"You thought you did everything right—gathered market research and consumer insights; brainstormed, prototyped, and tested a promising new idea; developed detailed financial models and a solid marketing plan. Yet your company’s new product or service didn’t perform as expected. What did you overlook?" ask McKinsey’s Maria Capozzi, John Horn, and Ari Kellen, writing in McKinsey’s quarterly Outlook.
The senior experts in McKinsey’s Boston and Washington offices respectively and the consulting firm’s director of its New Jersey office, reckon most innovation failure from the seemingly small misperceptions in the marketplace as to what competitors do and how they react to your new product. For example, discounts prices tend to encourage customers to stock up on its product rather than try yours, ties up distributors so you can’t get shelf space, or duplicates your service to dissuade consumers from switching. Oftentimes, competition makes it hard for players to identify such threats, because the tendency to overlook rivals is deeply ingrained in human behavior. It’s a natural human bias.
One way to purge your company’s of this bias is to integrate war game-like simulations into ones innovation practices. "By simulating the thoughts, plans, and actions of competitors, these companies are improving their products and services, while gaining a deeper understanding of how their innovation assets compare with those of rivals—insights that help them better identify, shape, and seize opportunities," argue McKinsey’s practice leaders
They cite the case of a consumer-electronics company that was debating the mix of components and features to include in the next version of an important product. Advances in the underlying technology meant that the launch, planned for the following year’s holiday season, could well represent a significant upgrade that would influence several generations of the product. The company ran an in-depth war game over three days where, cross-functional teams of product designers, marketing and sales experts, and supply-chain managers, assumed the roles of executives at a leading rival company.
"The choices the opposing team made were revealing, for it identified several new components and technologies the competitor might include in its own update of this kind of product. While there were obviously no guarantees the competitor would act as predicted, the rigorous preparation the company had undertaken to ensure that players on both sides would behave realistically suggested that the competitor’s rationale for making the moves would be strong. Moreover, if the competitor was thinking along the lines the simulation predicted, the resulting changes to its product and market positioning would be significant, requiring a speedy and decisive response from the company."
Armed with such insights, the electronics company identified a number of moves it could make to seize the initiative—including partnerships, bets on particular technologies, and an attractive, untapped consumer segment it could target to spur growth.
As it happens several of the game’s predictions did materialize, with the competitor maneuvering as expected with its new product. But the electronics company was ready with its own updated product which went one to sell more units than the competitor did over the following holiday period in question.
Additional insight provide by the war-gaming process gave the electronics company added advantage. Rather than having to incorporate the very latest technology, in some cases, an older—and cheaper—one was more than adequate. This helped when subsequent sourcing and pricing decisions.
Useful questions the high-tech company considered when planning and running the game included the following:
- Which product classes will face the most competition, and will supply-side dynamics or customer demand drive it?
- Can we adapt any of our existing products to differentiate them further for the geographies or segments that will face the most pressure?
- Which customer segments will our competitors focus on, and how do these segments overlap with the ones our new offering targets?
Simulations have been around a long time, but the authors say relatively few companies use them to innovate. “Those that do so effectively can not only avoid the problem of overlooking what the competition might do but also determine how likely their new products and services are to survive in the crucible of the marketplace.”