Gino And Pisano

Failures get a postmortem. Why not triumphs? by Francesca Gino and Gary P. Pisano

Failure Understand It

Why Leaders Don’t Learn From Success

68 Harvard Business Review April 2011

1038 Apr11 Gino.indd 681038 Apr11 Gino.indd 68 2/25/11 4:55:33 PM2/25/11 4:55:33 PM

 

 

T Francesca Gino (fgino@ hbs.edu) is an associate professor of business administration at Harvard Business School.

Gary P. Pisano (gpisano@ hbs.edu) is the Harry E. Figgie, Jr., Professor of Business Administration at Harvard Business School.

an organization with a long history of winning: the Ducati Corse motorcycle racing team. Motorcycle racing may seem a long way from the world of busi- ness, but in fact it provides a perfect laboratory for research on learning. Performance is unambiguously measurable by lap times and race results. You know with brutal precision whether you’re getting better or worse. Racing is also unforgiving. The race is Sun- day, and it won’t wait if you’re late. Finally, the rac- ing circuit is intensely competitive: During a season a dozen world-class teams battle each week for the top spot. For an organization like Italy’s Ducati, wins have a huge impact on brand equity and commercial bike sales.

In 2003, Bologna-based Ducati entered the Grand Prix motorcycle racing circuit (or “MotoGP”) for the fi rst time. Being a newcomer, it approached 2003 as

“a learning season,” its team director told us. The goal was to acquire knowledge that would help it develop a better bike for future seasons. To that end, the team fi tted its bikes with sensors that captured data on 28 performance parameters (such as temperature and horsepower). Riders were debriefed after every race to get input on subjective characteristics like handling and responsiveness. The team looked like a model learning organization.

Then something unexpected happened: The rookie team fi nished among the top three in nine races and was second overall for the season, and its bike was the fastest in the fi eld. But with each suc- cess the team focused more on winning and less on learning, and it ended up analyzing little of the data it collected. As one team member commented,

“You look at the data when you want to understand what’s going wrong. You do not look at the data be- cause you want to understand why you’re perform- ing well.”

The successful season caused the team members to believe Ducati could win it all in 2004. After all, if they could fi nish second as rookies, why shouldn’t they take fi rst now that they had some experience?

THE ANNALS of business history are full of tales of companies that once dominated their industries but fell into decline. The usual reasons off ered—staying too close to existing customers, a myopic focus on short-term fi nancial performance, and an inability to adapt business models to disruptive innovation— don’t fully explain how the leaders who had steered these fi rms to greatness lost their touch.

In this article we argue that success can breed fail- ure by hindering learning at both the individual and the organizational level. We all know that learning from failure is one of the most important capacities for people and companies to develop. Yet surpris- ingly, learning from success can present even greater challenges. To illuminate those challenges—and identify approaches for overcoming them—we will draw from our research and from the work of other scholars in the fi eld of behavioral decision making, and focus on three interrelated impediments to learning.

The fi rst is the inclination to make what psychol- ogists call fundamental attribution errors. When we succeed, we’re likely to conclude that our talents and our current model or strategy are the reasons. We also give short shrift to the part that environmental factors and random events may have played.

The second impediment is overconfidence bias: Success increases our self-assurance. Faith in our- selves is a good thing, of course, but too much of it can make us believe we don’t need to change anything.

The third impediment is the failure-to-ask-why syndrome—the tendency not to investigate the causes of good performance systematically. When executives and their teams suff er from this syndrome, they don’t ask the tough questions that would help them expand their knowledge or alter their assump- tions about how the world works.

Lessons from Ducati We began to examine the challenges of learning from success in 2004, when we did a case study of ILL

U ST

R A

TI O

N : J

A C

K B

LA C

K

April 2011 Harvard Business Review 69

HBR.ORG

1038 Apr11 Gino.indd 691038 Apr11 Gino.indd 69 2/25/11 4:55:43 PM2/25/11 4:55:43 PM

 

 

This confi dence manifested itself in the decision to radically redesign the team’s bike for the 2004 season rather than incrementally improve the 2003 model.

More than 60% of the 2004 model’s 915 compo- nents were new. But at the outset of that season, it became apparent that the bike had serious handling problems and that the team had made a big mistake in changing so much at once without giving itself the time to test everything.

Interestingly, the team still fi nished third overall that year—thanks to extensive experiments it con- ducted to understand the causes of the bike’s prob- lems. Though third place wasn’t bad, it was viewed as a failure, given the high expectations. And this disappointment then triggered a comprehensive and ultimately quite effective reexamination of the team’s approach to developing bikes. (One big change was to have the engineering group begin de- veloping the bike for the next season much earlier, so it could be thoroughly tested before being raced.) The team turned in solid performances in the 2005 and 2006 seasons and took the world title in 2007. In short, success led the Ducati Corse team to stop learning, and only perceived failure caused it to start again.

After studying Ducati, we went on to conduct research in the entertainment, pharmaceutical, and

software industries and performed experiments in the laboratory and in executive education classes. Again and again, we saw the same phenomenon. Ul- timately, we recognized that there was a common cause: the three impediments to learning.

Making Dangerous Attribution Errors In racing, many interdependent factors affect out- comes. Without a detailed analysis, it was impossi- ble to know whether the Ducati team’s performance in 2003 was due to its bike design, its strategy for particular races, its riders’ talents and decisions, bad choices by other teams, luck, random events like the weather or crashes, or some complex combination of all those things. And without such knowledge (and given Ducati’s long history of winning in other ven- ues), it was too easy to attribute the team’s excellent performance to the quality of its decisions, actions, and capabilities.

In business, likewise, any number of factors may lead to success, independent of the quality of a product or management’s decisions. Yet it is all too common for executives to attribute the success of their organizations to their own insights and mana- gerial skills and ignore or downplay random events or external factors outside their control. Imagine, for instance, that you are leading a team whose num- bers are great: It’s tempting to credit yourself or your team’s actions for that achievement, though it may actually just be a stroke of good luck or the result of your competitors’ problems.

Research (including a classic study by the psychol- ogists Edward Jones and Victor Harris) has proved that this is normal human behavior. Moreover, when examining the bad performance of others, people tend to do the exact opposite. In exercises that we conducted in executive education classes at Harvard, the University of North Carolina at Chapel Hill, and Carnegie Mellon University, most participants, when evaluating the success of others, minimized the role of leadership skills and strategy and maximized the role of external factors and luck.

Another study found that people also have trou- ble adjusting for the diffi culty of the situation when judging successes. (See the sidebar “The Challenge of Discounting Easy Successes.”) In business this bias can aff ect many critical decisions, including whom to hire or promote, which products to launch, and which practices to spread throughout the organiza- tion. Someone who has led a thriving business in a highly profitable industry, for instance, often ap-

Success led the Ducati racing team to stop learning, and only a perceived failure caused it to start again. After its disappointing third- place fi nish, the team reexamined its approach to developing bikes.

I was considered by all my masters and my father a very ordinary boy, rather below the common standard of intellect.” CHARLES DARWIN SCIENTIST

FOCUS ON FAILURE

PH O

TO G

R A

PH Y:

G ET

TY IM

A G

ES

70 Harvard Business Review April 2011

UNDERSTANDING FAILURE WHY LEADERS DON’T LEARN FROM SUCCESS

1038 Apr11 Gino.indd 701038 Apr11 Gino.indd 70 2/25/11 4:55:52 PM2/25/11 4:55:52 PM

 

 

Idea in Brief Virtually all leaders recognize the need to learn from failures, but amazingly few try to understand the true causes of their fi rms’ successes, which helps explain why great companies fall into decline.

The reality is, success can breed failure by hindering learning at both individual and organizational levels, in three interrelated ways:

1 When we succeed, we tend to give too much credit to our talents and our model or strategy and too little to external factors and luck.

2 Success can make us so over- confi dent that we believe we don’t need to change anything.

3 We have a tendency not to investigate the causes of good performance.

Recognizing that these impedi- ments exist is a big fi rst step in overcoming them. Some basic practices also can help: system- atic after-action reviews, tools like Six Sigma, and experiments that test assumptions about what is needed to achieve great performance.

pears more attractive than a similarly skilled or even more qualifi ed candidate who has struggled to lead a fi rm in an industry in which most companies are failing.

We repeatedly observed pharmaceutical com- panies making these kinds of attribution errors in choosing which drugs to kill or push forward. They selected drugs whose initial tests were successful as potential winners and allocated more money to them for further testing and development. But often managers assumed a success was due to the unique abilities of their in-house scientists and didn’t con- sider whether it could be due to greater general knowledge in that particular scientifi c area, which competitors might have, too.

In addition, we found that long lead times can blind executives to problems with their current strategies. Again, consider the pharmaceutical in- dustry. Because it takes 12 years, on average, to get a drug from discovery to market, a company’s perfor- mance today has relatively little to do with its most recent actions and decisions. Yet both managers and investors often attribute today’s high performance to the company’s current strategy, management, and scientists.

Falling Prey to the Overconfi dence Bias Without some confi dence, we could not make deci- sions or tackle any kind of risky endeavor; we would be constantly second-guessing ourselves. That said, too much confi dence can be a problem, and nothing inflates confidence like success. Take Alan Green- span, who until the near meltdown of the fi nancial system in 2008 was considered one of the best Fed- eral Reserve chairmen in U.S. history. Afterward, it became apparent that Fed policy makers, led by Greenspan, had placed too much faith in their fi- nancial models. In testimony to Congress in October

2008, Greenspan acknowledged his own shock that the models had failed. And, of course, he was not the only one who succumbed to excessive confi dence. During the housing boom, many leaders of large and small banks and managers of mortgage lending, in- vesting, and trading operations stopped examining the key assumptions that underpinned the models they were using.

Success can make us believe that we are better decision makers than we actually are. In a simple recent study of managers in various industries, we asked members of one group to recall a time when they experienced a success in their professional lives and members of a second group to recall a time when they experienced a failure. We then asked people in both groups to engage in a series of decision-making tasks and embedded measures in the exercise that allowed us to assess their confi dence, optimism, and risk-seeking behavior. Compared with the execu- tives who’d recalled a failure, those who’d recalled a success were much more confi dent in their abilities, made more-optimistic forecasts of their future suc- cess, and were more likely to take bigger bets. These fi ndings are consistent with research examining how success breeds overconfidence in other contexts. (See the sidebar “How Power Causes Us to Ignore Advice.”)

Overconfi dence inspired by past successes can infect whole organizations, causing them to dismiss new innovations, dips in customer satisfaction, and increases in quality problems, and to make overly risky moves. Consider all the companies that grew rapidly through acquisitions only to stumble badly after biting off one too many; the countless banks that made ever-riskier loans in the past decade, sure of their ability to sort good borrowers from bad; and all the darlings of the business media that had win- ning formulas but did not try to update or alter their strategies until it was way too late.

THE CHALLENGE OF DISCOUNTING EASY SUCCESSES

The inability of people to adjust for degree of diffi culty when assessing accomplishments was clearly demonstrated in a study that one of us, Francesca Gino, conducted with Don Moore of Berkeley and Sam Swift and Zacha- riah Sharek of Carnegie Mellon. Students at a U.S. university assumed the role of admissions offi cers for an MBA program and were presented with informa- tion about candidates’ grade point averages as well as the average GPA at their colleges. In their decisions, the participants overweighted applicants’ nominal GPAs and under- weighted the eff ect of the grading norms at diff erent schools. In other words, they didn’t take into ac- count the ease with which grades were earned.

April 2011 Harvard Business Review 71

HBR.ORG

1038 Apr11 Gino.indd 711038 Apr11 Gino.indd 71 2/25/11 4:55:58 PM2/25/11 4:55:58 PM

 

 

Failing to Ask Why When you’re confronted with failure, it’s natural to ask why disaster struck. Unfortunately, success does not trigger such soul-searching. Success is commonly interpreted as evidence not only that your existing strategy and practices work but also that you have all the knowledge and information you need. Several studies, as well as our own research, show that most people tend to think this way. (See the sidebar “How Success Makes Us Less Refl ective.”)

We have seen the same pattern in the real world. The efforts invested in understanding the causes of the recent fi nancial crash dwarf the eff orts that were made to understand why things seemed to be going so well before. In hospitals, doctors conduct rigorous “mortality and morbidity reviews” of cases that ended badly, but little systematic eff ort is made to understand why patients recover. Even Toyota, which built its vaunted production system around vigorous learning, was much better at uncovering the causes of its problems than of its success. This was revealed by its recent recalls, when its leaders admitted that their success in pursuing higher sales and market share had blinded them to the fact that operations had essentially compromised quality to achieve growth.

A Simple Model of Learning To avoid the success-breeds-failure trap, you need to understand how experience shapes learning. Learn- ing is, of course, a highly complex cognitive and or- ganizational process, and numerous models have been developed about it in the academic literature. Drawing from those, we present a simplifi ed model that highlights the effect that success and failure have on learning.

We start with the premise that individuals and organizations at any point in time hold certain the- ories, models, principles, and rules of thumb that

guide their actions. Your choices about the people you hire, the projects you fund (or terminate), the features you include in new product designs, and the business strategies you pursue are all infl uenced by them. Sometimes theories are quite sophisti- cated and rooted in science or decades of practical experience. But in many other cases, they are pretty informal—and we may not even be aware that they are swaying our decisions.

Learning is the process of updating our theories. In some cases personal experience alters them. For example, Steve Jobs recounted in a 2005 graduation speech at Stanford University how the inclusion of multiple typefaces and proportional spacing on the fi rst Macintosh stemmed from the calligraphy course he took after dropping out of college. But members of an organization also learn together. Experience with both winners (the iPod) and losers (the Newton) has caused Apple, as a company, to update its theo-