You Need More Than Better Products
The experts agree: In future, competition will take place between business models, and not just between products and technologies. Clayton Christensen has written extensively about the importance (and threat) of disruptive innovation, but what happens if a competitor or a technology moves “fast forward” and outcompetes you? I’m sure you know what happened to Kodak, but let’s revisit the story:
Did you know that the first patents for digital cameras were published by Texas Instruments as early as 1972, 46 years ago? Kodak, the clear number 1 in analog film for cameras, actually did realize the potential of this new potentially disruptive technology. As a consequence they initiated an alliance on digital imaging with Microsoft with a very clear objective: they wanted to conquer this new field.
So far so good. However, they weren’t really serious about the move because they already enjoyed a very good business selling analog films. “Why cannibalize ourselves?” seems to be the question the top management asked themselves. They never expected the answer: “Either we cannibalize ourselves or someone else puts us out of business.”
When the first low-resolution digital cameras entered the market in 1999, Kodak were terribly wrong about the future penetration. They forecasted that ten years later digital cameras would account for only 5% of the market while analog cameras – with a need for analog films – would still command a market share of 95%.
Had they been right the world still looked rosy, but as we all know they were terribly wrong. Only ten years later, in 2009, the numbers were the exact opposite: 5% of the market remained analog, 95% was digital. As a result, between 1988 and 2008, Kodak reduced the number of employees by more than 80% and in 2012 they filed for bankruptcy protection.
What went wrong? First of all they suffered from what Theodore Levitt calls “marketing myopia”: instead of concentrating on meeting customers’ needs (recording and distributing memories) they focused on selling products (analog films). Strange, actually, when you think of it because they had been heavily promoting the term “Kodak Moment” that signified a “moment worthy of capturing in a photograph”. So they were actually on the right track so how could they have avoided that a “Kodak Moment” today means “an unforeseen turning point that results in a company dropping from a market-dominant position to being a minor player or even going out of business”?
Business Model Innovation
I think that part of the answer lies in the business model, especially the part about “Key partners”. Yes, Kodak did partner up with Microsoft, but neither party was really serious about digital photography. What had happened if Kodak instead had partnered up with e.g. Canon, Minolta or Olympus? These camera producers didn’t care about the technology, analog or digital, they cared about making it easy for their customers to achieve the reason for using a camera: recording memories.
So what could Kodak have done? Why not be the ones who produced the new recording media, the chip? Or maybe provide the market an easy way to share the memories? Or how about developing software that provides the opportunity to easily improve the quality of the memories recorded? If Kodak had worked closely with the right key partners they would have had a broader perspective than simply continuing to add minor improvements to their analog films. They didn’t and unfortunately, the rest is history.
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