Innovation waves: When to surf and when to pass
Fear of missing out (FOMO) is real. When I was in middle school, I knew a kid who always had the latest gadget. With every new device, he elicited “oohs” and “aahs” from his classmates. Then, in 2007, he presented something new to us — something we had never seen.
We admired its elegance. Sleek. Lightweight. Revolutionary. Magical. I marveled, and I reveled. I could not believe this 12-year-old’s parents bought him a $500 iPhone. That was more than a PlayStation 2 and an Xbox combined! I was stuck with a Kyocera, a pay-as-you-go Virgin Mobile phone meant for emergencies. I was allowed to use it in two scenarios: to call my parents to pick me up or to hurl at a would-be attacker.
While my FOMO and jealousy were real at the time, I look back and realize I did not need the iPhone at that moment. The iPhone would soon revolutionize our world, and someday, as a working professional, I would reap the full benefit of all its features and conveniences in daily life. But as a 12-year-old, it wasn’t a necessity. As an awkward middle schooler, I cared more about the status the iPhone carried than its utility.
Unfortunately, I have found FOMO does not stop. It follows us throughout high school, college, and into the corporate world. We experience FOMO all the time. Technologies are rapidly evolving. Software companies are always selling you their newest tools. GenAI is all anyone talks about in the news these days. Articles paint doomsday scenarios. If you do not adapt fast enough, you will lose pace with your competitors. Urgency creates anxiety. You begin worrying you’ll be the next cautionary tale of a company that failed to adapt to consumer preferences. Do you feel anxious yet? If not, you should! You could be next! (Or that is what they say, at least.)
Innovation waves create a pressure that can often feel overwhelming. Leaders face constant tension between when to adopt a new wave and when to let it pass.
So, what is the answer? How do you surf an innovation wave?
You need an innovation strategy.
A solid innovation strategy helps you resist the temptation to ride the wave of every new business model or new technology. It must be intimately tied to and supportive of your business strategy.
As an extension of your business strategy, your innovation strategy grounds you in both customer and business value.
So, what happens when changes to your business don’t align with your business strategy?
A recent company made this catastrophic mistake. The company offers hardware, software, and services to an array of businesses. Riding the software-as-a-service wave, the company decided to switch from a perpetual licensing model to a subscription model. What better way to raise investors’ spirits than by generating a brand-new stream of guaranteed revenue?
But when the model switched, the company’s customers revolted.
Why? The actual product and associated services didn’t change. The very nature of the product was sticky. It required maintenance from the company over time without a subscription. Customers were already subscribing to this business. Relabeling its services as a subscription and charging more in the long run drove the company’s customers to its competitors.
This company’s customers were savvy — they ran their own businesses and were forecasting future costs. They could see the decision of this business to “innovate” was rooted only in business value — not the creation of customer value. Yet, by neglecting customer value, this decision significantly hurt business value as well. The business lost customers and accrued massive capital costs to overhaul operational structures. They chased the wave and wound up caught in the breaks.
How did this decision lead to such catastrophic consequences? How are you supposed to know when to surf an innovation wave or let it pass? And what must you consider when presented with new ideas, opportunities, or technologies?
Ask yourself and your teams a series of key questions:
1. Would this change create net new value for your customers?
Whatever the change may be, it must be rooted in customer value. Your customer is the engine for your sustained, long-term success as you foster loyalty, positive word of mouth, and a more resilient bottom line. Simply put, the change should solve more problems for your customer than it creates. And that requires a solid understanding of your customer. Note that this does not mean your customer is always right and they deserve everything they ask for. It simply means you are creating additional perceived value for the customer.
Sports teams offer a fitting example of this tenet. Both professional and college sports teams are moving to mobile ticketing. At one SEC school, mobile ticketing generated a significant change in the college football fan’s experience. But the average fan was older and less tech-savvy. At gates, fans struggled to pull up their app to have their tickets scanned. Gate entry times increased as lines became longer, leading some fans to miss the games entirely. The concentration of fans overloaded cell networks. In the end, the company chose a new technology and source of data without considering the fan’s experience.
2. Would this change create net new value for the employee?
Your employee is your second customer. You need talent to perceive working at your business as valuable. Accounting for what the employee values drives better employee experiences. You should be making their job easier, more satisfying, or more empowering. Tiffani Bova’s research shows that “technology is one of the most poorly rated dimensions of employee experience.” So many customer-centric strategies popularized in today’s business world do not account for the employee work experience. Knowing your employees well and treating them as valued stakeholders is crucial.
In retail, curbside pickup — hailed as an innovation for customers from the COVID era — is an added chore for retail employees. Labor shortages paired with an ever-growing list of in-store, day-to-day responsibilities has put the squeeze on workers. In-store employees struggle to do all that’s required to run the store, while delivering products to customers’ cars at curbside pickup. The employee’s experience suffers as they attempt to meet high demand, affecting the customer’s experience in turn.
3. Would this change create net new value for the business?
The simplest value a change must create is business value. Is the change going to boost revenues or cut costs? Yet our own human nature can prevent us from answering this question logically. Again, we fall for FOMO. FOMO makes us behave weirdly. The irrational part of our minds takes over, convincing us to always pursue what’s next. We think new technology is too cool not to try. Instead, successful leaders must conduct a systematic, strategic evaluation of the new change. Whether improving operational efficiency or revenue growth, the change must drive sustainable, net new value for the business. This question comes third because the value you create for your customers and/or employees should boost business value, and vice versa.
Back in 2013, Yahoo! purchased the social media site Tumblr for a whopping $1.1 billion. It was reaching three billion impressions a month. Yet, a few years later, it sold for only $3 million. What happened? Yahoo realized that Tumblr was not quite profitable. The company struggled to rewrite Tumblr’s story, as other social media sites picked up steam with new features. The merger also highlighted some stark cultural and leadership differences. Yahoo leadership “knew little about the platform culture … and adherence to anonymity and unattractiveness to advertisers.” Just three years later, Yahoo wrote Tumblr’s value at $230 million. In the end, it proved to be a desperate attempt by a flailing Yahoo to jump on the social media bandwagon.
4. What are your competitors doing?
A solid innovation strategy takes your market landscape and industry outlook into account. If your direct competitor builds innovative technologies that directly influence your business’s value proposition, you have a problem. But just because your competition is doing something does not mean you should do it. Getting caught in a game of one-upmanship is a race to the bottom. You should analyze and adapt to the competitive landscape, but never at the expense of your value proposition. If a new line of business or innovation does not adhere to your business’s value proposition and cannot be sustained by your business’s value chain, it’s not for you.
That is why this question comes last. If you understand the value you create and how you create it across your customer, employee, and business, you will be much more adept at discerning which competitive threats are truly threatening versus a potential fleeting fad.
Jim McKelvey, cofounder of Square, exemplified this well when Amazon targeted Square with their own point-of-sale solution. Rather than overreacting in response to Amazon, McKelvey points out in his book Innovation Stacks that Square’s best option was to do nothing. Rather than pick up the features that Amazon did, doing nothing maintained the status quo of what made Square appealing to its customer base. Meanwhile, Amazon’s venture failed because it could not re-create the magic of Square. Amazon’s value chain was not built to create Square, but Square’s was. The incremental trials and tribulations necessary to innovate are hard to re-create. That is how you sustain your value proposition. Track your competitors, but always consider whether a change they implement makes sense for your own organization.
These four questions can help you evaluate the new opportunities and threats your business may encounter. Your innovation strategy must be a systematic, evaluative process to ensure you make choices that support your company’s overall business strategy. Otherwise, you risk succumbing to FOMO. You risk becoming just another substitute for your competition. You risk driving down unique, differentiated value and, in turn, your company’s profits.
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