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Kay Plantes is an MIT-trained economist, business strategy consultant, columnist and author. Business model innovation, strategic leadership and smart economic policies are her professional passions. A former Madison, WI resident, Kay now resides in San Diego, CA. The views on her blog are not those of her employer, IBM.

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October 6th, 2011

A sad “Kodak moment” business model failure

Louis Pasteur — “Chance favors the prepared mind.”

This quote motivated Bill Welter to co-author The Prepared Mind of a Leader: Eight Skills Leaders Use to Innovate, Make Decisions, and Solve Problems (Jossey-Bass, 2006), a thoughtful leadership book. Bill’s also principal of Adaptive Strategies, a small business that specializes in the application of critical and strategic thinking for business through workshops, strategic thinking behavior programs and one-on-one coaching. And, as I write on the day after Steve Jobs’ sad passing, I am sure Bill would agree that Jobs modeled the attributes Bill wrote about.  (See below.)

From The Prepared Mind of the Leader

Observing. Seeing beyond the obvious
. Moving from the known to the undetermined
. Envisioning the future before it arrives
. Pushing for higher and deeper thinking
. Choosing with consequences in mind
. Keeping a developmental mindset
. Exercising leadership from the outside in
. Looking backward, forward, and inward

Kay: Bill, Kodak shares are trading for under a buck today. It’s on lists of Top 10 largest companies to be out of business by 2013 alongside Yahoo, Sprint and others. But Kodak had so much innovation! What happened?

Bill: That is the key question for leaders. What created this most unfortunate “Kodak Moment?” What takes a company from $31 billion market value in 1997 to $210 million at the end of September 2011? Founded in the late 1800s, the company managed to survive two world wars and the Great Depression. What evil force brought this wonderful (colorful!) company to its present state?

Obviously, the advent of digital photography was a “game changer,” but it was nothing that Kodak couldn’t see. After all, they had one of the best selling digital cameras in the late 1990s. What was going on (or not going on) in the heads of the leaders of the company?

Put yourself in their Kodak leaders’ chairs for a moment and consider the four expectations of a leadership team and, more importantly, consider the speed with which they had to work though all of the expectations:

  • Sense what’s going on around you? (“Digital is coming!”)
  • Make sense of what you see, hear, and feel (“Film is dying, but we can’t kill it now. It’s too important!”)
  • Decide on a course of action (“OMG! Nothing is as big as film is now. Let’s think about this and be careful.”)
  • Act on your decisions (“Well, this is a big ship! Hard to change course overnight!”)

What went wrong? We may have to wait for the inevitable in-depth book or case study for the complete answer, but here are three of my guesses:

First, “Digital” happened faster than they expected while they tried to milk the old film cash cow. Speed is a killer and large, successful companies often underestimate the speed of industry evolution.

Second, they forgot the basics of their value promise – people don’t buy film, they use film to capture the pictures they want. Product based companies often fall in love with their products and forget why people actually buy them.

Finally, they probably spent years getting “lean and mean” in order to compete against Fuji on price. Like it not, film was a commodity. Lean and mean companies often don’t like to experiment – too costly and uncertain!

Kay: I have seen a lot of companies get so caught up in the commodity wars that they miss the entire shift in value within their industry. Motorola is a great example. Keeping your eye on the jobs you’re doing for your customers – the business you are really in and how technology will shift the boundaries of that business and its profit pools is also vital.

In that vein, I wonder if Kodak did the right thing going into printers versus sticking with cameras for their consumer business. The printers absorbed a lot of Kodak’s cash causing its current problems.  It might have been smarter for Kodak to create a platform that would enable other printer companies to partner with Kodak in serving customer needs e.g., Kodak photo printing software platforms built into other company’s printers. I suspect the lovely cash flow of the old film business led them to relish printer ink. Sometimes, dollar signs lead you astray in business model innovation.

What lessons should we learn from this American tragedy?

Bill: There are three lessons that I take away.

  • Industry evolution is relentless. Change at least as fast as your industry is evolving or risk becoming irrelevant. (Study the history of IBM.) Better yet, lead your industry’s changes.
  • Keep your value promise and business concept relevant. People buy your “stuff” because it promises them something important. (Study the Apple phenomena.)
  • Be ready to make some “big bets” – they may NOT be an option. (Study the recent big bets at Samsung.)

The lessons of Kodak’s demise may be lost on too many executives – they’ve spent their entire career trying to eliminate and control uncertainty rather than embracing it. Want to help your young up-and-comers? Give them some projects and let them make their own mistakes – they just might come away with the better feel for embracing an uncertain and constantly evolving world.

Kay: Thanks Bill!

6 comments to A sad “Kodak moment” business model failure

  • Fascinating if somewhat ominous discussion, Kay and Bill. On this day of all days, you wonder if a similar fate could be in store for Apple. I remember selling to Kodak’s enormous distribution center in suburban Chicago, circa 1990. In those days, it was unthinkable that Kodak could collapse, and yet … . Today, companies like Amazon, Google, and maybe Apple, seem like they are unbreakable, but would you be surprised if any of them lasted as long as Kodak? Do you think it’s possible for a company to last as long as Kodak, given today’s rapid pace of change?

  • Microsoft seemed unbreakable a while back and with the surge of mobile and Apple they look vulnerable too. We are losing established companies (Fortune 1000 not just new ones) at a faster rate than ever before, owing not just to the economy but our move from industrial age to information age. Agile companies with a very open definition of what business they are in – a definition that can evolve, but clarity on core values and an Apple-like drive to have a truly unique value promise behind the company and all its products will thrive. Younger leaders are growing up in a rapidly changing world. They get it. They will build companies to last. We in the baby boomers are caught in a new world in which old strategies are no longer sufficient.
    Kay Plantes´s last [type] ..A sad “Kodak moment” business model failure

  • Brad,
    It’s possible, but it’s hard. Kay is right about the “new crop” of leaders, but history shows that VERY few companies last a long time and the compensation policies of most of today’s companies encourage short-term thinking. This is a systems issue as much as it’s a issue of human failings. The “systems thinking” world of the early 1990s came out with a wonderful truism that I think applies here: “Put a good person in a broken system and they will fail.” We have a lot of systems thinking to do if we want companies to last longer.

  • Well said Bill. Another quote “any organizational structure will work as silos versus collaboratively if you’ve built a silo culture.” To create collaboration (at the heart of Apple’s success) you need cultural values + structure + processes + incentives designed for collaboration.

  • Anna

    Very interesting indeed! I wonder if this is happening to Ericsson too, first phasing out mobile telephone production and now selling it off to Sony. At least this is what I heard recently.
    Anna´s last [type] ..Porcelain veneers cost uk more than expensive porcelain plates.

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