Digital transformation: How ‘embracing failure’ is often misunderstood (& what to do instead)

Pascal Finette is the founder of numerous startups and advisor to others, particularly in the impact space. Based in San Francisco Bay Area, he is the Executive Director at Fastrack institute and Chair of Entrepreneurship and Open Innovation at Singularity University. His main aim is to enable and support leaders to build what matters. His latest endeavor is called Radical.

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What is your model for transformational change?

Looking into data on the work we do with companies, we found that most digital transformation attempts failed for one reason: they only addressed operational changes on the surface, not organizational or cultural changes which lay underneath.

Our model for transformational change is based on our work with a diversity of companies, from Fortune 50s to medium-sized or “Mittelstand” companies. We found that when companies undergo “Digital Transformation,” they must wade through a set of layers. These layers are not necessarily a linear path; they intersect. However, they can be seen as two hemispheres.  

Market — Business Model — Operational Model

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Organization — Culture — Mission and Purpose — People

The first hemisphere (market, business model, operational model) is a concrete, “operational” hemisphere. Companies know how to apply clear processes and KPIs to change these layers. However, the second hemisphere (organization, culture, mission and purpose, and people) is harder and takes more time to change. Transformation cannot happen without getting the lower, messy parts right, too.

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Transforming the “lower hemisphere”: How?

If you want to prepare for the new and exponential age, the number one capacity you need to build inside your company is a culture of experimentation, failure, and learning. This is the “lower hemisphere”!  Your capacity to change and adapt is based on how willing are you to experiment, how much can you embrace failure, and how much do you encourage people to try things out — even while knowing many things will fail. Google, Amazon, Apple, and other organizations we think of as innovative are all really, really good at this. You need a learning culture.

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Is “embracing failure” really a good idea?

I actually have a real issue with the word “failure,” and the constant encouragement to fail. We should not embrace failure — it just makes no sense. Why would I go out and do something to fail? I want to succeed. However, the point is not to fail, the point is to try new things — and in doing so, hit on some that are successful. In the world we are living in, things change so much. If I only bring things to the table that we have kind of tried before, they will quickly stop being relevant. So you “fail,” in a First Attempt at Learning.

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A “learning culture” looks like …

Approach it from multiple dimensions. The first is by using studied tools and techniques for fast experimentation and learning: design thinking, rapid prototyping, etc.

The second is by creating a culture of learning, and communicating that. This could mean a weekly email of what the company is trying, failing, and succeeding on, or leadership standing up in team meetings and talking about their failures.  Leadership must create this culture in a way that fits for their company.

The third approach is incentivizing learning. I often ask executives, “If you have an employee, and you have them experiment with something that doesn’t work out, but they worked really hard on it — would you still promote them?” The answer needs to be a clear “yes”. If you create a bonus structure that is tied only to success, you discourage everyone to try something that has any chance at failure. You get what you incentivize. So incentivize learning.

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A good “digital transformation” example is …

The software maker Intuit has hit change in a really meaningful way. Seven or eight years ago, they were very “stale” in their industry. One of the founders returned to the company. He reinvigorated it by establishing, from the ground up, a very strong culture of learning, customer centricity, and empathy based on design thinking. Now Intuit is one of the most innovative software companies on the planet, with incredible financial results. This was possible because the founder invested the time required. He knew Intuit would see meaningful results fairly quickly, but it would take five years at least to fully transform.

Transformation takes time. Private and family-led companies can have an advantage in this factor. Public companies often fail to be future-thinking because they are only focused on the next quarter. I have seen many family-led businesses, especially in Germany, do exceptionally well in digital transformation due to their long-term, generational thinking, and strong desire to “make it work.”

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Can individuals really drive change?

Absolutely. I have seen many times how a leader in one team of a large corporation has been able to drive change in the company as a whole. This one leader can provide “air cover” for their team, building a learning culture by letting people experiment. When this finds its footing and the results come rolling in, the failure framework starts to be seen as desirable, and the leader can educate the rest of the company.

It is tough to do though if the whole system is stacked against you. The German expression “Der Fisch stinkt vom Kopf her” (“the fish rots from the head”) is appropriate here. If the CEO is not buying in, you probably have to leave.

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How can companies stay on track?

Understand that today, it needs to be part of a company to spend time and resources on thinking about and preparing for the future. It’s as simple as that. A lot of company management teams are just focused on the here and now. You need to spend time, effort and resources on figuring out what the future looks like. For a leader who works twenty days a month, five of those days need to be filled with learning and developing for the future. That could mean reading literature, attending conferences, seeking advice, planning, or learning new skills. Anything future-focused.

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Future-focused: Employees included?

Yes. People Development in general, regardless of whether it is for leadership or for employees, is one of the most important things you can do. You need to give employees time and tools for this development. The nature of our work is changing so dramatically and quickly that you will quickly find yourself outdated. You have to invest in developing new skills: hard skills, soft skills, and new ways of operating. Otherwise, you will have to constantly hire and fire people in order to update your company’s talent portfolio, which is often more expensive and time consuming than just investing in the people you have.

A company is a living organism. Your workforce gathers data and feeds it to other organisms. When change is so rapid, you can no longer process data from a single “core.” As hierarchies flatten, you need to enable the nodes in the network to act on their own, and those nodes need to be empowered and educated.