Can you afford to make mistakes in your business strategy? Here's the answer to that question!

Tuesday: Return Driven Strategy FROM THE DESK OF MILES EVERSON: Have you read the book, “Driven”? Co-authored by Professor Joel Litman and Dr. Mark L. Frigo, the book is about Return Driven Strategy (RDS), a pyramid-shaped framework that has 11 tenets and 3 foundations. We encourage you to read about RDS during your spare time. This framework offers lots of insights that will help you succeed in your business endeavors! Today, let’s focus on RDS’ Tenet 5: Innovate Offerings. Continue reading to know one important aspect in the success stories of high-performing firms. CEO, MBO Partners Chairman of the Advisory Board, The I Institute

Can you afford to make mistakes in your business strategy? Here's the answer to that question! “Failure is an inescapable part of life and a critically important part of any successful life.” - Tal Ben-Shahar, Positive Psychology lecturer at Harvard University We all experience failures at some point in our lives… and that’s okay! After all, without our missteps, we will never change or try to make ourselves better. In fact, many positive psychologists say it’s necessary to experience failures in life. This will help us learn from our mistakes and gain more wisdom in the long run. The same concept applies to businesses too, especially in terms of innovation. According to Professor Joel Litman and Dr. Mark L. Frigo in the book, “Driven,” if innovation means experimentation, firms should know that failures will always be part of the equation. Failures Lead to Developments Professor Litman and Dr. Frigo say high-performing firms fail “small and often” to succeed BIG. They believe the road to returns is regularly paved with failures. That’s why for them, it’s impossible to innovate without making mistakes. The key to successful innovation is making mistakes at the RIGHT levels and at the RIGHT times. Business plans, compensation plans, and cultures need to reflect this. However, don’t take this idea wrongly. Professor Litman and Dr. Frigo don’t mean firms should pay for failures. What they’re simply implying is that as “small and often” failures are necessary to success, compensation plans and all other plans for business execution must address issues ahead of time. Some of you may have heard this statement: “We pay for results. We can’t afford to make mistakes.” For some businesses, this motto reflects the attitude required for proper execution. However, when taken too far, this mindset can also kill returns by pervading the culture of some firms. The bottom line? Small failures at the right places and at the right stages are necessary to achieve success and effective innovation in the long run. Take a look at these examples… In 1985, Coca-Cola changed its 99-year formula from its flagship Coke product to the “New Coke,” only to change it back a few years later because of consumer backlash. In the early 1990s, Walmart invested heavily in membership-only retail company Sam’s Club, but pulled back later on because the latter didn’t provide high returns the way Walmart stores did. In 2009, The Home Depot closed its EXPO Design Centers because the latter targeted an upscale home remodeling market that never seemed to catch on. What do these examples tell you? In these cases, the firms may have expended more on their mistakes than they should have, yet their overall company returns remained strong. These instances show it takes a management team with BIG shoulders to take BIG risks… and even BIGGER shoulders to admit failures from these risks, learn from them, and move forward with better innovations. — According to Professor Litman and Dr. Frigo, admitting failures and moving forward are natural aspects of successful management teams. For instance: Bill Gates admitted one of his biggest mistakes was missing the importance of the Internet Protocol (IP) in the future of technology. Because of that realization, he and his management team at Microsoft were able to make the necessary adjustments in their business processes. The result? The tech company recorded some of the highest returns for decades! Another notable example is financial services company Charles Schwab’s first ventures into separate electronic trading platforms before focusing on Schwab.com, which is totally integrated with the brick-and-mortar side of its business operations. Here, we can see that the company’s smaller business trials laid the foundations for learning and helped the firm become an incredibly high-return business. These examples support the idea that small failures or trials are necessary for success. On the other hand, firms that “fail BIG” are those that often refuse to admit their missteps or do a bit of experimentation in the first place. Keep this return-driven insight in mind! Disregard the business strategy myth that firms need to make BIG bets to succeed. According to Professor Litman and Dr. Frigo, extensive research of corporate cash flows shows strong evidence that “big bet” strategies are not the key to success in the long term. Instead, leave room for experimentation as you innovate your offerings to your target market. Only then will you be able to see what works and what doesn’t, continually look for new ways to fulfill unmet needs, and generate high returns for your company. Hope you found this week’s insights interesting and helpful. Follow us on LinkedIn. Stay tuned for next Tuesday’s Return Driven Strategy! Have you heard about or tried the Myers-Briggs Type Indicator (MBTI)? Learn more about this career-driven insight in next week’s article!