The Best Digital Companies Are Set Up to Never Stop Innovating23 May, 2016 / Articles
Companies born before the internet took hold have an enormous challenge: improving their online products and services at the warp speed of their online competitors. The ability to make thousands of changes a day to its online retail service has been a key reason Amazon is expanding its online lead over Walmart and other historically “bricks and mortar” retailers. Amazon e-commerce revenue growth was 10 times Walmart’s last year in dollar terms, and 1.5 times faster in percentage terms.
Other companies that are making the transition to the digital era face similar challenges from digital natives. Newspaper, pay TV, magazine and other media companies that have been losing customers in droves to digital media firms like the Huffington Post or Netflix. Virtual financial services firms such as Wealthfront and Betterment are siphoning investments from established banks through a great mobile app and a website. Even companies that make industrial products like cars, medical devices, and construction equipment are increasingly competing with digitally sophisticated firms like Tesla and Nest that regularly update their connected physical products online.
Companies that are able to master continuous online product innovation have big advantages:
- Dramatic reductions in the time it takes to make critical product enhancements
- The ability to test new ideas quickly and cheaply, run experiments, and back out if there are any problems
- Large decreases in costs by eliminating the waste of fully developing features that fail in the market
- Rapid revenue increases from products that are continually on target, with more and better features, or functionality, every day
- Improvements in quality, reductions in errors, and greater reliability
From studying companies that excel at continuous online product innovation and companies that don’t, I have found the leaders have five capabilities that laggards have yet to master or, in some cases, even begun to pursue:
To move fast on many fronts with minimal overhead, they are organized around small teams that are responsible for the building blocks of products (often called “services”) and have full-time leaders. Each team is responsible for a small product function such as registering a new customer or taking a credit card payment. A team typically consists of three to seven people who have strong software engineering, product management, testing, and marketing skills. They require uncommon teamwork between marketing-oriented product managers and software developers with a technical orientation.
To make numerous fast changes, they automate testing and making product updates. In traditional development of physical products such as automobiles, barbecue grills, and medical devices, products go through a round of tests to make sure their core components work according to specifications and work together as a whole. This process can take months. But when a product is delivered online (e.g., a checking account via a mobile app, a streaming movie service, or an online newspaper), taking months to test updates can be a huge disadvantage against competitors that make changes daily. Product testing needs to be shortened from days, weeks, or months to minutes.
This can be achieved by automating the testing process. This entails taking the step-by-step testing that has traditionally been done by people (such as making sure that a new feature works the way it’s supposed to) and coding those steps in software so that computers can do it fast yet reliably. Online companies usually have one system that scans for common coding errors and compliance with technical standards and another that puts the new or updated product into the field. Because many small changes will come from product teams, another system combines all the changes, tests their impact on each other, and reports any errors. Google runs hundreds of millions of tests each day on updates to its online products (the search engine, Gmail, YouTube, and others).
To quickly and inexpensively ensure customer value and eliminate the risks of product changes, they conduct lots of small experiments. New employees who go through Facebook Bootcamp are expected to release new code in their first week. Making such fast changes to products generates lots of learning about what customers value. But isn’t there a risk of quality problems? Only if the update is big and given to all customers. The best online product companies make very small changes and give them to just a subset of early adopter customers who like to have the latest features and are happy to give suggestions for improvements.
Conducting frequent experiments with such “minimum viable products” and rapidly testing small new features with selected audiences minimize the risk of delivering a faulty online product. For example, Facebook gives major advertising clients access to new code 24 hours before broader releases, and ex-Facebook employees have some privileged channels they can use to report issues as another testing group. The social network can quickly and easily move customers back to the previous version of its software when changes fail in any way. In contrast, it rapidly unleashes successful updates to its entire customer base of over 1.5 billion.
To keep product developers in touch with customers, they continuously inform them on how their product is performing in the market. In traditional organizations, product engineers hand off new products to marketing and sales, which get customer feedback and then report it back to product engineers. In contrast to these slow, sequential hand-offs, product developers at leading digital natives have direct and regular customer contact and are held continually accountable for how their online product performs in the field. Throughout the time a product is in customers’ hands, product developers must monitor a stream of data on product performance to ensure that changes do not trigger errors or product performance problems.
Consider Etsy Inc., a consumer-to-consumer e-commerce website for handmade or vintage items. The company changes its website more than 25 times a day. At its headquarters in Brooklyn, New York, it projects on monitors key system measures like checkouts, listings, items sold, and new registrations. Teams get the same dashboard and monitor messages in member forums on selling, tips, bugs, and requests for help.
To maintain perpetual customer relationships, they emphasize services over product transactions. Companies that sell physical products such as computers, cars, and refrigerators often lose touch with their customers soon after the purchase — or at least when the warranty period lapses. (“No news from customers is good news,” the thinking can go.) But companies selling online products and services need to regard their customer relationships as continuous ones: “We track how our product is performing for you as long as you own it, and if it’s not performing, it’s our obligation to fix it.”
Owners of Tesla cars can upgrade the performance of the car they bought online. They don’t necessarily have to trade the car in for the next new model to gain greater battery life or speed. As software expert Andy Singleton, CEO at Continuous.ai, a new company bringing continuous product innovation to financial services companies, pointed out to me, “Cars and devices get thrown away, but online accounts are forever. The ideal strategy is to maximize customer lifetime value.”
The ability to continuously enhance and overhaul online products is already separating the winners and losers among internet firms. Increasingly, it will affect the fortunes of every firm that must have successful online offerings.
The science man and innovator, Fernando Fischmann, founder of Crystal Lagoons, recommends this article.