Tuesday, January 31, 2012

Kodak's Dilemma

I can remember the first time I got my grubby little hands on a Kodak camera as a child taking snapshots of my parents and cows whilst on holiday. It was a a strange delight to get the pictures back from the chemist (pharmacist), and look at the results, of course a lot of them were incorrectly exposed and blurry but some were pure gold and the stuff of great memories. I thank Kodak for some of those great moments captured, whether with their cameras or their film rolls, they played a huge part in capturing my memories for scrap books and photo albums. The Kodak brand took years to build and was one of the most respected in the realm of photography, they had huge brand value and by all respects should have continued to be a great brand. Sadly their journey is coming to an end and now their brand will be in the scrap heap with other unexpected giants they made similar mistakes when it comes to disruptive technology.

Of course, the World changed with the invention of digital cameras and image processing, and this is where the mighty Kodak failed, they took their eye off the landscape of photography and ultimately failed to react quickly enough to gain ground. Now this is very interesting considering that Kodak actually invented the first digital cameras back in 1975, sadly for them they focused on high end users and sold their technology for use in other peoples hardware. It took Sony to turn the digital camera into a viable consumer product. So what is obvious is that Kodak, suffered from what Clayton Christensen would refer to in his book as the innovators dilemma. As he suggests these huge multi-billion companies are mostly interesting in keeping their current customers happy and they innovate to improve their existing products for those specific customers. Certainly Kodak was not short on innovative talent they hold hundreds of patents estimated at $2.6 billion, but they were not necessarily being innovative in the right areas. A company like Kodak is not going to be willing to invest in an untried technology in a new market, until they start seeing a worthwhile investment of restructuring and planning new strategies. This of course is the dilemma, to innovate and start planning future revenues but not investing so heavily that the existing revenue generation and customers are not neglected. The disruptive technology came from below and shifted the landscape, eventually over taking existing film based technology.

So the question is how could they have done it differently, how might Kodak have dealt with the new trend in photography and ultimately could design thinking have helped in this process? Could Kodak have been saved, could they have moved their brand into the 21st century?

So let's see what went wrong first. CEO, George Fischer, had been working on the digital strategy for Kodak, but the first mistake was underestimating the growth of this category. The assumption was only power users would be interested in the disruptive technology, why jeopardize their existing core business, that was their second mistake. Thirdly they let other brands start to dominate the market presence, because they saw no direct threat to their core business model. Then we look at their expertise and engineers and see that Kodak were absolutely experts in film and processing and even had developed digital technology, but had failed repeatedly to invest in this team and product arm. This of course created instability within Kodak between teams at rivalry with each other, the old school versus the new up and comer. This does not create a good environment for innovation, and then budgets get called into question. Should the core team get the funding or the new teams? The company sold off it's huge health imaging business for over $2.3 billion, and missed out on the baby boomer retirement crowd. Again they were resistant to updating and growing their company in digital. Then came the camera phone, and now digital was everywhere, Kodak was far from ready for this shift. They really didn't see companies like Fuji as important to follow and keep a close eye on, and as such they were surprised as Fuji, dominated the Japanese market then increased share in the US. Fuji film had great distribution models and continued to grow in the digital space. Consumers had changed and were more willing to accept imports from Japan that were well made and manufactured as well as cheap. Of course, it all ended with price battles that ultimately lead to Kodak's demise as the overheads and investments ate away at their bottom lines. Kodak, was too proud of their brand and failed to see the real state of their market and consumers, everything had altered and Kodak didn't.

If we think about the work of Clayton Christensen, he would of course have predicted all of this and said that this was obvious considering all the warning signs, it is almost a classic model of what he refers to in his book. The basic business model would have needed to change to allow more innovation. I can see how a spin off business for Kodak could have been laying the foundation of the next generation of consumer products and services for Kodak. It is in this smaller disruptive team that could innovation could have begun to thrive. Independently funded from the main business they could have worked smarted and more focused on the problems at hand, and grown their own distribution channels and consumer demographics. The main core business would have continued and this smaller team could have been a chance to test the waters of the new space and begin to lay down a new foundation for the core business for Kodak.

Within this team, I could imagine design thinking could have really helped expand and grow the core competencies and technologies. The iterative approach to design with user input early in the discovery process, would have maybe uncovered some interesting insights to digital photography uses. Even though early digital technology wouldn't have produced the quality output you see today they Kodak could have seen the interest that people had once the Mega-Pixel tipping point occurred and reacted to it. Building out prototypes and making small bets would have helped tailor those offerings and maybe establish some new unseen markets ahead of the competition. With less pressure to perform financially, initially this disruptive team could have organically morphed without affecting the main clients and business. Then when the time was right Kodak would have not only established the new technology infrastructures but have a good distribution channel and mark presence, maybe even some new brands to play with under the umbrella of Kodak's reputation. The competition would have been less of a shock and the rapid prototyping team could would have been better suited to the growing changing market and demands.

This is all subjective of course, but I feel design adds huge value to large businesses offering a way to innovate and keep ahead of the competition and most importantly allows the core business to stay on track, while making smaller investments in unknown technologies.

As a final note. Vince Barabba, former Kodak executive, in his new book "Decision Loom" puts forward 4 interrelated capabilities that he feels are important to enable effective enterprise. It's a shame that Kodak didn't take live by these ideas, it may have helped in saving them from the mess they are in now.

1.  Having an enterprise mindset that is open to change. Unless those at the top are sufficiently open and willing to consider all options, the decision-making process soon gets distorted. Unlike its founder, George Eastman, who twice adopted disruptive photographic technology, Kodak’s management in the 80’s and 90’s were unwilling to consider digital as a replacement for film. This limited them to a fundamentally flawed path.
2. Thinking and acting holistically. Separating out and then optimizing different functions usually reduces the effectiveness of the whole. In Kodak’s case, management did a reasonable job of understanding how the parts of the enterprise (including its photo finishing partners) interacted within the framework of the existing technology. There was, however, little appreciation for the effort being conducted in the Kodak Research Labs with digital technology.
3. Being able to adapt the business design to changing conditions.Barabba offers three different business designs along a mechanistic to organismic continuum—make-and-sell, sense-and-respond and anticipate-and-lead. The right design depends on the predictability of the market. Kodak’s unwillingness to change its large and highly efficient ability to make-and-sell film in the face of developing digital technologies lost it the chance to adopt an anticipate-and-lead design that could have secured the it a leading position in digital image processing.
4. Making decisions interactively using a variety of methods. This refers to the ability to incorporate a range of sophisticated decision supporttools when tackling complex business problems. Kodak had a very effect decision support process in place but failed to use that information effectively.

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