The entrepreneurial impulse and epistemic humility

Over at the HBS Blog Network, Matt Reilly points out that “it’s easy” to make the argument that large companies struggle to innovate “because they need to reorient their attitudes toward failure” and “not only tolerate but celebrate the fruitless pilots and instructive flops that are an inevitable part of the process.”

He then cites a new Accenture Survey about entrepreneurial culture that digs a little deeper and finds that the “entrepreneurial impulse” isn’t destroyed, it’s merely channeled in other directions.

In spite of the challenges, the majority of employees report having initiated an entrepreneurial pursuit at their companies…  Looking more closely at these employee innovations, however, the overwhelming majority had to do with internal programs and processes; 54 percent were limited to the workings of the business unit in which the employee worked while another 31 percent improved processes or created programs that crossed unit boundaries. That leaves just 15 percent whose pursuits were focused on externally-focused products – the innovations that companies are most rewarded for in the marketplace.

One interpretation of these findings is that employees have an entrepreneurial impulse that even time constraints and unsupportive management can’t destroy, but it is being channeled in a direction that doesn’t match their companies’ urgent need for market-facing innovation. And what’s responsible for the diversion? Again, I would point the finger at the typical company’s unhealthy response to any foray that visibly fails.

The entrepreneurial impulse thrives in a high-trust environment that allows people to play with mistakes.   In Stupid Experimentation (May 2012) we cited author Jim Manzi, who believes innovation is based on “epistemic humility.”

“Many things about our company turned out differently than we had expected…  The Hayekian knowledge problem is not a mere abstraction…  External analysis can be useful for rapidly coming up to speed on an unfamiliar topic, or for understanding a relatively static business environment.  But at the creative frontier of the economy, and at the moment of innovation, insight is inseparable from action.  Only later do analysts look back, observe what happened, and seek to collate this into categories, abstractions and patterns.

“More generally, innovation appears to be built upon the kind of trial-and-error learning mediated by markets.  It requires that we allow people to do things that seem stupid to most informed observers — even though we know that most of these would-be innovators will in fact fail.  This is premised on epistemic humility.  We should not unduly restrain experimentation, because we are not sure we are right about very much.”

Failure is a by-product of pushing the envelope and can be counted on to make a cameo in any endeavor.  It can be a great teacher, it’s the secret to national wealth, and “useful” failures can help prevent catastrophic ones.  In our business, where “failure” is not uncommon, it’s also important to learn how to fail the right way.