The Best Digital Companies Are Set Up to Never Stop Innovating

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.

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Companies that are able to master continuous online product innovation have big advantages:

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.

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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).

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