Finding lessons in failures to become better leaders

Professor Thomas Hutzschenreuter, Academic Program Director of the Master in Management & Innovation and Lecturer on the Certificate and Executive MBA Programs at the Technical University of Munich, has broken with old wisdom and established a new view on corporations in his latest book. He explains exactly what he means by referring to the company as a trial, and how this can affect management theory. 

What would have happened if Nokia had invested early in the development of a smartphone? What would the Internet look like if Yahoo had acted far-sightedly in 1998 and bought the now priceless Google search algorithm for a measly million dollars? 

The history of entrepreneurial decisions that, in retrospect, we now classify as economically fatal is endless. Thus, such and other 'what if?’ scenarios will forever remain a mental gimmick.

However, Professor Thomas Hutzschenreuter finds a lot of lessons in such failures. In his new book, The Company as a Trial and Institution, he advocates that managers and professionals shall remain alert to change, factor in failure, and build on the certainty that everything to come is uncertain. We met him for an interview. 

Professor Hutzschenreuter, in your new book you put forward the thesis that in turbulent environments there are no right or wrong strategic decisions. Doesn't that put you in complete contradiction with current management theory? 

At first glance, that may look completely counterintuitive. But if you look at it more closely, you see that we typically judge right or wrong when we know whether something has led to success or failure - in other words, after the actual event. 

However, if we put ourselves in the moment of the business decision, it seems that large parts of management theory ignore the importance of uncertainty. Take, for example, "buy low, sell high." How do I know if today is high or low? In January, heating oil prices were considered off the charts. But by February, many regretted not buying in time. 

In your book title, you refer to the company as a trial. Does that also apply to large, established companies?

Everything in the future is uncertain. If we assume this to be true, then a company is not an object of optimisation - its essence is trial and error. Take Siemens, for example: founded in 1847, active in 190 countries around the world, and firmly associated with attributes such as stability, reliability, and quality - in short, security. 

Nevertheless, former CEO Joe Kaeser always emphasised the dangers to which the group is exposed. It could be taken over and broken up. Or even worse - Siemens could lose its competitiveness; profits could turn into losses. What does this mean for the perception of a company? It means that individual uncertainty and the awareness of potential transience persist even after more than 170 successful years. The company is thus not only an attempt at the beginning of its existence, it is an ongoing experiment.

To what extent does this understanding of a company help to tackle the tasks managers are faced with today? 

Probably the most important implication for the management of companies is not to lose sight of the experimental character of the business. This requires constant vigilance for possible changes, but also to take the initiative and initiate changes before competitors do. There are permanent opportunities, but also dangers, in the experimental character. In today's turbulent environment, attention, knowledge production and imagination are therefore crucial.  

So are managers doomed, in a sense, not to be able to do everything right?

Maintaining an awareness of the experimental character also means establishing a culture for dealing with failure. If the company is an experiment, failures are more likely to be expected than not. In this regard, when failures occur, the question must be "What do we learn from it?" rather than "Who is to blame?"

The same applies to formerly prosperous companies where success suddenly fails to materialise. It is more likely - and this is also suggested by empirical evidence - that phases of success will be followed by failures than that success will persist permanently. 

And the conclusion to be drawn from this is that one must already look for sources of future failure in phases of success - just as one must initiate change in a timely and serious manner in the absence of success. But unfortunately, this happens in very few companies. 

More than ever, professionals and managers need to be aware of their company's future viability in a constantly changing business environment. In TUM’s certificate program, Strategizing in turbulent environments, participants acquire not only theoretical knowledge, but receive practical advice and methods from Professor Hutzschenreuter himself.