IT Wasn’t About Technology
A generation ago, a “Kodak moment” meant something that was
worth saving and savoring. Today, the term increasingly serves as a corporate
bogeyman that warns executives of the need to stand up and respond when
disruptive developments encroach on their market. Unfortunately, as time
marches on the subtleties of what actually happened to Eastman Kodak are being
forgotten, leading executives to draw the wrong conclusions from its struggles.
Given that Kodak’s core business was selling film, it is not
hard to see why the last few decades proved challenging. Cameras went digital
and then disappeared into cellphones. People went from printing pictures to sharing
them online. Sure, people print nostalgic books and holiday cards, but that
volume pales in comparison to Kodak’s heyday. The company filed for bankruptcy
protection in 2012, exited legacy businesses and sold off its patents before
re-emerging as a sharply smaller company in 2013. Once one of the most powerful
companies in the world, today the company has a market capitalization of less
than $1 billion.
Why
did this happen?
An easy explanation is myopia. Kodak was so blinded by its
success that it completely missed the rise of digital technologies. But
that doesn’t square with reality. After all, the first prototype of a
digital camera was created in 1975 by Steve Sasson, an engineer working for …
Kodak. The camera was as big as a toaster, took 20 seconds to take an image,
had low quality, and required complicated connections to a television to view,
but it clearly had massive disruptive potential.
No strategy is static.
Spotting something and doing something about it are very
different things. So, another explanation is that Kodak invented the technology but didn’t invest in it.
Sasson himself told The New York Times that
management’s response to his digital camera was “that’s cute – but don’t tell
anyone about it.” A good line, but not completely accurate. In fact, Kodak
invested billions to develop a range of digital cameras.
Doing something and doing the right thing are also different things. The
next explanation is that Kodak mismanaged its investment in digital cameras,
overshooting the market by trying to match performance of traditional film
rather than embrace the simplicity of digital. That criticism perhaps held in
early iterations of Kodak’s digital cameras (the $20,000 DCS-100, for example),
but Kodak ultimately embraced simplicity, carving out a strong market position
with technologies that made it easy to move pictures from cameras to computers.
All of that is moot, the next argument goes, because the real
disruption occurred when cameras merged with phones, and people shifted from
printing pictures to posting them on social media and mobile phone apps. And
Kodak totally missed that.
But
it didn’t, entirely.
Before Mark Zuckerberg wrote a line of Facebook’s code, Kodak
made a prescient purchase, acquiring a photo sharing site called Ofoto in 2001.
It was so close. Imagine if Kodak had truly embraced its historical tagline of
“share memories, share life.” Perhaps it could have rebranded Ofoto as Kodak
Moments (instead of EasyShare Gallery), making it the pioneer of a new category
called life networking where people could share pictures, personal updates, and
links to news and information. Maybe in 2010 it would have lured a young
engineer from Google named Kevin Systrom to create a mobile version of the
site.
In real life, unfortunately, Kodak used Ofoto
to try to get more people to print digital images. It sold the site to Shutterfly as part of its bankruptcy plan for
less than $25 million in April 2012. That same month Facebook plunked down $1
billion to acquire Instagram, the 13-employee company Systrom had
co-founded 18 months earlier.
There were other ways in which Kodak could have emerged from the
digital disruption of its core business. Consider Fuji Photo Film. As Rita
Gunther McGrath describes in her compelling book The End of Competitive Advantage, in the 1980s Fuji was a distant second in the film
business to Kodak. While Kodak stagnated and ultimately stumbled, Fuji
aggressively explored new opportunities, creating products adjacent to its film
business, such as magnetic tape optics and videotape, and branching into copiers
and office automation, notably through a joint venture with Xerox. Today the
company has annual revenues above $20 billion, competes in healthcare and
electronics operations and derives significant revenues from document
solutions.
The right lessons from Kodak are subtle. Companies often see the
disruptive forces affecting their industry. They frequently divert sufficient
resources to participate in emerging markets. Their failure is usually an
inability to truly embrace the new business models the disruptive change opens
up. Kodak created a digital camera, invested in the technology, and even
understood that photos would be shared online. Where they failed was in
realizing that online photo sharing was the new business, not just a
way to expand the printing business.
So, if your company is beginning to talk about a digital
transformation, make sure you ask three questions:
- What
business are we in today?
Don’t answer the question with technologies, offerings, or
categories. Instead, define the problem you are solving for customers, or, in
our parlance “the job you are doing for them.” For Kodak, that’s the difference
between framing itself as a chemical film company vs. an imaging company vs. a
moment-sharing company.
·
What new opportunities does the disruption
open up?
Our colleague Clark Gilbert described more than
a decade ago a great irony of disruption. Perceived as a threat, social disruption
is actually a great growth opportunity. Disruption always grows markets, but it
also always transforms business models. Gilbert’s research showed how
executives who perceive threats are rigid in response; those who see
opportunities are expansive.
- What
capabilities do we need to realize these opportunities?
Another
great irony is that incumbents are best positioned to seize disruptive
opportunities. After all, they have many capabilities that entrants are racing
to replicate, such as access to markets, technologies, and healthy balance
sheets. Of course, these capabilities impose constraints as well, and are
almost always insufficient to compete in new markets in new ways. Approach new
growth with appropriate humility.
Kodak remains a sad story of potential lost. The American icon
had the talent, the money, and even the foresight to make the transition.
Instead it ended up the victim of the aftershocks of a disruptive change. Learn
the right lessons, and you can avoid its fate.
Scott
Anthony
https://hbr.org/2016/07/kodaks-downfall-wasnt-about-technology?utm_campaign=HBR&utm_source=facebook&utm_medium=social
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