One way to diagnose whether your organization is maximizing its potential is to answer this question: How are mistakes viewed and dealt with?

Are they feared for the negative consequences that will be rained on someone’s head? Are they furtively hidden to avoid exposure?

Or are mistakes celebrated as learning opportunities? Are those who risk and fail applauded for a “good try that didn’t work?”

As we’ve written about many times, organizations that center their conversations on “holding others accountable” are sending employees a strong message that they should do as their told. That might get employee compliance, but it won’t unleash the diversity, creativity, and independent decision-making that could strengthen the organization and foster innovation. “Compliance” by definition requires conformity, which discourages risk-taking and critical-thinking skills, which are essential for developing superior results.

Research done by Jennifer Lerner of Carnegie Mellon University and Philip Tetlock of Ohio State University has shown that many employees base their performance decisions on gaining the favor of those to whom they are accountable — typically supervisors — rather than thinking through what the business and its customers really need.  Sheena Iyengar, in her recent book, The Art of Choosing, points out that organizational systems designed to “hold others accountable” stifle freedom and encourage people to do less than they are capable of, which stifles innovation.

For example, an employee who is tempted to bend rules to better serve a customer might choose instead to doggedly follow company policy for fear of being discovered by the supervisor, who has the ability to influence rewards and punishments. They don’t want to be seen as “making a mistake” when it could influence their rewards (approval, benefits, salary) or avoiding punishment ( betting yelled at, a bad write-up, a negative performance evaluation).

What’s the alternative? One of them is to embrace, celebrate and be grateful for mistakes.  Vineet Nayar, author of Employees First, Customers Second: Turning Conventional Management Upside Down asserts in a recent blog posting that there is “growing evidence to suggest that innovation flourishes when people are given the space to make mistakes.”

Why? Because if people aren’t making mistakes, they are not learning. And if employees aren’t constantly learning, the organization is stagnating. Stagnation is a dangerous environment for organizations that want to survive in a rapidly changing marketplace.