Abstract for: Implications of The Rate of Organizational Learning on Value Capture in the Digital Economy

Two newly introduced products from the same firm were expected to do well, yet one product failed while the other thrived. Why? To answer this question, we built a firm-level system dynamics model of the adoption of information technology products with a focus on firm-level allocation of investments to marketing, technology and, to the reduction of other switching costs. We also modeled the firm’s ability and rate of learning from customers. The firm-level model was validated against revenue data and management interviews. We identified implications of designing a positive user experience and of adopting a culture of relentless rapid business experimentation. The various scenarios supported by the model illustrated that, in order to survive and compete in the digital economy, information technology firms need to shed a comfortable yet myopic focus on existing capabilities and develop business strategies validated through “fail fast, learn fast” experiments. Sustainable competitive advantage also hinges on the capability to effectively disseminate the knowledge gained through business experiments within the firm.