Panagiotis Leontios

How to turn innovation failures into lasting success

In Business on 05/07/2011 at 2:44 pm

Is failure really the root of success? On one hand, failure may spur the firm to action and provide new information that informs future success. On the other, failure experiences tend to be difficult to encode in that they are often ignored and responsibility is not always clear. We argue that the effect of prior success and failure on future performance hinges on the nature of experience – whether it involves exploration or exploitation activities. By focusing on organizational biases towards exploitation and success based on the easier encoding of those experiences, we offer novel hypotheses suggesting that success in exploration is more beneficial than failure in exploration, while the opposite relationship exists for exploitation. We empirically investigate our predictions using a sample of all U.S. mutual fund companies during the period of 1962-2002. The results support our assertions with respect to each of the four classes of learning, with the important caveat that significant failures produce different results from more moderate failures. Our framework advances existing organizational learning theory by comprehensively considering the intersection of exploration-exploitation and success-failure.

A comprehensive digest of the paper

Read out the full paper: Reaching and Falling: Why Failure in Exploration Differs from Failure in Exploitation

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