EA CEO John Riccitiello On Learning From Failures

"You will fail," said EA CEO John Riccitiello to a graduating class at UC Berkeley. "That is, if you want to succeed in any way that really matters." Riccitiello's speech centered around "failing well," and how the best business owners are able to learn from their failures recover. "Failing well matters because it is ultimately how you define your reputation and, I think, how you will see yourself," he said. Riccitiello himself admitted to EA's failures in 2007 and 2008, when the transition to the now-current consoles not only impacted the quality of the company's games, but its development costs as well. The company was also facing the rapidly approaching dominance of digital platforms. "The internet was about to do to the game industry what it had done to music, movies and newspapers," he said. "We were facing a world going through unbelievable change with the rise of smartphones, social networks, and more recently the iPad, each of which has turned out to be a platform where gaming is the number one application." EA's profits declined rapidly, eventually turning into a substantial loss. "Four years ago I held a meeting and told employees that we were in a do or die situation," Riccitiello said. "We were failing. We could invest and re-tool for radical change, or we could accept the shrinking share of a shrinking pie and eventually die." The result was that the company had to dramatically cut costs and lay off a massive number of employees a huge challenge both in terms of execution and to the company's culture, he recalled. "I lost a few friends in the process," said Riccitiello. "Smart, creative people who just couldn't stomach the transition. Some stopped believing, some left for what they thought were better offers with a quicker profit and payout." The company has since shifted from this "defensive" strategy to one more "offensive," now that the company has cut its losses dramatically. "I wish I could tell you it's all paid off," said Riccitiello. "Yes we've had a few wins, but there's much more to do. We're proud that our game quality is up, our cost is down, and our profits are up. That the investments and the notion that we could build a business beyond simply packaged goods is working. "And we're happy that Wall Street is starting to respond. But I'm not standing in front of shareholders in a flight suit claiming mission accomplished," he joked. "So while the lesson isn't over, we've learned a lot." "I would argue we failed well," he concluded. "We were students of our own failure, we used our failure to shape and impel us to a better strategy, one that we believe will ultimately succeed in ways that our previous strategy -- even if perfectly executed -- could never have done."