Experimental Discovery

As commentator George Will reminded us: “The future has a way of arriving unannounced.” In our rapidly changing world, competitors are constantly improving, and what customers value is constantly changing. No matter how superior a company’s knowledge, products, and services, it cannot stay in business unless it makes improvements and innovations at least as fast as its most effective competitors. Doing this successfully requires that a business apply Experimental Discovery and Creative Destruction to its vision, strategies, products, services, and methods. All businesses must continually innovate, which usually involves numerous changes in direction, leading to the discovery of new paths.

Progress — whether in business, an economy, or science — comes through experimentation and failure. Those who favor a “grand plan” over experimentation don’t understand the role that failed experiments play in creating progress in society. As Einstein supposedly said, “Someone who has never made a mistake has never tried anything new.”

Such failures can effectively signal what doesn’t work. When dealt with quickly and efficiently, they minimize waste and redirect scarce resources to what does work. A market economy is an experimental discovery process in which business failures are inevitable. Attempts to eliminate any risk of failure only ensure greater failure.

For Experimental Discovery to work, we have to design experiments properly and recognize when we are experimenting, so we can learn and limit the bet accordingly. Koch companies have suffered whenever we didn’t recognize we were experimenting and made bets as if the risks were small when they were not.

Since the future is unknown, we can never predict with certainty which investments will be profitable. To drive Creative Destruction, we encourage numerous well-designed experiments to determine which new businesses, products, services, processes, methods, or type of organization will be successful. We also limit the size of experiments by considering the risk and magnitude of gain or loss.

A well-designed experiment starts with a hypothesis and the goal of learning whether it is valid. If done properly, it leads to new knowledge that brings about change, even if our assumptions or hypotheses are disproven. We learn even more when we explore a range of possibilities that includes the areas of greatest uncertainty and potential.

Confusing as it might seem, failure and getting results are not mutually exclusive. As Einstein is believed to have observed, “Failure is success in progress.” A failed but well-designed experiment is valuable if it generates lessons that lead to positive results. A true failure is a failure to learn because of poorly planned or impulsive action.

To encourage Experimental Discovery, we don’t penalize well-planned experiments that fail since they fuel the necessary flow of small and frequent bets that generate discovery and learning. This is vital to innovation, growth, and long-term profitability. It is also motivating, as experimenting to discover new ways to create value makes work more interesting and exciting.