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전략경영연구 투고 양식

논문제목: Does a Scale of Failure Affect Learning Effects : Focusing on Small and Large Failure

저자연락처

저자	성명	사무실 전화	개인 전화	전자우편 주소
주저자	장유진	031-467-0823	010-5080-1307	parksk@anyang.ac.kr
공동저자	민지홍		010-3423-3942	jihongmin02@konkuk.ac.kr
공동저자	김추연		010-3376-5557	chookim@konkuk.ac.kr
공동저자	오경석	02-3786-0653	010-8843-0589	ksoh@kmac.co.kr
교신저자	박나민	02-3393-3906	010-2514-0875	nmpark@gtck.re.kr

원고매수: 16

Does a Scale of Failure Affect Learning Effects

Does a Scale of Failure Affect Learning Effects: Focusing on Small and Large Failure

: Focusing on Small and Large Failure

장유진	*	안양대 글로벌경영학과 교수
민지홍		건국대학교 경영학부 박사
김추연		건국대학교 경영학부 교수
오경석		한국능률협회컨설팅 본부장
박나민	**	국가녹색기술연구소 연구원

Journal of Strategic Management

Research on failure focuses on failure itself, and focuses on solving problems or fixing defects. Failure is costly and at the same time serves as an opportunity for learning. Recently, business failure is treated as an intangible resource that brings profits to a company. When approaching failure from a fundamental point of view, not all failures are the same. Therefore, it is necessary to enhance the understanding of failure and reduce failure by checking various factors such as the cause and scale of failure. This study aims to see the impact on companies based on the failures that occur in airlines. Specifically, we verify the scale of failure on organizational learning. As a result of studying the effect of organizational learning through failure experience, it can be seen that small-scale failures had a negative effect on organizational learning. However, it was confirmed that large-scale failure have a positive effect on organizational learning. The results of this study have important implications for companies in terms of the consequent event of organizational failure. Learning about the characteristics of failure can prevent the repetition of risk management failure by identifying the cause of organizational learning failure and blocking it, and it will also help to establish a strategy that is advantageous to the company. We hope that this study help enhance our understanding of how firms can learn from failure.

Key words: Failure Learning, Failure Scale, Small Failure, Large Failure

논문투고일 : 2023.06. 05    수정논문접수일 : 2000. 00. 00    게재확정일 : 2000. 00. 00

* 2023 한국전략경영학회 연구회 지원을 받은 논문입니다.

Ⅰ. Introduction

박나민ㆍ민지홍ㆍ김추연ㆍ오경석ㆍ장유진

For the most part, failure has been viewed negatively. Moreover, there is no doubt that firms have considered it a very simple task to report work status to team members, or prepare and distribute a report throughout companies as a preliminary measure to identify the cause of a problem and respond to a similar problem in the future.

However, the size of the lessons an organization can learn from failure is not miniscule or simple(Desai, 2016). Failure can significantly influence success because the negative information therein can be perceived as more important than positive information(Ito et al., 1998).

Although, failure analysis does not often occur because in-depth failure analysis can result in emotional discomfort and lower self-esteem. For this reason, most people tend to rush or avoid failure analysis. Another reason is that analyzing failure requires questions, openness, patience, and tolerance for ambiguity. because companies generally value determinism, efficiency, and action rather than careful reflection.

But, If the cause of the failure is not clearly identified, the organization may experience the same loss again. So, once a failure is detected, efforts should be made to understand the root cause and give meaning to it. It should also lead them to discover the wisdom contained therein based on sophisticated analysis and cognitive thinking(Crutzen & Van Caillie, 2008).

If an organization urgently recognizes the need for a context-specific learning strategy and closely analyzes failures, such as 'the market was not ready to accept new products' rather than superficial lessons such as 'it was a problem in the procedural process’, it will be able to present specific and clear solutions.

By learning from failure, companies have the opportunity to improve the quality of their products and services, as well as the efficiency of their manufacturing processes. Individuals and organizations prevent future failures by modifying existing practices by learning from failures(Sitkin, 1992). Furthermore, an organization's fundamental analysis of failures can lead to new innovations that are a source of sustainable competitive advantage(Edmondson et al, 2014). Therefore, in today's complex work organization, it must be replaced by a new paradigm that acknowledges the inevitability of failure.

While learning through success has received attention from organizational theorists, learning through failure has received relatively little attention in organizational theory. Still, studies on learning from failure have been steadily progressing. Whereas previous studies focused on the reasons for failure, recent studies have focused on learning from failure based on the potential that failure can improve individual and organizational performance. These include product recalls(Haunschild & Rhee, 2004), project failures(Shepherd et al., 2011), bankruptcies(Kim & Miner, 2007), and accidents(Baum & Dahlin, 2007; Haunschild & Sullivan, 2002).

The goals of this study are as follows. First, we examine how learning occurs in an organization in the context of Falure and determine whether failure learning affects the organization's erformance. Second, we examine whether there is an increase in failures according to the scale of failures.

II. Theoretical Background

2.1 Failure knowledge and organizational learning

Previous studies claim that the outstanding innovation of a firm occurs through the recombination of new knowledge and existing knowledge(Helfat, 2000; Schumpeter, 1939; Weitzman, 1996; Zhao, 2011). Firms often make discoveries derived from existing knowledge, but most processes are small changes(Dosi, 1988; Sahal, 1981; Tushman & Anderson, 1986). In other words, innovation occurs through the combination of new and familiar knowledge.

On the other hand, innovation through failure knowledge is a process of finding the combination of knowledge elements, which positively affects the reduction of subsequent failures. Innovation due to failure learning is a process of combining existing knowledge elements differently through recombination of knowledge(Fleming, 2001). A firm has no way of knowing if the combination of knowledge before and after failure is effective. As time goes by, firms learn whether knowledge elements and combinations become more or less important in different situations. As a result, the period for acquiring necessary knowledge is reduced(Vincenti, 1990).

Although there have been studies on the impact of innovation through failure knowledge(Belderbos et al., 2004), the problem-solving process behind innovation has not received much attention. As knowledge complexity increases, problem-solving has become an indispensable element and a central part of economic vitalization(Carter, 1995). Problem-solving involves failure learning, and the implications generated through learning are important clues in setting the direction for solving problems(Barron, 1988).

Failure learning through problem-solving develops as follows. Businesses have many alternatives, the consequences of these alternatives are neither known nor precisely predicted. Ultimately, the company determines the priority of these alternatives as a logical approach of ‘learning by doing’. On the other hand, these alternatives are tested through experimental ‘trial and error’(Duncker, 1945; Simon, 1969). This process continues until the company is satisfied with it. On the other hand, companies often seek solutions to problems that they do not intend to solve because of the uncertainty of problem-solving intentions. Such ‘trial and error’ does not reflect reality piecemeal, and successful implications are meaningless in the real world(Thomke et al., 1998; Tyre & von Hippel, 1997).

Mass-produced information is used for the difference between failure dealt with in previous studies and failure dealt with in this study because failure is understood from the point of view of ‘trial and error’. If failure is unavoidable, individuals will be less active in recognizing these failures, thus making it more challenging to overcome biases associated with failure(Thomke, Hippel, and Franke, 1998). As a result, companies analyze failure more objectively in order to find potential causes rather than distance themselves from failure.

Companies are motivated to find the causes of failure and seek new information from such failures. The trial and error process involves finding a new solution by combining existing.

2.2 Failure Scale and Learning

Learning from failure is possible, but not all failures are equally effective in facilitating organizational learning. In particular, researchers found that the scale of failure affects the companies' ability to process learning effectively.

Based on the scale of failures, small and large failures can be judged. A small failure is a failure that leads to a negative outcome but a small loss(Hayward, 2002; Baumard & Starbuck, 2005). A large failure is a costly failure that affects a wide range(Baumard & Starbuck, 2005).

The most studied concept of small failure is the “small loss” theory. It was argued that organizations could learn more from small failures than large failures(Sitkin, 1992; Staw & Ross, 1987; Weick, 1984). In detail, small failures mean that firms have fewer opportunities to recombine knowledge elements. In other words, rather than recombining knowledge in a broad manner, there is a tendency to pursue only a small-scale combination using a narrow range of knowledge. As a result, the company experienced failure through small failures, but it was limited to acquiring knowledge elements in detail. That is, it does not lead to learning.

Conversely, there are studies that have argued the importance of large failure. The reason is that the large failure of an organization based on its size and visibility cannot be ignored. In all cases, for minor problems of quality that occur frequently, the organization does not seek new knowledge to solve these problems. Therefore, large failures allow companies to combine the constituent knowledge of failure with other factors. In the process of combining these pieces of knowledge, companies acquire vital knowledge elements. Companies tend to use this knowledge as a source of innovation by flawing it in better ways. Henderson and Clark(1990) argued that the basis of innovation is the recombination of existing knowledge into new knowledge. In this case, the company avoids traditional methods, and favors recombined knowledge for future success. Companies require an extensive range of trial and error in order to induce successful tasting combinations. Although large failures have catastrophic negative consequences, these failures paradoxically have a positive impact on future learning and performance. Finally, a high level of failure can provide implications for which knowledge is practical. In this study, based on the scale of failure, we will divide it into small failures and large failures.

III. Hypothesis Development

3.1 Small Scale of Failure

Learning from failure is possible, but not all failures are equally effective in facilitating failure learning. In particular, researchers found that the scale of failure affects the ability of the organizational members to process learning effectively. From a knowledge standpoint, the scale of failure can play a decisive role in failure learning. Specifically, failures act as part of a company's knowledge base, which is made up of individual pieces of information that are interconnected.

In the process of combining basic knowledge, companies have a substantial acquisition of knowledge elements. They tend to use this knowledge as a source of innovation by improving it in better ways. Henderson and Clark (1990) argued that the basis of innovation is the recombination of existing knowledge into new knowledge.

In this respect, small-scale failures mean that firms have fewer opportunities to recombine knowledge elements. A small failure is a failure that leads to a negative outcome but a small loss (Hayward, 2002). In other words, rather than recombining knowledge in a broad way, there is a tendency to pursue only a small-scale combination using a narrow range of knowledge. As a result, the company experienced failure through small failures, but it was limited to acquiring knowledge elements. In detail, It does not lead to learning.

According to Morris and Moore(2000), small-scale failures influence an organization’s information processing strategies. This effect is achieved by comparing failures. Through comparison, one is considered more important and self-implicating, while the other events are ignored. Non-critical threat types lead to propensity that avoid the self-critical idea of “defensive bolstering” (Tetlock, 1983). Although there were no previous studies on counterfactual thinking for learning related to the scale of failure, it can be inferred that these defensive motives can lead to counterfactual thinking(Peecher and Kleinmuntz, 1991). Tetlock(1983) argued that this mechanism leads to the erroneous idea that defenses against small-scale failures are “almost right”. That is, small failures do not lead to negative consequences, so members of the organization may perceive small failures as trivial(Dillon and Tinsley, 2008; Morris and Moore, 2000). Previous studies claim that individuals tend to expand their successes and ignore failures(Burger, 1981; Ford, 1985). This phenomenon of ignoring failure was also observed at the organizational level. For this reason, there is a high possibility that only shallow knowledge can be acquired through small failures.

Hypothesis 1. A small scale of failure from organization’s experience will increase failures.

3.1.2 Large Scale of Failure

Large-scale failures do not always lead to good results. A major failure can lead to skepticism about the underlying reason for its existence. Even if a large failure has value in the future, it is difficult for a company to prove its worth at the moment. Therefore, many knowledge elements can be dismissed as inferior knowledge, thus leading to uncertain and avoidant learning(Reed and Defillippi, 1990).

Nevertheless, large-scale failures serve as a driving force for firms to combine knowledge of past failures. Learning becomes more productive by combining the components of failure. It also causes them to judge that the situation is likely to worsen, thus causing them to pay more attention. In such a situation, firms tend to gain more knowledge through large-scale failures.

Failure consists of each independent knowledge, and previous studies have suggested that each element can be interconnected, thus leading to the same innovation (Teece et al., 1994). From this point of view, large scale failures lead to the consolidation of constitutive knowledge, thus enabling companies to contribute to learning and acquiring knowledge.

There are studies that have argued the importance of large failure. The reason is that the large failure of an organization based on its size and visibility cannot be ignored. In all cases, for minor problems of quality that occur frequently, companies does not seek new knowledge to solve these problems. However, to problems caused by large-scale accidents or failures, companies react quickly to change the organizational knowledge structure and seek new knowledge to solve problems(Levinthal and March, 1981; Wildavsky, 1988).

Large failures allow companies to combine the constituent knowledge of failure with other factors. In the process of combining these pieces of knowledge, companies acquire vital knowledge elements. Companies tend to use this knowledge as a source of innovation by flawing it in better ways. Henderson and Clark(1990) argued that the basis of innovation is the recombination of existing knowledge into new knowledge. In this case, the company avoids traditional methods, and favors recombined knowledge for future success. Large-scale failures allow for deep analysis and motivate companies to seek out and assemble knowledge elements.

Hypothesis 2. A large scale of failure from organization’s experience will decrease failures.

Ⅴ. Research Methods

In this paper, data on aviation accidents in the United States from 2008 to 2018 were collected and analyzed. The source of the data is ICAO. The data on 58 United States airlines used to conduct the empirical study of this paper are from the first quarter of 2008 to 2018. Negative binomial regression analysis using panel data was performed to check the causation relationship between the major variables and measure the learning companies’ effectiveness on performance. The dependent variable of this study is the number of accidents at US companies between 2008 and 2018. This is also a common practice in the measurement of aviation accident investigations by ICAO and NTSB (Fromm, 1968). The independent variable that measures failure experience is the number of aircraft accidents in the United States. Although we cannot estimate the cost of each failure, In order to measure the scale of the failure, the ICAO standard used the division of aircraft accidents into three stages: incident, serious incident, and accident. In this study, small-scale failures are operationally defined as the number of incidents and large-scale failures are operationally defined as the number of accidents in the United States using the ICAO scale criteria for aircraft accidents.

Num_accident= [eqn: beta _{ o}] + [eqn: beta _{ 1}]In[eqn: DIS _{ i,t}] + [eqn: beta _{ 2}]In[eqn: TIM _{ i,t}] + [eqn: beta _{ 3}]In[eqn: AGE _{ i,t}] + [eqn: beta _{ 4}]In[eqn: WAG _{ i,t}] + [eqn: beta _{ 5}]In[eqn: OPE _{ i,t}] +[eqn: beta _{ 6}]In[eqn: ENG _{ i,t}]+[eqn: beta _{ 7}]In[eqn: TRA _{ i,t}]+[eqn: beta _{ 8}]In[eqn: MAR _{ i,t}]+[eqn: beta _{ 9}]In[eqn: SMA _{ i,t}]+[eqn: beta _{ 10}]In[eqn: LAR _{ i,t}]+ [eqn: epsilon _{ i,t}]

[eqn: DIS _{ i,t}]= Flight distance in firm i in year t,

[eqn: TIM _{ i,t}]= Flight time  in firm i in year t,

[eqn: AGE _{ i,t}]= Age in firm i in year t,

[eqn: WAG _{ i,t}]= Wage in firm i in year t,

[eqn: OPE _{ i,t}]=  Operation cost in firm i in year t,

[eqn: ENG _{ i,t}]= Engineering cost in firm i in year t,

[eqn: TRA _{ i,t}]= Training cost in firm i in year t,

[eqn: MAR _{ i,t}]= Marketing cost in firm i in year t

[eqn: SMA _{ i,t}]= Small Failure in firm i in year t,

[eqn: LAR _{ i,t}]= Large Failure in firm i in year t.

ⅤI. Key Findings and Conclusion

5.1 Descriptive Statistics

To verify the hypothesis of this study, descriptive statistics was performed on the variables used in the analysis. Table 1 presents descriptive statistics of variables used in empirical analysis.

<Table 1. Descriptive Statistics >

5.2 Conclusion and Suggestions

Y =	0.344	+ 0.316 Ｘ1	- 0.022 Ｘ2	+ 0.000 Ｘ3	- 0.26 Ｘ4	- 0.003 Ｘ5
	(0.008)**	(0.042)*	(0.518)	(0.959)	(0.018)*	(0.935)
	+ 0.381 Ｘ6	+ 0.198 Ｘ7	+0.224 X8	+ 0.01 X9	- 0.009 X10
	(0.002)*	(0.017)*	(0.001)**	(0.000)**	(0.000)**

This study can help increase our understanding of how companies can learn from failure. In addition, it can provide significance for failure learning from  scales of failure. In other words, it can enhance various understandings of the nature of failure, such as small and large failures. Based on the analysis results obtained in this study, conclusions and suggestions are summarized as follows.

First, we found that failures help companies to improve their performance. Learning from failure is not always a bad thing, and companies learn the amount of lessons from failure. In other words, it is important to distinguish between the ‘process and outcome’ of success and failure, and to recognize that a destructive process does not always lead to a failed outcome.

Second, not all failures are equally effective in facilitating organizational learning, although organizational members engage in problem-solving research seeking new knowledge to respond to failures. Failures act as part of a company's knowledge base, which is made up of individual pieces of information that are interconnected. The scale of failure in knowledge acquisition can play a decisive role in learning. Large-scale failures can lead to individual independent knowledge elements that are interconnected, which can lead to innovation(Teece, Rumelt, Dosi, and Winter, 1994). This is because a large-scale failure can contribute to the use of resources and time of a company since the degree of combination of information contained in a failure is substantial. Meanwhile, small-scale failure means that the firm does not experience this the other way around and does not successfully complete the recombination of knowledge elements. In such cases, there is a tendency to utilize existing knowledge rather than recombine it in a broad manner of knowledge.

Large-scale failures provide more opportunities for learning than small-scale failures. Large-scale failures can lead to individual independent knowledge elements that are interconnected, leading to the same innovation (Teece, Rumelt, Dosi, and Winter, 1994). A large-scale failure can have a high learning effect because the degree of integration of the information contained in the failure is strong. It can contribute to the utilization of resources and time of the company.

The results of this study provide important implications for the scale of failure. A previous study studied the effect of failure on an organization's profit from an economic point of view(Rose, 1990). However, few studies have been conducted on the experiences and causes of organizational failure. This study is significant in that it shows the importance of organizational learning in the process of managing failure. Empirical studies of the learning curve have been on productivity and organization survival, but not on the reduction of failure.

However, because failure factors have not been studied extensively, the study of failure reduction is important for organizational learning. Also, knowing how failures are reduced can have important implications for both organizational and societal aspects.

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