Good Fail, Bad Fail: What Made Caterpillar And Unmade Enron

Caterpillar is resilient; Enron reviled. The difference? How their leaders approach mistakes.

In terms of their backgrounds, the similarities between Ken Lay, former CEO of Enron, and Jim Owens, former CEO of Caterpillar Inc., are remarkable. Lay and Owens were born less than two years apart, grew up in households where money was scarce, went to public schools, worked numerous jobs to help their families, went to state universities, and ultimately earned their Ph.D.'s in economics before becoming CEOs of Fortune 500 companies.

While the similarities of background, position, education, and opportunity are remarkable, in terms of their leadership stories, the differences are distinct. Specifically, Owens achieved numerous successes in large part by learning from his own mistakes as well as the mistakes of others, In 2001 Lay attempted to hide his mistakes and those of others and as a consequence went from the top of the charts to ending as one of the most catastrophically flawed leaders in US business history.

In the early 1980s, Owens was a mid-level manager at Caterpillar. He recalls, "I started paying close attention to the whats and whys of the company's mistakes." At one point during the '80s recession, Caterpillar was losing up to $1 million a day. The attention Owens paid to mistakes made by others during this time created the foundation for his strategies during the 2008–2011 world recession—strategies that proved remarkably successful and put Caterpillar in a very select group of companies that were celebrated by Wall Street as weathering the recession relatively unscathed.

Owen's story is not unique. We have found a common theme among industry's greatest leaders: Their most important lessons have come from trial and error. Unfortunately, if understandably, many of us don't pursue the trial because we are fearful of making the error.

Mistakes are part of taking healthy risk. They provide us with new ways of thinking and give us new insights into how we can improve as leaders. Real failure doesn't come from making mistakes; it comes from avoiding errors at all possible cost, from fear of taking risks to the inability to grow. Being mistake-free is not success—in fact, it's not even possible. Still, we often avoid risks and ignore (and sometimes even hide) our mistakes. We don't like to talk about our mistakes and bring attention to them. It feels safer to look the other way or sweep them under the rug. But doing so stifles growth and dooms us to repeat our mistakes—it's why so many have the same struggles over and over again.

So why is it that we don't we embrace challenges and become accepting of mistakes, learning from them and ultimately growing from them? And if learning from mistakes has so much value, why is it taboo to even talk about mistakes in the context of business and leadership? The answers aren't hard to find.

The performance review trap

We are all evaluated on how well we perform our jobs. Companies pay their employees to succeed, not to fail. The better the performance review, the better we are compensated. However, performance reviews tend to reward us on our short-term success and penalize us for our short-term mistakes. Rarely does someone receive a performance review spanning several years. And personal growth from mistakes is an evolutionary process. It takes time. Mistakes today usually hurt our performance evaluations in the short term. So we hide them, or even worse, simply avoid making them by "playing it safe."

Consider Thomas Edison's remark: "I have not failed. I've just found 10,000 ways that won't work." Do you think he would have lasted in today's corporate environment? We have created an evaluation platform where successes are celebrated and failures are not. Remember . . . "failure is not an option." To be a fast-track leader in this environment, you can't afford to make mistakes. If you do, you may feel pressured to bury it or blame someone else in order to avoid any negative consequences.

A culture of perfectionism

Fear of failure isn't reserved to performance reviews. Our entire culture values perfectionism. As children, we were told "practice makes perfect." We learned that making mistakes was bad, that we needed to always "color inside the lines." We learned that to succeed we needed to "strive for perfection." Perfectionism is one of the biggest deterrents to learning from mistakes.We become so fixated on not failing that we never move forward. We focus on the upside risk associated with failing, rather than the downside risk of not trying.

Companies that create culture where employees are pressured to strive for perfectionism actually discourage risk taking, resulting in lower levels of innovation and creativity. If employees are too focused on their own successes, and worried about rationalizing failure, they stop learning, and subsequently stop growing.


Losing balance between "what" and "how"

We are also a very goal-oriented culture, where status and success are paramount. We're proud when we're at the top of our game, and when others see we're there. But we probably don't spend enough time considering how we got there. Jennifer Robin, coauthor of The Great Workplace: How to Build It, How to Keep It, and Why It Matters, and research fellow with the Great Place to Work Institute, tells us that in great workplaces, rather than focusing exclusively on goals—the "what" of success—leaders also take time to focus on process—the "how." Like management and leadership, or tactics and strategy, both are necessary, and so is paying attention to both. Attending to how goals are achieved, rather than the goals themselves, builds strong relationships and solid business acumen—and knowing how we achieved what we achieved (or failed to) can educate us about the real basis of our success.

The failure paradox

While every great leader makes mistakes, it's just as true that there are only a limited number of mistakes you can make before proving yourself an unworthy leader—you can only fall off the corporate ladder so many times before your climb is finished. And the higher you get, the more severe the fall, and the more failure becomes unthinkable. This is where the downward spiral can begin, of "winning" at all costs—even if it means hiding mistakes, blaming subordinates, and even lying, as in the case of Ken Lay.

At a certain level, failure is not an option. And yet, in order to succeed we need to know failure. This is the failure paradox.




There is a way around the problem, and it's right in front of us. We'll all make our own mistakes, true, and hopefully we will learn from them. But the real opportunity comes when we are able to learn from others' mistakes before we are confronted with similar challenges ourselves; we can literally learn the lessons without paying the price. And this perspective is starting to gain significant momentum.

Great leaders have the innate ability to learn lessons from their own mistakes, as well as mistakes from others. Jerry Shaheen, a member of the Board of Directors for Ford Motor Company, told us "the ability to recognize and learn from one's own mistakes is the first step to becoming a great leader." He continued," But the ability to learn from others' mistakes is not only critical to successful leadership . . . it is genius."

Excerpted with permission from the publisher, Wiley, from The Wisdom of Failure: How to Learn Leadership Lessons Without Paying the Price by Larry Weinzimmer and Jim McConoughey. Copyright © 2012.

[Image: Flickr user Paul Goyette]

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5 Comments

  • EAB EAB

    Read the entire book cover to cover--it contains countless examples from leaders you will recognize and will help you discover how to become a better leader yourself--by learing from their mistakes.  I'm buying this book for my entire management team.

  • Diamond Richardson

    Great
    article! There is a similar one here: http://info.profilesinternatio...

    Both
    articles make a great point: evaluating and fixing your weaknesses is an
    important part of being a leader. Unfortunately we live in a society that
    focuses on the end success, not the journey.

  • Stefano Mandini

    Not a single concrete example of what the companies did and did not do! Reading this was a waste of my time. I'd learn more watching the RNC

  • Asf

    There are some times when you should be able to relate some of the fundamental concepts to experiences in your life. The article is not for 5 yrs olds, requiring example for every thing the author mentions. The concepts here are pretty straightforward and easy to relate to. You should go make GREAT use of your time watching and cheering for RNC!!

  • Stefano Mandini

    A few specifics about each company is necessary. What mistakes did Owens and Lay each make? What happened after the fact?  Otherwise this article is all fluff and you can rewrite it over and over with different companies and names. No dissertation committee, let alone junior high school English teacher, would accept this empty writing.