First Friday Book Synopsis

"…like CliffNotes on steroids…"

Paul J.H. Schoemaker: A second interview by Bob Morris

Paul J.H. Schoemaker is a pioneer in the field of decision sciences, among the first to combine the practical ideas of decision theory, behavioral economics, scenario planning, and risk management into a set of strategic decision-making tools for managers. He is co-author of a landmark book on the subject, Winning Decisions: Getting It Right the First Time. He has written nine books, the latest of which is Brilliant Mistake: Findings Success on the Far Side of Failure (Wharton Digital Press 2012). In addition, he has written over 100 academic and applied papers, which have appeared in such diverse journals as the Harvard Business Review, the Journal of Mathematical Psychology, Brain and Behavioral Sciences, and The Journal of Economic Literature. Given their global applicability, his writings appear in at least 14 languages. His scholarly work ranks in the top one percent in academic citations globally as measured by the International Science Index (www.ISIHighlyCited.com).  He is also an entrepreneur: he is founder and executive chairman of Decision Strategies International, Inc. Finally, Paul is a dedicated educator: he is research director of the Mack Center for Technological Innovation at the Wharton School of the University of Pennsylvania, served for five years as a director of the Decision Education Foundation, conducted hundreds of lectures and executive seminars around the world. A native of the Netherlands, Paul lives on the East Coast with his wife; they have two children.

Here is my interview of Paul. To read the complete interview, please click here.

*     *     *

Morris: When and why did you decide to Brilliant Mistakes?

Schoemaker: Two issues have always intrigued me.  First, when the founder of Honda claims that success is 99% failure, I wonder why we label the necessary steps toward success in such a negative way?  Failure and its twin sister “mistake” too often get a bad rap.  Second, when executives tell me that they learned the most in their careers from mistakes, I wonder why they don’t make a few more.  In the book, I suggest that we should make more mistakes (given how valuable they often are), but most people deeply reject that seemingly silly notion.  I was also fascinated with Thomas Watson’s counter-intuitive advice, as founder and Chairman of IBM, that if you want to succeed faster, you need to make more mistakes.  Our ambivalence about mistakes in business seemed an underdeveloped topic to me, especially the paradoxical notion that some errors will prove to be brilliant over time.

To learn maximally from mistakes, we need to commit more errors than we deem optimal as judged within the bounds of our limited rationality.  This idea may be hard to swallow.  Yet, it is the quintessential insight of this book. To my way of thinking, mistakes can be brilliant in two ways.  The first is to learn from an unexpected setback so much that it starts to dwarf the cost of the mistake.  The second way, which is more difficult to achieve, is to create strategies, organizations or cultures where people can make the types if mistakes where the learning benefits far exceeds the cost of the mistake.

Morris: Were there any head-snapping revelations while writing it? Please explain.

Schoemaker: Hardly any “head-snapping revelations,” but certainly a few surprises. Successful people tend to have a different view about mistakes than most ordinary people.  Not only are they more tolerant of them (in themselves and others), but they often embrace them.  Notable examples are Steve Jobs who celebrated his mistakes during a commencement speech at Stanford, or C.K. Rowling who argued that she could not have produced the astoundingly successful Harry Potter series (books, movies, accessories) without having hit rock bottom first.

In the arts and humanities, people embrace mistakes more readily than in business, I feel.  As trumpet great Wynton Marsalis put it so well, if you are not making mistakes, you are not playing jazz – you are not trying.  I believe the same applies to life, since that requires a great deal of improvisation as well.  I don’t think that perfectionists, or people who eschew mistakes for other reasons, realize their full potential as human beings, either for themselves or others

A surprising conclusion is that people who are more risk-averse should make more deliberate mistakes, since they can be used as hedges. This was counter-intuitive to me at first.  A strong portfolio case can be made for investing in mistakes.  For a risk-averse decision maker, it may be worth putting some money in a project expected to yield a loss provided this investment offers a sufficient hedge in case other investments sour.  Even though that seemingly inferior project will not raise profit expectations, it can help reduce losses in case bad scenarios happen.  Similarly, a deliberate mistake can be viewed as a hedge against conventional wisdom, one that will have a high payoff when the majority view of the crowd happens to be wrong (but a loss otherwise in all likelihood).

Morris: Please explain the approach you take in the book to establish a case for making brilliant mistakes.

Schoemaker: In the book, I draw more on behavioral decision theory and its close cousin, behavioral economics, than portfolio theory or options thinking.  Because humans suffer from bounded rationality and furthermore don’t know what they don’t know, the only way to overcome myopic frames, overconfidence, and incremental career progress is to innovate beyond the bounds of our self-limiting world views.  I describe a long list of past business mistakes – as judged by the conventional wisdom at the time – that proved to be brilliant.  These include personal copiers, selling via pet stores, ATM machines, credit cards for students, organic food, fractional jet ownership, and tobacco-free cigarettes.  Just as these ideas were ridiculed at the time, there are many silly ideas floating around today in business that will prove to be brilliant in the future.  The challenge for managers is to recognize them, and this can only happen if leaders create sufficient space for productive mistakes to occur.  In most companies, brilliant mistake may already have been made, but the brilliant part lies dormant because there is little appetite or capacity to mine the mistake.  Since the tuition was paid, why not extract the lesson?

Morris: All of your previous books are research-driven. Is that also true of Brilliant Mistakes?

Schoemaker: I build on the strong foundation of decades of research in behavioral economics and decision psychology.  I offer a practical plan for separating destructive from constructive mistakes, for learning to make more of the brilliant kind.  I encourage leaders to embrace this quality, to milk it for all of its evolutionary and learning potential.   For those rationalists who deem the notion of a Brilliant Mistake to be an oxymoron, I would recommend that they take a portfolio view. A strong case can be made for investing in projects that are expected to yield a negative return. For a risk-averse decision maker, it may be worth putting some money in a project expected to yield a loss provided this investment offers a sufficient hedge in case other investments sour.  Even though that seemingly inferior project will not raise profit expectations, it can help reduce losses in case bad scenarios happen. Similarly, a deliberate mistake can be viewed as a hedge against conventional wisdom, one that will have a high payoff when the majority view of the crowd happens to be wrong (but a loss otherwise in all likelihood).  My book provides the formal argument for those interested.

Morris: Mistakes can either be intentional or unintentional. Please cite a few examples of mistakes (i.e. those that are deliberate and purposeful) can be beneficial.

Schoemaker: Mistakes have been the cause of great discoveries and revolutionary new insights.  It was bad judgment that led the Wright brothers to try to fly: everybody knew at the time that humans couldn’t fly and never would.  In 1895, just eight years before their fragile construct took to the air, Lord Kelvin, the esteemed British mathematician, physicist and president of the British Royal Society, had unambiguously declared that “heavier-than-air flying machines are impossible.”

It was relative ignorance that prompted Albert Einstein, a lowly patent clerk in a Swiss law office, to pose some silly questions about the nature of time, space and energy.  Albert Einstein made at least 23 mistakes in his published (and refereed) scientific publications.  Some of these were necessary to achieve his monumental insights about the deeper forces of nature.

At a more mundane level, I describe a young woman deciding to date any person asking her out and in the end marrying someone she wouldn’t have given a second look.  She was willing to test her preconceived notions about Mr. Right and companies should perhaps do likewise when hiring new talent.  Hiring in your own image is seldom the best approach.

Morris: In the Preface to Brilliant Mistakes, you observe, “For most people, the problem is not that they make too many mistakes but too few.” Are there any examples of that in your own experiences thus far?

Schoemaker: Although there has not been that much brilliance in my own life, there are several personal examples that I would consider “brilliant” mistakes at my own level.  One concerns my decision to take a two-year sabbatical with Royal Dutch/Shell’s planning group in London just after having been promoted to associate professor at the University of Chicago.  Many colleagues deemed this a mistake since my academic career was going well and leaving the world of scholarship might cast doubt on my commitment to research etc.   This risk was indeed real, and my two-year absence from publishing probably did not help my academic career.  But it also opened up new vistas about life beyond academia and led me to found Decision Strategies International, which for 20 years now has served leading companies around the world in the fields of strategy and decision making.

The second mistake concerned our family’s move from Chicago to Philadelphia without there being any single compelling reason to do so.  We were quite happy in Chicago but I left nonetheless to be closer to family, friends and colleagues I had worked with in academia and business.  It turned out to be a great move, without regrets and many new experiences that Chicago would probably not have offered.

In the book I describe a third example, where our company decided – against its better judgment – to respond to Requests for Proposals (RFPs) that came in over the transom.  We had good reasons to believe it would be a waste of time to pursue such RFPs, but then decided to challenge this key assumption.  It turned out that we were wrong; some of these random RFPs proved quite valuable to us in terms of new clients and growth.

Morris: Which factors have the greatest impact on a decision’s outcome? Which of them seems to have the greatest impact? Why?

Schoemaker: Companies that want to compete on innovation are well-advised to become more error-tolerant in practice and develop better methods for capturing the lessons from mistakes.   Such companies should also emphasize that managers (especially younger ones) who are involved in project failures, are to be viewed as being on a fast learning track, rather than an exit track.  Given the significance of failures and mistakes that have led to success, there is potential value from the lessons learned if they are documented, captured and shared. Career development benefits should follow for those involved in the right kinds of failure, assuming they learn and apply the lessons to avoid mistakes in the future.  This can be tested via performance reviews as well as actual on-the-job behavior.

The deeper challenge in all this is that leaders must learn how to celebrate the egg that people invariably have on their face, award.  This president of an Ann Arbor business decided to institute a Golden Egg to make sure his organization would extract as much learning as possible from past failures.  This story is detailed in the book.  His viewpoint was that mistakes are valuable assets that belong to the organization.  To hide them and not share the lessons would amount to destroying shareholder wealth.  At first, few managers wanted to receive the Golden Egg award, but after a while it became much sought after.  Winners would proudly regale visitors in their office with the tale of their failed venture and proudly share its lessons.   The president created a true learning culture.

*     *     *

To read the complete interview, please click here.

Paul cordially invites you to check out the resources at these websites:

Home Page: please click here.

Wharton’s Mack Center: please click here.

His Amazon page: please click here.

His Wikipedia page: please click here.

A video: please click here.

Wednesday, May 23, 2012 Posted by | Bob's blog entries | , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , | Leave a comment

   

Follow

Get every new post delivered to your Inbox.

Join 368 other followers

%d bloggers like this: