adopted an Open Innovation approach to “flip its point of view” and capitalise on what it saw as a source of tremendous growth by dedicating a single organisational unit to the management of information flows with all its main stakeholders. Radically changing the way the company shares information and approaches the taboo of failure required a series of new practices: creating spin-offs to manage new businesses, measuring innovation KPIs all around the company, identifying innovation managers for every function, business line and area, and connecting those people with a chief innovation officer who reports directly to the CEO. To improve the company’s appeal and therefore expand its network of experiences, Enel has embarked upon a challenging but rewarding transformation, that requires shifts in key areas such as neutralising the fear of what is new, adopting one or more UN Sustainable Development Goals as a corporate mantra, identifying innovation heroes and ambassadors in and outside of the company, involving providers, universities and customers in the innovation journey, being courageous in the drive for innovation, nurturing people’s creativity, as well as involving creative people from other sectors in all innovation projects.



In 2015, to counteract the stigma of failure and win over the resistance that surrounds failure in the workplace, Enel launched “My Best Failure” – an online platform that invites colleagues from all over the world to share their “best failures”. These include efforts to launch an innovative product, introducing a new work technique and even trivial calculation errors. The platform has catalogued Enel’s setbacks, expanding the overall corporate experience. The initiative serves as a first step towards building a culture of failure, where people are not afraid to speak about their errors, but are open to discussing them publicly with the aim of avoiding similar errors in the future. On the other hand, to preserve open and frank internal debate and exchange, the company ensures that management does not assume a judgmental attitude.



Common failures in all types of businesses are normally set aside with a mixture of embarrassment and a desire to have another go without truly reflecting on the lesson at hand. “My Best Failure” takes a different approach: each edition invites people to share their own particular failure, and awards the most useful ones. The winners of last year’s edition included those who wanted to optimise road repair procedures after excavation work; those who involuntarily invited 37,000 people to enrol in a social network that no one was familiar with, and even one person who failed to convince their colleagues about the rather unorthodox way of improving the company’s organisational chart. The next edition will kick off in January 2018 and will be followed by an award ceremony, giving the company another batch of important lessons.



The mistakes shared on the “My Best Failure” platform were made in an attempt to do something new, something that had never been tried before; a necessary risk for a company that truly believes in innovation for a sustainable future, and the only way to multiply its chances of success. On the one hand, shining a spotlight on what did not go as planned allows for an in-depth analysis of what to do better next time and, on the other, allows one to take note of negative results.



The prize awarded to the three winners was in line with the spirit of the “My Best Failure” programme itself: each person had a chance to enrich his/her career by spending time in another company unit of own choice or in one of the start-ups that collaborate with Enel.



The Important Role of Psychological Safety

In the 1990s, William Kahn, Professor of Organisational Behaviour at Boston University, introduced the term engagement based on his observation that people have a choice as to how much of themselves they are willing to invest in their jobs. Kahn conducted in-depth interviews with employees at two organizations. He discovered that employees were much engaged both emotionally and physically, when they experienced psychological safety: a feeling they were valued, accepted, and respected – and able to perform in a positive work environment (Kahn 1990).8



As with Enel, celebrating failure and encouraging innovation at companies can aid employee engagement, because it contributes to the feeling of psychological safety and availability. What is really going on is courage enhancement. By creating an atmosphere of safety and reducing the pressure to succeed, employees feel confident to share their ideas. Employees who once felt inhibited suddenly feel free to express their thoughts, frequently contributing to the innovations that drive the company.



In progressive companies, where failure and innovation are encouraged and emphatic, failure-tolerant leaders are developed, such leaders have closer ties with their employees (Farson and Keyes 2002).9 Failure-tolerant leaders try to break down barriers that separate them from their followers. They engage at a personal level with the people they lead. This contributes to a higher sense of self-efficacy in employees. Employees in such companies are not afraid of being themselves at work and they do not feel they need to check their personal moral code at the door. In addition, employees are encouraged to collaborate with outside actors, such as universities or even other companies. This helps employees connect to that all-important sense of a higher purpose.

Conclusion

Sustainability challenges of today can only be addressed if employees start believing in their power to transform the company. Leadership support and the sense of psychological safety are crucial to such empowerment. Empowerment enables employees to take ownership of difficult sustainability challenges thereby making both our businesses and our world a better place.

 

References

1. Porter, Michael E. and Kramer, Mark R. (2011). Creating Shared Value. Harvard Business Review January-February 2011.

2. Freeman, R. Edward. (2017). The New Story of Business: Towards a More Responsible Capitalism. Business and Society Review 122 (3): 449–465.

3. Moorhead, John and Nixon, Tom. (2016). Global 500 Greenhouse Gases Performance 2010-2015. Thomson Reuters June 2016.

4. CDP (2016). Thirsty business: Why water is vital to climate action. CDP 2016 Annual Report of Corporate Water Disclosure.

5. Ibid.

6. Bhattacharya, CB and Polman, Paul. (2017). Sustainability Lessons from the Front Lines. Sloan Management Review 58 (2): 71–78.

7. Polman, Paul and Bhattacharya, CB. (2016). Engaging Employees to Create a Sustainable Business. Stanford Social Innovation Review 14 (4): 34–39.

8. Kahn, William A. (1990). Psychological Conditions of Personal Engagement and Disengagement at Work. Academy of Management Journal 33 (4): 692-724.

9. Farson, Richard and Keyes, Ralph (2002). The Failure-Tolerant Leader.Harvard Business Review August 2002.