Why Failures Can Be Such Success Stories

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"We Can Do It Again"

While it's crucial for any chief executive to maintain a high sense of self-efficacy, most successful businesses also rely on a high sense of "organizational efficacy." That's the preliminary finding of Dr. James Bohn, a change management director with Johnson Controls (JCI) and a researcher with the University of Wisconsin at Milwaukee. Even if a company has a strategic plan, the crucial question is whether "the collective people within that organization believe they can control that outcome," Bohn says.

Bohn has found companies are better equipped to overcome failure if they enjoy three traits that bolster organizational efficacy: a strong track record, successful rivals to compare themselves with, and leaders who give positive feedback. GE, he says, should have little trouble getting past the recent storm of criticism over its failure to fulfill CEO Jeffrey Immelt's confident first-quarter predictions. "They'll come out of that very strong, as they look at their past performance and accomplishments and say, 'If we've done it in the past, we can do it again,'" Bohn says.

Everyone suffers from lapses in confidence, even Immelt's predecessor Jack Welch. In 1963, early in his GE career, Welch was leading a team that set off a violent explosion while experimenting with volatile chemicals. Though no one was seriously hurt, "My confidence was shaken almost as much as the building I had destroyed," Welch wrote in his autobiography, Jack: Straight from the Gut (Warner Business Books, 2001). But Welch's manager, rather than scold or punish him, taught him an important lesson by helping him focus on what he could learn from the incident. "When people make mistakes, the last thing they need is discipline. …The job at this point is to restore self-confidence."

Douglas MacMillan is a staff writer for BusinessWeek.com in New York.