For decades, academics and managers have grappled with a seemingly simple strategic question: does uncertainty stimulate innovation or stifle it? Empirical evidence appears to offer conflicting answers. Some studies suggest that turbulent environments push companies to experiment with new technologies, develop innovative products and explore alternative business models. Others, however, show that, in unstable contexts, organisations tend to postpone decisions, reduce investment and limit innovative initiatives perceived as too risky. <\/p>\n\n
This apparent contradiction stems largely from the fact that uncertainty has often been treated as a single, indistinct phenomenon. In reality, not all forms of strategic ambiguity produce the same effects. Some encourage companies to experiment more, whilst others slow down or halt innovation processes. <\/p>\n\n
A recent study by Renfei Gao, Stephen X. Zhang and Asghar Afshar Jahanshahi, published in the *Journal of Business Venturing*, helps to shed light on this paradox. The research shows that the impact on innovation depends on the type of ambiguity that decision-makers perceive within their decision-making context (Gao et al., 2026). <\/p>\n\n
For managers, therefore, the really important question is not how much instability there is in the economic environment, but where the problem lies within the organisation\u2019s decision-making system.<\/p>\n\n
This distinction is particularly significant in the current economic climate. Today, businesses operate in an environment characterised by rapid technological change, geopolitical tensions and the reshaping of global value chains. The World Economic Forum\u2019s Global Risks Report highlights how geopolitical competition, technological disruption and economic fragmentation are among the key forces that will influence businesses\u2019 strategic decisions over the next decade (World Economic Forum, 2026). The International Monetary Fund also emphasises how economic policy uncertainty and changes in supply chains are altering the way in which companies allocate capital and plan long-term investments (International Monetary Fund, 2025). <\/p>\n\n
In this context, the volatility of the environment is no longer a temporary blip, but a structural feature of the strategic decision-making process.<\/p>\n\n
The dynamics of instability do not affect only markets and technologies. They also influence the way people process information about the future. Some research shows that anticipating unpredictable scenarios can generate cognitive stress and decision overload, reducing the ability to envisage strategic alternatives or long-term plans (New Scientist, 2019). Other studies indicate that prolonged exposure to unpredictable situations can increase anxiety levels and diminish confidence in decision-making (Massazza, 2023). <\/p>\n\n
The volatility of the environment is therefore not merely an economic condition, but also a psychological experience that influences the way leaders interpret risks and opportunities.<\/p>\n\n
To gain a better understanding of these dynamics, it is useful to refer to the theoretical work of the scholar Frances J. Milliken. In a paper that has become a benchmark in organisational studies, Milliken proposed distinguishing between three forms of environmental perception: uncertainty regarding changes in the external environment, uncertainty regarding the effects of such changes on the organisation, and uncertainty regarding possible strategic responses (Milliken, 1987). <\/p>\n\n
These three categories represent three different types of \u2018unknown\u2019, and each elicits a different managerial response.<\/p>\n\n
The first aspect concerns the unpredictability of the external environment: markets, technologies or regulations. Paradoxically, this form of instability often tends to stimulate innovation. When the future becomes difficult to predict, many companies respond by stepping up their experimentation. Innovation becomes a tool for preparing for alternative scenarios. <\/p>\n\n
In such contexts, organisations can invest in emerging technologies, launch pilot projects or explore new business models to broaden their range of strategic options. From a strategic perspective, innovation becomes a learning mechanism. Rather than waiting for greater clarity, companies generate insights through action. <\/p>\n\n
Empirical evidence supports this trend: companies whose leaders perceive higher levels of environmental instability tend to launch a greater number of innovative initiatives (Gao et al., 2026).<\/p>\n\n
A second aspect, however, concerns uncertainty about the effects of change. In this case, decision-makers are able to identify changes in the external environment \u2013 such as new regulations or emerging technologies \u2013 but are unable to accurately assess the consequences for the organisation. <\/p>\n\n
In such situations, strategic signals become ambiguous. Change can represent either a major opportunity or a significant risk. Consequently, companies react in different ways: some step up their experimentation to adapt to the new environment, whilst others prefer to wait for greater clarity before committing to new investments. <\/p>\n\n
The study\u2019s findings reflect precisely this ambivalence: this form of ambiguity does not have systematic effects on innovation, giving rise to widely varying organisational behaviours (Gao et al., 2026).<\/p>\n\n
The third dimension, on the other hand, concerns uncertainty about the strategic options available. In this case, the problem is not understanding the external environment, but determining which decisions to take. Leaders may recognise that the context is changing, but they may not know which initiatives are actually feasible or which ones are likely to succeed. <\/p>\n\n
This situation leads to significant decision-making paralysis. When managers are unable to assess the consequences of the available strategies with sufficient certainty, they tend to postpone important decisions and avoid large-scale innovative investments. <\/p>\n\n
In other words, not knowing what to do is far more paralysing than not knowing what will happen.<\/p>\n\n
The study confirms that high levels of this form of ambiguity significantly reduce the likelihood of firms launching new innovative initiatives (Gao et al., 2026).<\/p>\n\n
Research on leadership highlights similar dynamics. Leaders who are able to openly acknowledge the challenges of the situation and communicate risks and constraints transparently find it easier to maintain trust and organisational cohesion during turbulent times (Inside Higher Ed, 2025). Leading an organisation in complex contexts therefore requires not only strategic clarity, but also the ability to manage ambiguity. <\/p>\n\n
Taken together, these findings offer an important insight. External and internal factors have opposing effects on innovation.<\/strong><\/p>\n\n The turbulence of the competitive environment often encourages experimentation and exploration. Conversely, ambiguity in internal decision-making processes can slow down or halt the launch of new initiatives. <\/p>\n\n The relationship between an unstable environment and innovation can only be understood by identifying the root cause of the problem.<\/p>\n\n This perspective also helps to reconcile seemingly contradictory findings in the literature. Some studies have focused on turbulence in the competitive environment, observing a positive relationship between instability and innovation. Others have analysed ambiguity in internal decision-making processes, finding negative effects. <\/p>\n\n Both perspectives describe real phenomena, but each captures only part of the mechanism.<\/p>\n\n For business leaders operating in volatile markets, a clear practical implication therefore emerges: the first step in managing uncertainty is to identify the nature of the problem.<\/p>\n\n If the source of the turbulence lies in the external environment \u2013 markets, technologies or regulations \u2013 experimentation and innovation become essential tools for identifying new opportunities.<\/p>\n\n If, on the other hand, the issue concerns the impact of these changes on the organisation, it becomes necessary to strengthen analytical and interpretative skills in order to better understand the scale of the transformations taking place.<\/p>\n\n The situation becomes most critical when the ambiguity concerns potential strategic actions. In such cases, the primary task of leadership is to reduce internal uncertainty by clarifying options, priorities and operational capabilities before committing to new innovative investments. <\/p>\n\n The debate on innovation and the instability of the environment can therefore be reframed more precisely. The real issue is not to determine whether turbulent environments foster or hinder innovation, but to identify the nature of the problem organisations are actually facing. <\/p>\n\n External turbulence tends, in fact, to encourage exploration and experimentation. Conversely, internal ambiguities within decision-making processes can slow down, or even halt, the launch of new initiatives. <\/p>\n\n For business leaders, this distinction is becoming increasingly crucial. In a landscape characterised by technological disruption, geopolitical competition and profound economic transformation, the ability to recognise the nature of the problem is often the first step towards turning the instability of the environment into a strategic advantage. (Photo by Jon Tyson <\/a>on Unsplash<\/a>) <\/p>\n\n References<\/em><\/strong><\/p>\n\n Gao, R., Zhang, S. X., & Jahanshahi, A. A. (2026). Beyond uncertainty: How distinct types of perceived uncertainties catalyze or paralyze firm innovation. Journal of Business Venturing, 41, 106605. https:\/\/doi.org\/10.1016\/j.jbusvent.2026.106605<\/a> <\/em><\/p>\n\n Inside Higher Ed. (2025). How to lead through uncertainty. International Monetary Fund. (2025). World economic outlook. Massazza, A. (2023). Uncertainty and mental health: Understanding the psychological impact of uncertain futures. Disability & Society, 38(7), 1150\u20131165. <\/em><\/p>\n\n Milliken, F. J. (1987). Three types of perceived uncertainty about the environment: State, effect, and response uncertainty. Academy of Management Review, 12(1), 133\u2013143. <\/em><\/p>\n\n New Scientist. (2019). Worried about the future? The science behind coping with uncertainty.