Breaking Failure-How to Reduce Failure & UnderPerformance
“The obscure we see eventually. The completely obvious, it seems, takes longer.” Edward R. Murrow, American broadcast journalist.
Despite advances in technology, business theories, data analytics, strategic planning, and an abundance of business books–business failure and underperformance continue unabated. The National Federation of Independent Business’ Education Foundation estimated that over the lifetime of a business, 39 percent are profitable, 31 percent break even and 30 percent lose money. A study by the Product Development & Management Association found that new products have a failure rate of 42 percent. A study by Copernicus Marketing (a subsidiary of billion-dollar agency Aegis Dentsu) of over 500 marketing programs revealed that 84 percent of those programs did not generate a positive return.
Incompetence? Overconfidence? Bad timing? Global competition? Maybe, but these are all “immediate or proximate” causes and rarely the “root cause.” They also don’t explain why smart, well-educated, and seasoned professionals and companies experience failure and underperformance at such high rates. The solution is not some obscure or new theory; the answer is right in front of us, ready for the taking. It isn’t expensive and has been used for decades by millions of professionals—just not in most areas of business.
Breaking Failure proposes a simple and risk-free way to break the cycle of failure and underperformance by applying and adapting three key techniques from other disciplines to a business setting. This transfer of a technique from one discipline to another is known as a knowledge domain transfer.
There are many examples of successful and transformational knowledge domain transfers into business. One of the most significant was statistics which originated hundreds of years ago, and which was subsequently adopted by the sciences (e.g., astronomy, medicine). Business, however, was the laggard discipline, adopting statistics almost a century after the sciences, underscoring the fact that domain transfers are often unnecessarily slow in occurring in business.
Another widely adopted domain transfer by businesses was the Stage-Gate system that has become the defacto standard for new product development. The Stage-Gate concept originated with chemical engineering in the 1940s as a technique for developing new compounds, which was then adopted and refined by NASA in the 1960s for use in “phased project planning.” Dr. Robert Cooper is credited with proposing this concept for business in his 1994 blockbuster book Winning at New Products. According to Cooper, he arrived at the Stage-Gate concept by observing what successful companies like DuPont were doing in this field. It is no small coincidence that DuPont was in the chemical industry, where the technique originated.
Breaking Failure proposes three-domain transfers into management areas of business such as new product development, marketing, advertising, sales, human resources, and finance. The first is Root Cause Analysis (RCA) which originated with manufacturers who developed it for troubleshooting defective products back in the 1940s. RCA was subsequently adopted by numerous disciplines and entities such as the Department of Defense, NASA, engineering, and more recently by healthcare. The key benefit of the RCA is that it goes beyond superficial and immediate causes to uncover the underlying or root cause; until the root cause is addressed, future failure and underperformance are inevitable.
The second proposed domain transfer is Failure Mode and Effects Analysis (FMEA) which was developed by the Department of Defense in the late 1940s to anticipate potential problems early on in the design process–before the product went into production or the battlefield. This inductive or forward-thinking logic has been successfully used and adopted by numerous industries such as telecommunications, aviation, and healthcare. FMEA allows managers to anticipate potential failure points before they launch their product, implement their strategy or launch that expensive marketing or advertising campaign.
The third technique is the Early Warning System (EWS) which is a partial or internal domain transfer. Finance currently uses a type of EWS (Altman’s Z-Score) to predict the potential bankruptcy of a company as much as 12 months before its occurrence. However, for reasons explained in that chapter, that formula will only work to predict a company’s bankruptcy but not a potential product, advertising, marketing, or sales campaign failure. The ratio and financial variables used by the Z-score are not relevant for other areas; therefore an adaptation of that concept is proposed and which consists of identifying key “driver” variables of a leading or predictive nature (i.e., orders booked) vs. lagging or rear-viewing variables (i.e., revenue, profits). The proposed Early Warning System also avoids the mistake of existing predictive complex models which no one except a few sophisticated large companies use and whose applicability is limited to a small fraction of cases.
Finally, one consideration that should reassure any reader is that unlike many books—Breaking Failure isn’t proposing a new, unproven idea based on anecdotal evidence and inferences, but one based on time-proven techniques.