| Uncertainty pervades product development. Recently, there has been increasing consensus that uncertainty may not be wholly disadvantageous: firms may benefit by introducing higher levels of uncertainty into their product development efforts. But this new appraisal of uncertainty in product development creates a managerial dilemma: rather than unconditionally reducing uncertainty, a manager must somehow decide whether more or less uncertainty is appropriate given his firm's industry and competitive position. The goal of this dissertation is to address this managerial issue and to help focus the debate in the academic literature regarding when uncertainty in product development is valuable.;First, I present my definitions of uncertainty and variance and relate these definitions to the relevant business literature. Next, I propose a simple methodology to measure uncertainty in product development outcomes, and using this methodology I demonstrate that outcome uncertainty varies significantly across companies in a particular industry. Having established this heterogeneity, I discuss when variance in unexpected outcomes may be valuable through the introduction of the payoff function construct, which relates outcomes to economic quantities of interest. I then derive a competitive payoff function that predicts which firms will seek uncertainty, and which will avoid it, and I relate the predictions derived from this model to the prior empirical results from section three. Next, I develop a payoff function for the video game industry, which may provide insights into payoff functions at work in blockbuster-driven industries in general. Finally, remaining in the context of the video game industry, I explore which project-level strategic and operational decisions may disproportionately correlate with variance in unexpected outcomes. I conclude with a brief word on future research directions. |
