In volatile times, uncertainty can be turned into a competitive advantage.

Predicting the needs of your customers has always been tricky. In one 2005 survey, for example, 80% of corporate executives said they believed they were delivering superior products to their customers — but only 8% of their customers agreed.1 It’s even harder to please your customer when things are as uncertain as they are today. Shifts in politics, immigration patterns, and trade policies are shaking the foundation of international commerce. Consumers are both more informed, thanks to the internet, and more fickle, thanks to social media. When you consider all that — and the rapidity and frequency of technological change — predicting the future needs of your customers may seem like a fool’s game.

Given the obvious costs of misjudging customer preferences, how should companies at the brink of a product launch behave in the face of great market uncertainty? Should they “wait and see” until uncertainty resolves? Or should they commit resources for a full-scale launch and ride it out?

The conventional wisdom these days is that being early to market is the right choice. But our study of 550 manufacturing companies and analysis of service companies with considerable sunk investments suggests that this is not always the case. (See “About the Research.”) Often, being better matters more than being first. We’ve observed that many companies can benefit by taking a mixed approach, which we like to call “act and see.” By deferring the large-scale launch of new products and using the time to conduct effective R&D, companies can glean valuable insights and develop capabilities that give them an edge on competitors that rush in with less caution. But implementing an act-and-see approach isn’t easy. Business leaders must ensure that the company has the personnel and the structure to make effective learning from experimentation commonplace.2

The idea of experimentation in the face of uncertainty is not novel for those who are familiar with concepts such as discovery-driven planning, probe and learn, disciplined entrepreneurship, active waiting, and lean startup. So, what’s new? Our work shows how prelaunch experimentation can build capabilities that help you create value in uncertain market environments. What’s more, those capabilities will make it harder for competitors to copy you.

References

1.J. Allen, F.F. Reichheld, B. Hamilton, and R. Markey, “Closing the Delivery Gap,” Bain & Co., Oct. 5, 2005.

2.J.M. Ross, J.H. Fisch, and E. Varga, “Unlocking the Value of Real Options: How Firm-Specific Learning Conditions Affect R&D Investments Under Uncertainty,” Strategic Entrepreneurship Journal, forthcoming.

3.C. Bradley, M. Hirt, and S. Smit, “Strategy Beyond the Hockey Stick: People, Probabilities, and Big Moves to Beat the Odds” (Hoboken, New Jersey: John Wiley & Sons, February 2018); H. Courtney, “20/20 Foresight: Crafting Strategy in an Uncertain World” (Boston: Harvard Business School Press, October 2001); R.M. Cyert and J.G. March, “A Behavioral Theory of the Firm” (Englewood Cliffs, New Jersey: Prentice Hall, 1963); and R. Martin, “Strategy and the Uncertainty Excuse,” Harvard Business Review, Jan. 8, 2013.

4.G.S. Lynn, J.G. Morone, and A.S. Paulson, “Marketing and Discontinuous Innovation: The Probe and Learn Process,” California Management Review 38, no. 3 (spring 1996): 8-37; R.G. McGrath and I.C. MacMillan, “Discovery-Driven Planning,” Harvard Business Review 73, no. 4 (July-August 1995): 44-54; G.P. Pisano, “The Development Factory: Unlocking the Potential of Process Innovation” (Boston: Harvard Business School Press, 1997).

5.T. Buck, “Fashion: A Better Business Model,” Financial Times, June 18, 2014.

6.A.K. Dixit and R.S. Pindyck, “Investment Under Uncertainty” (Princeton, New Jersey: Princeton University Press, 1994), 339.

7.B. Kogut and N. Kulatilaka, “Capabilities as Real Options,” Organization Science 12, no. 6 (November-December 2001): 744-758; and N. Kulatilaka and E.C. Perotti, “Strategic Growth Options,” Management Science 44, no. 8 (August 1998): 1,021-1,031.

8.L. Kim, “Crisis Construction and Organizational Learning: Capability Building in Catching Up at Hyundai Motor,” Organization Science 9, no. 4 (July-August 1998): 506-521; and W.S. Shim and R.M. Steers, “Symmetric and Asymmetric Leadership Cultures: A Comparative Study of Leadership and Organizational Culture at Hyundai and Toyota,” Journal of World Business 47, no. 4 (October 2012): 586.

9.P. Ghemawat, “Commitment: The Dynamic of Strategy” (New York: Free Press, 1991), 132; and P. Ghemawat and G. Pisano, “Sustaining Superior Performance: Commitments and Capabilities,” Harvard Business School case no. 9-798-008 (Boston: Harvard Business School Publishing, 1997).

10.On how to design experiments, see S.L. Brown and K.M. Eisenhardt, “Competing on the Edge” (Boston: Harvard Business School Press, 1998); J. Fjeld, “How to Test Your Assumptions,” MIT Sloan Management Review 59, no. 2 (winter 2018): 89-90; R.G. McGrath, “Failing by Design,” Harvard Business Review 89, no. 4 (April 2011): 76-83; D.N. Sull, “Disciplined Entrepreneurship,” MIT Sloan Management Review 46, no. 1 (fall 2004): 71-77; and S.H. Thomke, “Experimentation Matters: Unlocking the Potential of New Technologies and Innovation” (Boston: Harvard Business School Press, 2003).

11.Ghemawat, “Commitment: The Dynamic of Strategy.”

12.R.G. McGrath and I.C. MacMillan, “How to Rethink Your Business During Uncertainty,” MIT Sloan Management Review 50, no. 3 (spring 2009).