Return on Failure

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Failures happen, even to business legends like Jack Welch,
who admits that he made some whoppers. In the running for biggest failure is
surely the acquisition of Kidder Peabody by General Electric (GE).

In 1986, GE spent $600 million to buy an 80 percent interest in Kidder
Peabody. More investment followed and by 1990 GE owned all of Kidder Peabody.

Alas, the companies had very different values and cultures. After trying to
make it work for four more years, GE liquidated Kidder Peabody, selling most of
it to Paine Webber and taking a big loss. That was big, but it wasn’t Welch’s
most spectacular failure.

For that we have to turn back the clock to 1963. Welch was 28 and he’d been
with GE for three years. His job was running a pilot plant in Pittsfield. MA.
Things went fine until he blew up the plant. Literally. The explosion blew the
roof off the building.

The next day, Welch and his boss had to drive down to Bridgeport CT to
explain things to a corporate group executive named Charlie Reed. Welch says
that Reed took “an almost Socratic approach” that was, he says, “all intellect,
no emotion or anger.”

That was Welch’s most important lesson from the plant explosion. When people
make mistakes, he says, “It’s time for encouragement and confidence building.”
And it’s time to learn from what happened.

The immediate and obvious Return on Failure (ROF) is learning. That happens
best in a dispassionate atmosphere. But it’s not the only way to generate

At Nucor they believe that about half their investments in new ideas and
technologies will fail to yield useful results. But every plant keeps the
equipment that was tried and rejected so Nucor’s people can learn from things
that didn’t work and maybe get an idea about how to make it work in a different

The first step in maximizing ROF is to learn as much as you can from what you
did and the results you got. But that’s not enough. You have to turn that
learning into better performance.

Jack Welch credits what he learned from the failed acquisition of Kidder
Peabody for helping him avoid other, possibly disastrous, acquisitions. It’s a
good bet that the Kidder Peabody lesson helped GE avoid the trendy acquisition
of high tech start-ups with vastly different cultures.

That’s the second step in maximizing ROF. Turn your learning into changed
behavior. Without that, ROF is just an intellectual exercise.

Boss’s Bottom Line

Maximize Return on Failure by learning what went wrong and turning that
learning into future success.

Thanks for the Inspiration

Thanks to Whitney Johnson whose post, “What do you tell a team that has failed?” started me down the
trail of thought that resulted in this post.

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