Unlocking Innovation: Why Rewarding Failure Is the Smartest Move You'll Make

Innovation is rarely a smooth journey. Behind every breakthrough lie countless experiments, many of which fail. Uri Gneezy’s "Mixed Signals" teaches us that the way we treat failure through incentives can either fuel or kill creativity.When failure is punished, people hide mistakes and avoid risks, starving innovation of its lifeblood.

Consider the Israeli Air Force, which treats near-accidents with the same seriousness as actual crashes. Pilots are encouraged to openly discuss errors without fear of punishment, creating a learning culture that reduces accidents and improves performance. Similarly, a pharmaceutical company introduced a 'kill fee' to reward scientists who terminate failing projects early. This counterintuitive incentive freed resources for promising ideas and accelerated innovation cycles.

On the flip side, companies that fear failure often cling to outdated models. The story of a major video rental chain that ignored market shifts due to risk aversion is a cautionary tale of how fear can lead to decline.

To foster innovation, leaders must create safe spaces for experimentation and design incentives that reward learning from failure. This means recognizing the value of fast failures and encouraging teams to pivot quickly. Reward systems should celebrate courage and curiosity, not just success.

By embracing failure as a strategic asset, organizations can unlock creativity, adapt faster, and achieve breakthroughs that redefine industries.

Explore more on how incentives shape innovation in Uri Gneezy’s compelling narrative and related leadership research. 1 4