I recently attended a 2 day MIT course on how to create high velocity organizations. The course was taught by Professor Steven J. Spear, author of “The High-Velocity Edge: How Market Leaders Leverage Operational Excellence to Beat the Competition.” This is one of those very dense courses, full of content, but it can be summarized in one paragraph:
High-velocity organizations are able to learn very fast, especially from their failures, and to absorb that learning as an integral part of the organization’s knowledge.
A high-velocity organization has 4 capabilities:
- Be prepared to capture knowledge and encounter problems in your operation.
- Understand and solve these problems to build new knowledge.
- Share the new knowledge with the whole organization.
- Leading to develop skills 1., 2. and 3.
The classic example is Toyota, with lean manufacturing and the concept of stopping production whenever failures are encountered, correcting failures and using failures as a learning opportunity so that failures do not happen anymore. This ability to learn from failures is what gives Toyota the ability to stay ahead of its competitors for so long.
Another good example is Alcoa that had a 2% work incident rate per year which was considered normal. Alcoa has more than 40,000 employees so 2% of work incidents per year means that 800 employees per year have some kind of work incident. That’s a pretty impressive and troubling number. To combat this problem they implemented a policy of zero error tolerance. Prior to implementing this policy, errors was seen as part of the job. Now employees are encouraged to report operation errors in 24 hours, propose solutions in 48 hours and tell the solution found to his colleagues to ensure that knowledge was spread across the organization. This caused the risk of incidents to fall from 2% to 0.07% per year! This decreased incident rate meant less than 30 employees per year had some work incident problem after the zero error tolerance policy was implemented and Alcoa achieved an increase in productivity and quality similar to Toyota.
An important factor in both Toyota and Alcoa examples is that recognizing and learning from failures has to be part of the company’s culture. This is something a bit more common in internet companies culture, but not so common in traditional companies of a certain size. During the MIT course I shared a table with a Brazilian executive, from Grupo Globo, the largest Brazilian mass media group, a Spanish executive, from a AMC Networks International (Walking Dead, Breaking Bad and Mad Men), a German project manager living in Azerbaijan who works for Swire Pacific Offshore (oil and gas industry) and a Saudi Arabian MIT postdoctoral student on solar energy. All of my table mates were from more traditional industries. I was the only one from an internet, SaaS, born in the cloud company. Both Globo and AMC executives were there because they viewed both Netflix with its streaming video on demand and Youtube with its huge catalog of user-generated video as big threats, stealing their audience very quickly and they wanted to understand how they could defend themselves.
While the theme is somewhat obvious to internet companies, specially with the technology startup culture of failing fast. That’s what makes Netflix and Youtube be a threat to traditional media companies such as Grupo Globo and AMC Networks. However, even been part of internet companies’ culture, sitting there and discussing it with people from more traditional companies was a great opportunity for reflection on the relationship between failure, failure recognition, learning and high-velocity:
- Recognizing failures and using failures as a learning opportunity should be well rooted in the organization’s culture. If people are not careful, as a company grows, it may lose that ability to accept failures as opportunities for learning. It is very common for companies as they grow to be more and more averse to failures and to create a culture that ultimately encourages people to hide mistakes and failures.
- Another important point aspect learning from failures is to make this process a business standard. It has no use to fail, acknowledge the error, state that you will no longer commit that failure and, some time later, commit that failure again. This learning process from failures should be part of the company culture. Whenever a failure is identified, learning has to happen to prevent the failure from happening again. If the same failure happens again, something is broken in the learning from failure process.
- Even in Internet companies I notice that learning from failure is more common in the product development team, since retrospectives and continuous learning are part of the agile software development culture. In other areas of the company, learning from failures is less common. This ability to systematize learning from failure should permeate the whole company.
Even though we hear a lot about the internet companies’ culture of failing fast, talking about failing fast diverges our focus from what is really important, learning fast. We must put our energy on learning, not on failing. Is the learning process that makes people and companies evolve. And it is the ability of an organization to learn fast, specially from its failures, that will enable this organization to move at really high-velocities.