The Innovator’s Dilemma: Lessons from Kodak

By: Johannes Gottschall

I guess everyone knows the tragic story of the EastmanKodak Company: founded in the 19th century, dominating the photographic film market during most of the 20th century and finally collapsing into bankruptcy in the early 21st century, shaken by a new technology they had once decisively initiated.

Now here comes the interesting thing. You might say, Kodak’s management was just unable to identify digital photography as a disruptive technology or “the next big thing,” which—with no doubt—was certainly the case for a while, but this is just too easy. The look behind the curtain to understand why Kodak stayed in denial for so long leads to a situation, which Clayton Christensen already described in 1997 as “innovator’s dilemma.”

We should challenge the common interpretation that the top dogs and market leaders fail to recognize and identify new trends, are not willing to embrace them, not ready to reorganize, not able to develop new ideas.

‘Cause this is plain wrong.

The world is full of examples and evidences that the incumbents are the ones adopting to new trends, developing new technology and bringing it to the market.

The problem is that they fail to evaluate the innovation’s value—to comprehend the true revolutionary core of the innovations and trying to adapt to the existing instead of creating something new.

And: innovations are weak, immature, without optimized cost-model and probable not fitting in existing market—and customer structures. (You can refer to the wide-known technology lifecycle, known as “S”-curve).

In fact, the problem is that managers do what they have to do in a successful enterprise: Keeping the KPIs in focus, evaluating ROI, optimizing performance and quality.

Clayton Christensen described it like this:

“The reason [for why great companies failed] is that good management itself was the root cause. Managers played the game the way it’s supposed to be played. The very decision-making and resource allocation processes that are key to the success of established companies are the very processes that reject disruptive technologies: listening to customers; tracking competitors actions carefully; and investing resources to design and build higher-performance, higher-quality products that will yield greater profit. These are the reasons why great firms stumbled or failed when confronted with disruptive technology change.”(1)

Doug McMillon, CEO of Walmart, identified this as one of the main hurdles on dealing with ecommerce in his company: “We hire talent, invested, and just kind of meandered along rather than hammering down, being aggressive, and making it a must-win aspect of our business. That’s partly because we had a bird in hand.” (HBR, 3/2017)

The question for the companies’ leader is if innovations and new technology are capable enough to generate significant turnover in the long-term and if so, shall they also cannibalizing themselves while investing money in a competing technology. The innovator’s dilemma.

George Eastman, the founder of Kodak, faced this dilemma already two times. He shifted from a profitable dry-plate business to film and pushed investments in color film even though the quality was inferior to the Kodak-dominated black-and-white film. So it seemed change was in the company’s genes, but let’s jump back into Kodak’s struggle with digital photography.

Vincent Barabba, former head of market intelligence at Kodak, describes in his book Decision Loom how a study in the early 1980s (conducted with the support of Kodak’s CEO due to the launch of Sony’s first electronic camera in 1981) clearly pointed out the impact of digital photography and projected the upcoming changes and developments.(2)

So everyone was aware, but unlike George Eastman, the management at that time was not preparing for the new world of digital photography; they rather tried to adapt the new technology to Kodak’s existing product portfolio. So Kodak started to use the digital for quality improvements of film as they were so deeply involved in the photo film, chemical and paper business.(3)

The management of Kodak presided over the development of technological cornerstones but was also equipped with accurate market analysis. But it simply took the wrong choices.

This is what we shall take with us. We have to be clear either we only want to improve and optimize the current status, our current products and services or we want to transform. This is a cultural, a mindset question which become recognizable in the product development.

It might be hard, but we need to release ourselves from the never-ending optimization circle, not because optimization is per se a wrong approach; however, we need to consider that this is not always the best way and especially when it comes to transformation, it is more than dangerous because optimization limits us to an existing frame and solution set.

And it might be also against our DNA, but “best-practice exchanges” or “Continuous Improvement Process” can also block a required transformation if they are not taken place within a digital agenda, if simple and imaginable approaches dominating the revolutionary ones, if pragmatism blocks visionaries.

So visions often dominating the slides but behind we are tempting to trust the known paths. Transformation cannot happen “alongside;” this simply won’t work.

Hence transformation is always a risk or, just to say, “a dilemma.”

By Johannes Gottschall

1 Clayton Christensen: The Innovator’s Dilemma: When New Technologies Cause Great Firms to Fail
² Vincent Barabba: The Decision Loom: A design or interactive decision-making in organizations
³ Also the fact that the Kodak labs invented the first mega-pixel camera in 1986 (as predicted in Barabba’s study) didn’t lead to a strategy change and it culminated in the introduction of the Advantix film and camera system in 1996. Beside others the photographer was now able to preview the shots and define the size of the picture. This was possible as Advantix was a digital camera system. However you still had to use film and paper. Conceivable the whole system flopped and Kodak wrote off 0,5 bilion development cost.

Featured image via Yayimages.