The wisdom of deliberate mistakes

Before the breakup of the Bell System, U.S. telephone companies were permitted by law to ask for security deposits from a small percentage of subscribers. The companies used statistical models to decide which customers were most likely to pay their bills late and thus should be charged a deposit, but no one knew whether the models were right. So the Bell companies made a deliberate mistake. They asked for no deposit from nearly 100,000 new customers randomly selected from among those who were considered high risks. Surprisingly, quite a few paid their bills on time. As a result, the companies instituted a smarter screening strategy, which added millions to the Bell System's bottom line. Usually, individuals and organizations go to great lengths to avoid errors. Companies are designed for optimum performance rather than for learning, and mistakes are seen as defects. But as the Bell System example shows, making mistakes--correctly--is a powerful way to accelerate learning and increase competitiveness. If one of a company's fundamental assumptions is wrong, the firm can achieve success more quickly by deliberately making errors than by considering only data that support the assumption. Moreover, executives who apply a conventional, systematic approach to solving a pattern recognition problem are often slower to find a solution than those who test their assumptions by knowingly making mistakes. How do you distinguish between smart mistakes and dumb ones? The authors' consulting firm has developed, and currently uses, a five-step process for identifying constructive mistakes. In one test, the firm assumed that a mistake it was planning to make would cost a significant amount of money, but the opposite happened. By turning assumptions on their heads, the firm created more than dollar 1 million in new business.