Innovation: Why Kodak faltered?
From its inception by George Eastman in 1888, Kodak followed the razor and blades business model of selling inexpensive cameras and making large margins from consumables. As of 1976, Kodak commanded 90% of film sales and 85% of camera sales in the US. It came up with the first prototype digital camera in 1975 and acquired a photo-sharing site called Ofoto in 2001.
In 2012, the company filed for Chapter 11 bankruptcy protection. What led to the demise of a 120-year-old household brand and unquestionably one of the most important names in photography is a perfect example of corporate myopia, failure to discern that in dealing with capitalism we are dealing with an evolutionary process (Schumpeter, 1943). That old must give way to the new. Kodak had the right talent and the money but they failed to realize that digital was the new business and not a means to expand the print business.
To understand why sustained innovation is important let me introduce three concepts for analysis, to begin let’s revise one of the classic concepts in marketing, the product life cycle. The concept dates back to the 1950s while its lessons are invaluable even in current times.
The product life cycle aims to encourage an active rather than a reactive product policy. The cycle provides visibility into different stages and their duration. A systematic search for new uses to extend the product’s life. Companies should view their strategy as a planned totality that looks ahead over some years. It tries to predict market events so that companies can preplan for market stretching and product life extension.
Another useful tool while understanding innovation is technology S-curve
The S-curve demonstrates that multiple technologies can coexist in the market at the same time, at different stages of development. This also explains how companies might get blinded to disruptions. Companies operating on technology A during its growth phase can generate higher returns per unit of effort and it becomes difficult to justify investments in technology B which is in the development stage at the same time.
The third concept that will be helpful in understanding the nature of innovation is the role of superior information.
The adjacent curve describes the value market ascribes to a given product’s performance. Firms that have superior market information will adjust the performance of their products so as to maximize value. While firms with poor information exist at suboptimal points like B. It could also happen that the market has started valuing different features. The firm with superior information will shift to the new curve while the ones with poor information would not realize the creation of a new value curve, and would fail to optimize their products to suit market preferences.
Now, let’s combine the above three tools to better understand the case of Kodak.
Despite developing digital technology in house and investing in social media businesses they could not pivot. What seemingly happened to Kodak was that they were deeply entrenched in the technology of print photography. They treated the digital technology S-curve as a means to extend the maturity of their existing products. They supposedly had poor market information and consequently could not realize the shift in consumer preferences and behavior.
Each time a disruptive technology emerged, between one-half and two-thirds of the established manufacturers failed to introduce models employing the new architecture…Three waves of entrant companies led these revolutions; they first captured the new markets and then dethroned the leading companies in the mainstream markets. — Christensen
