Groupon’s rejection of Google’s bid. Subscription changes at Netflix. The New York City Schools’ hiring of a former publishing executive. Do events like these, which were considered to be colossal mistakes by some, also have the opportunity to result in game-changing innovations? That is one of the questions that Paul J.H. Schoemaker, research director of Wharton’s Mack Center for Technological Innovation and chairman and founder of consulting firm Decision Strategies International, has been exploring throughout his career. In his new book, Brilliant Mistakes: Finding Success on the Far Side of Failure, Schoemaker describes a long list of inventions — including personal copiers, ATM machines, organic food and tobacco-free cigarettes — that, though they were judged as mistakes by the conventional wisdom of the time, proved to be brilliant.

Just as these ideas were ridiculed at the time, there are many silly ideas floating around today in business that will prove to be brilliant in the future,” Schoemaker notes. “The challenge for managers is to recognize them, and this can only happen if leaders create sufficient space for productive mistakes to occur.” Schoemaker identifies two ways to take advantage of the opportunities that can flow from mistakes: being open to learning from professional or personal errors to identify new ways forward, and deliberately making mistakes, or challenging conventional wisdom, in order to speed up learning within your organization. He argues that not making mistakes may be the greatest mistake of all.

The publication of the book coincides with the announcement of a Brilliant Mistakes Contest, cosponsored by Knowledge at Wharton. The Brilliant Mistakes Contest is a chance for you or your business to share a mistake, what was learned, and how it led to new opportunities.

Stephen J. Kobrin, a Wharton management professor and executive director of Wharton Digital Press, had an opportunity to discuss Brilliant Mistakes with Schoemaker.

An edited transcript of the interview follows:

Stephen J. Kobrin: “Brilliant mistakes” sounds like an oxymoron. How can a mistake be brilliant?

Paul J.H. Schoemaker: Well, if you learn more from the mistake than it cost you, it might actually become brilliant. But I recognize there’s a bit of a paradox in the book’s title.

A brilliant mistake is an action you take or a prediction you make that turns out to be wrong. This hurts you initially, but then it also opens up new vistas, and it may result in innovation and discovery. You start to see the world — or yourself — differently. For example: You get fired from a job unexpectedly and it prompts a lot of learning. Or you enter a new market or a new technology, and initially, many things don’t work out well, but the benefits eventually make that “mistake” more than compensate for its cost.

Kobrin: Can you give me some examples of brilliant mistakes?

Schoemaker: A common example is that after people leave school, they start to work, and they may think they’re doing very well. They go to their boss and insist on a raise. They may get fired on the spot. As they go home and think about it, they say, “Boy, that was dumb. Why did I do that?” Once the emotion has subsided, they may start to ask, “Why did I have such a distorted view of how people perceive me and what my added value was in that company?” This may get people onto the right path. Many successful people have had those experiences.

There are many scientists who have made useful mistakes, like Sir Alexander Fleming, who discovered penicillin by allowing a certain amount of sloppiness in his laboratory. Because he did that, he had a wider range of observation and noticed spores growing in a petri dish, which then led to the discovery of penicillin.

Kobrin: Paul, what got you interested in brilliant mistakes in the first place?

Schoemaker: First of all, I’ve made a lot of mistakes in my life. There’s a rationalization process where you want to believe [those mistakes are] brilliant, but they aren’t. So the topic is intriguing for anybody who reflects on that and on life. But what really intrigued me is the following: If you ask successful people in business what they learned the most from, they tend to say, “My mistakes.” The next question I ask is, “So why not make a few more mistakes? If they are so valuable, why leave this up to chance?” They don’t have a good answer to that question. I didn’t have a good answer to the question either. Now I think I’m confused at a slightly higher level about that question.

Kobrin: In Brilliant Mistakes, you argue that managers and organizations should make more mistakes. Why do you say that?

Schoemaker: I have to say that, of course, with a caveat. You have to do it carefully and strategically. Most people are risk averse, which means that they play it quite safe and they don’t explore as widely around their assumptions, or their mental models, as they perhaps should. Organizations exacerbate this because they reward people for results most of the time, and not so often on good intentions or good process for exploration. If your intention is to change a business model or if you’re in a new environment, I think you should have more tolerance for mistakes than is typically the case in companies.

Kobrin: You argue, though, that companies should not just have more tolerance for mistakes, but make them on purpose. What do you mean by that?

Schoemaker: That is, indeed, a higher level of making mistakes. I think you should first start by mining the existing mistakes…. Most of the time, we run away from our mistakes. We don’t want to think about them. It’s an unpleasant experience. But once you start to realize that mistakes are treasures — gifts of sorts — then you say, “Now how can I create ecologies or environments where this happens more naturally, more fully?”

In our own company, DSI International, we routinely rejected proposals that came in for projects that we had no connection to, those that came over the transom. We thought it was a waste of time to respond to those opportunities. We did an analysis. When we listed a whole bunch of assumptions that the management team made — assumptions about how to run the business — this was one of them. It turned out that there was an easy way to test whether that was a correct assumption. When we did, to our delight, it turned out that some of these unsolicited proposals turned out to be quite profitable. But it wouldn’t have started unless we started to list some of these key assumptions.

Under the old frame of mind, if we had done a cost-benefit analysis or a rate of return on the investment, we would have rejected it. We would have said, “This is not a good thing to do.” But just like David Ogilvy brilliantly ran advertisements that he thought would not work, to test his own views about advertising, it’s important to make the best decision you can, whether you’re hiring people or you’re launching products. If you have been hammered by life a little bit and accumulated some wisdom about the limits of your knowledge, then there should be a part of your brain that says, “I don’t have all the answers. I don’t have a full understanding of the situation.” You should permit a little bit of error to experience discovery that seems accidental but really is strategic as well.

Kobrin: You argue that there are certain sorts of mistakes that you should make, but you don’t want to make mistakes that are going to bankrupt the company or are otherwise catastrophic. How do you distinguish between the different types? How do you decide which mistakes are worth making in order to learn?

Schoemaker: After the fact, it’s easier, of course. You could do a cost-benefit analysis of the many mistakes you’ve made in your life. You can ask, “Were they high cost? Were they high benefit? Low cost, low benefit?” That gives you four different combinations. You don’t want to make more of the high-cost mistakes in personal situations, like driving your car into a tree and ending up in a wheelchair. You don’t learn enough from that to justify it. There are also mistakes that are very high cost, [such as] having a divorce or bankruptcy in a company. But the lessons can also be enormous and transformational.

Ahead of time, it’s sometimes hard to make that determination. You have to look at the conditions that favor these brilliant kinds of mistakes. If there is a lot of uncertainty, and the world has changed on you and your old ways of thinking are not quite the right ones, then you have to create more space to discover new approaches. If you don’t do it, competitors will.

Kobrin: How do you turn failure into success?

Schoemaker: Well, some people would say that once you have made a decision, the die is cast. But most managers realize that the first decision is just that — the first decision — and you have many more opportunities to make midstream adjustments, whether you hire people or launch a new product. Apart from the immediate benefits, the longer-term learning can also be of such a magnitude that it dwarfs the original cost.

Kobrin: What surprised you the most in writing the book?

Schoemaker: Well, as I thought about it, it is a complex subject, a controversial subject. Very few people want to say they favor mistakes. However, I was also struck [by the fact] that many very successful people have not only a tolerant approach to mistakes, in music or in sports, but they actually embrace them, to some extent. They have an intuitive sense that these mistakes are, as James Joyce put it, “portals of discovery.” These are new venues, new avenues for having insights that otherwise you wouldn’t get. That’s the key: The mistake is an expensive way to get to new insight. But if that is the only way to get to that insight, it may still be worth pursuing. The other thing that intrigued me was that you can actually build a case for making mistakes, either through portfolio theory by putting in decisions that go against conventional wisdom or an options perspective, where you’re buying options on future learning.

It is a difficult subject. I certainly don’t have the last word on this. I feel I’m scratching the surface. This is a time when many companies have made [significant] mistakes because of the global recession and the financial crises. This is a time when we should ask, “What have we learned from this?” This is a gift for many companies. How robust is their business model? What should they do differently? Maybe the book was a mistake, but we have to wait 10 years to see if enough learning comes out of it. But I think it surprised me how deep and wide the subject really is.

Kobrin: What is your most brilliant mistake?

Schoemaker: Well, we all make them, and it’s hard to reflect on them. I was an academic for many years. I decided to take a rather long sabbatical outside of academia when my career was going quite well, just having been promoted to associate professor. A lot of my colleagues said, “This is not smart. You have a nice momentum going. Keep doing research and take a sabbatical at a later point.” I went against that conventional wisdom. There were clearly some costs: For two years, I had fewer publications. But there were also great benefits resulting in a change in career, setting up a company, and more. I would say that the benefits did outweigh those costs.

Kobrin: So you learned from the mistake?

Schoemaker: I did. I would recommend it to others, as well.

Kobrin: Why is it so hard for most of us to learn from our mistakes?

Schoemaker: I think that people don’t enjoy thinking about them. There is a visceral reaction to mistakes. We use expressions like “eating your words” and being “sick to my stomach” when something [goes] wrong. Be willing to learn from surprises. If it is a positive surprise, if something good happens to us, we happily talk about it with others and we dwell on it. Mistakes you want to suppress. The challenge for leaders in companies is to create cultures where people actually get the benefit of the tuition that the company already has paid, namely, the mistake.

Kobrin: What do you think is the most important thing that readers will get out of Brilliant Mistakes?

Shoemaker: Well, number one, I think it will change their view about what a mistake is and the value of it. Secondly, I think they will see lots of business examples where this has been used to advantage by rather gifted leaders. Finally, they will get a roadmap of what mistakes to make. There are many dumb mistakes you can make, so you have to be clever about the mistakes you decide to invite into your life.