Is your company embracing the F-word? No, not that F-word, but one that business traditionalists perceive to be every bit as dirty: failure.

Although it sounds counterintuitive, a number of companies-some of them high-profile, Fortune 500 concerns-are now looking at failure as a necessary element of success in today's competitive business environment. A July 2006 cover story in BusinessWeek even detailed how companies like Coca-Cola, Corning, and Intuit are embracing and leveraging what it termed "intelligent failures" and creating corporate cultures that encourage innovation and accept risk-taking.

The concept isn't entirely new, of course. Examples of companies such as 3M (which created its blockbuster Post-it Note products from "failed" glue that had been sidelined years earlier) and MCI CEO Bill McGowan (who posted a sign in the lobby that read, "Make Some Damn Mistakes") are the stuff of legend in the business world.

But why embrace failure today?

For starters, it can be a competitive advantage. Failure is an unavoidable side effect of innovation. And innovation, as a spate of business books proves, is a hot topic these days. It's driven by people (who sometimes fail) and is reliant upon throwing multiple ideas against a wall, so to speak, to see what sticks. Embracing failure ultimately affects employees' productivity in creating innovative products, which in turn affects customers' experience and loyalty. Giving employees permission to do so without fear of reprisal, the argument goes, will ultimately result in success. And increasingly, some experts say, there's awareness among top executives that this is an important concept in the context of innovation.

"Embracing early failure is an important factor in companies' survival," says Gustavo Manso, an assistant professor of finance at the MIT Sloan School of Management, who has studied the topic of motivating innovation. "In a fast-changing business environment, companies have to explore new approaches constantly. The only way to achieve that is to have a workforce that is permanently experimenting. Companies that tolerate early failure and reward long-term success are providing the right incentives to nurture experimentation and innovation among [their] workers."

Screwing up is never the end goal, of course. But learning from the inevitable mistakes that stem from innovative thinking is an objective for such companies. Christine Comaford-Lynch, CEO and founder of Mighty Ventures and author of Rules for Renegades, calls it failing forward/failing fast. "If [something] fails, let it fail forward and get something out of it," Comaford-Lynch says. "Maybe the dessert topping sucks, but it makes a great floor wax. In business, we need to be quick-change artists and say, 'Whoops, that's not working, let's go over here' and not say, 'But this is the plan….'"

Deloitte Consulting LLP's Michael Raynor, author of The Strategy Paradox and The Innovator's Solution, says that companies that want to exploit risk to create competitive advantages need to commit to making that a reality over time-requiring a certain persistence of methods. "Part of the reason failure is not such a bad thing is if you can learn from [it]," he says. "And you can only learn if the initiative is designed as such. If you're launching a new product or making a change, you have to be clear [about] what you're changing and what outcomes you were expecting in the first place. You can't decide you'll learn something simply from saying those words."

Companies that do learn from failure-and more important, encourage innovation-do so by developing a corporate culture that incorporates the concept, Manso says, citing companies like 3M and IBM (and, more recently, Motorola and Wipro) as examples of companies that have successfully accepted failure within their ranks. "From the first day at work, employees of [IBM and 3M] are told stories about previous employees who either failed and were not punished or later succeeded, and in the long run were recognized and promoted to the highest ranks within the company. By spreading these stories among employees and following these principles on a day-to-day basis, companies develop a reputation that makes their employees willing to experiment with new ideas," Manso says.

One way companies can mitigate the fear of failure is by making it clear where strategic risk is managed, Raynor says. Operational managers who are responsible for making decisions and who are held accountable for them often trade greatness for survival, he says, "and that essentially results in widespread mediocrity. What you can do is give people the latitude to make decisions that make greatness a possibility."

Strategic risk, Raynor adds, "has been fundamentally ignored, and that's a bad thing. We tend not to talk about what didn't work; we tend to try to learn from success. That's not unreasonable, but we've tended to completely ignore failure, and that's dangerous."