One of the toughest balancing acts for a leader in an innovation driven organization is choosing what to keep and what to change.
On the one hand, change is at the heart of innovation and letting go of familiar and comfortable characteristics (style, function, or process) is an inevitable part of change. On the other hand, customers, investors, and employees have expectations; stray too far from those expectations and you risk losing them.
The key lies in understanding what the customer really wants and improving on that. Your product is not defined by what it does or how it works or what it looks like. Your product is defined by what your customers expect to get from it.
The restaurant industry serves as a great example. Any restaurant that considers itself in any way gourmet has to offer its own versions of the dishes on the menu. Tomato soup that comes straight out of a tin can just won’t hack it with customers (or employees), and simply copying a recipe from another restaurant won’t do either. The menu has to change several times per year, usually seasonally, and new items must mix the familiar with something unique. Employees get bored (and sloppy) and customers get bored (and go elsewhere) if the dishes are always the same.
The better restaurants, therefore, must constantly innovate, finding new ways to prepare good food.
On the other hand, fast-food restaurants have to be perfectly consistent. The menu in a McDonald’s restaurant is not very different today than it was 15 years ago, and it’s pretty much the same in New York as it is in Los Angeles. Adding salads to the McDonald’s menu was such a big change, the company launched a massive advertising campaign to assure its success.
Gourmet customers are buying change and variety; they expect something different to be available each time they visit a restaurant and they expect it to taste very good. Pleasant surprises are prized. Fast food customers, on the other hand, are buying convenience and predictability. Surprises are generally avoided and good taste is a secondary concern.
Kodak (remember them?) assumed it was operating in a McDonald’s style market in which customers wanted predictability and reliability. When the competitive market changed around it, Kodak waited too long to let go of its established products. Ignoring the trend towards the handiness of digital cameras, including cameras built into cell phones, Kodak clung to its traditional film, chemicals, and paper businesses, assuming that digital photography would not catch up in the quality-cost-convenience mix. After all, what could be easier than shooting your pictures, dropping off the film at the drug store, and getting beautiful prints back in a few days?
Undoubtedly, there are purists in the photography world who do not accept digital photography, like the purists in the audio world who prefer vinyl or tape over digital, but all amateur photographers and most professionals have switched to digital photography.
Why? Kodak failed to recognize the implications of internet photo sharing services and home color printing. Most importantly, they also misunderstood their customer base, which is more interested in fun and convenience than predictability and reliability. The quality may not be quite as good as with film, but what is more fun and convenient than shooting a picture with your phone and instantly sharing it with a few hundred friends and acquaintances on the internet? Even professionals, valuing the convenience of digital photography for editing and sharing with customers, have made the switch, compelling the manufacturers to improve quality quickly. Kodak has yet to recover.
Blizzard Entertainment has been similarly inept in choosing what to keep and what to give up. As Blizzard released a steady flow of updates to their popular game World of Warcraft, they lost subscribers. Looking only at hard core gamers, Blizzard gave up the leveling experience and the opportunities to meet and develop new friends that had been inherent in the original game design. As a result, many casual gamers have cut back on their WoW time.
Facebook, in an effort to innovate its way into a revenue model, has stumbled repeatedly, and predictably, over consumer privacy issues. Some people abandoned Facebook altogether. Others changed the way they use the service. Almost everyone mistrusts Facebook’s updates to service and user agreements.
Neither of Blizzard nor Facebook has made as fatal a mistake as Kodak. In the case of Blizzard’s World of Warcraft, brand loyalty and a considerable sunk investment of time will keep players coming back, so Blizzard has an opportunity to reprieve itself. Facebook has severely damaged its brand and is vulnerable to a competitor who can make it easy and attractive to change, but Facebook users, like World of Warcraft players, have a considerable sunk investment. The photos, posts, and connections built up on Facebook are hard to transfer to another service without violating Facebook’s IP.
Choosing what to keep and what to let go must, ultimately, be driven by what the customer expects and what alternatives are available. Innovative product development should focus on enhancing customer satisfaction. By all means, make the product faster or sexier or healthier or cheaper to manufacture. Innovate as much and as fast as you can for competitive advantage and ROI. But make sure you stay on top of what your customers expect from your product and innovate there first. Sometimes that means letting go.