Article image

Simulation Advantage

August 04, 2010 by Martin Reeves, Henri Salha, and Marcus Bokkerink
LIKE. FOLLOW. SHARE.
In This Article

This article is part of the BCG Strategy Institute’s series on adaptive advantage and the future of strategy.

  • In a turbulent environment, companies must expand experimentation beyond products and services to include business models and strategies.

  • By achieving superior economics of experimentation, a company can gain a simulation advantage.

  • An array of levers and behaviors must be integrated and deployed to establish a culture of experimentation.

  • Companies with a simulation advantage embrace change, cultivate a hunger for information, and tolerate failure. 

 

Almost all companies use experimentation to develop and test new products and services. But in an increasingly turbulent business environment, strategies—as well as products and services—can become obsolete quickly and unpredictably. Therefore companies must broaden the arena of experimentation to include business models and strategies.

Yet there are challenges in applying traditional approaches to experimentation more broadly. Such approaches can be costly and time consuming, and they can saddle the organization with an unreasonable burden of complexity. Market-facing tests and pilots can jeopardize a company’s brand and reputation. And market research based on consumers’ perceptions can be a remarkably poor predictor of success for novel concepts and strategies.

To overcome these barriers, a growing number of adaptive competitors are using an array of new approaches and technologies to expand the scope and impact of experimentation in their businesses. In doing so, they are creating a “simulation advantage” by achieving superior “economics of experimentation.” In other words, these companies are able to generate, test, and replicate a larger number of innovative ideas more quickly, at lower cost, and with less risk than their rivals can. (See the exhibit.)

exhibit