Innovation Lessons from the Fall of Giants

Innovation Lessons from the Fall of GiantsEastman Kodak Corporation, commonly known as Kodak, was founded by George Eastman in 1888.  It was a leader and innovator in cameras and film.  By 1976 Kodak held 90% of film sales and 85% of camera sales in the U.S., according to a 2005 case study for Harvard Business School. Unfortunately this dominant market position bred a culture of complacency. The move to digital camera technology had a devastating effect on Kodak’s sales and in January 2012 the company filed for Chapter 11 bankruptcy protection.

Ironically Kodak had developed the first digital camera as early as 1975 but shelved the project for fear that it would damage their film business. Steve Sasson, the Kodak engineer who invented the first digital camera in 1975, described the executive reaction to his invention as, ‘that’s cute—but don’t tell anyone about it.’

By the early 1990s it was clear that digital technologies would be critical and Kodak made various efforts in the market including introducing a line of Kodak digital cameras.  But there were internal disagreements between the digital camera division which was loss-making and the photographic film division which was highly profitable. Executives at Kodak clung to their belief that people would continue to want to print their pictures.  Sony and Canon all saw the challenge ahead and changed course with their digital cameras.  Fujifilm diversified more successfully. It launched a line of cosmetics, Astalift, in Asia and Europe. Fujifilm also found new markets its film technologies including making optical films for LCD flat-panel screens where it has become a leader in key sectors.

Kodak entered the digital game too late and with little enthusiasm. Its attempts at diversification and acquisition were poor. In 2013 Kodak emerged from bankruptcy, having sold many businesses. It now provides packaging, printing and professional services.  It now has some 13,000 employees and made a net loss of $1.3B in 2012.

At its zenith, when people shared their memories on printed photos, Kodak employed more than 140,000 people and had a market value $28 billion. It was defeated when consumers shared images on the internet with new players like Instagram. When Instagram was sold to Facebook for $1 billion in 2012 it employed only 13 people.  Scale is no protection in today’s world of rapid innovation.  Indeed it may be a hindrance as it impedes agility.

Nokia began as a wood pulp mill in Finland in 1865.  It has reinvented itself many times.  It made paper products and then rubber products including bicycle tires and wellington boots.  It made electrical cables, then consumer electronic products including televisions.  It entered the digital mobile phone market and became world leader in this fast-growing field.  Between 1998 and 2012 Nokia was the world’s largest supplier of mobile phones.  However, the company’s market share decreased dramatically following the introduction of touch screen phones from Apple and Samsung.  The change was swift but the Nokia executive team saw the danger.  CEO Stephen Elop famously declared in 2011 that they were on a ‘burning platform.’  In 2013 Nokia sold its mobile phone business to Microsoft and 32,000 employees including Elop joined the Windows giant.

What is left of Nokia has 56,000 employees in three divisions.  The largest is Nokia Solutions and Networks (NSN) which provides hardware, software and services to telecoms operators.  The second business area is called HERE and sells map technology for automobile navigation systems. The third business licenses the thousands of patents and inventions that Nokia owns. At the same time Nokia has been an ardent supporter of start-ups with some 1000 new companies fostered by Nokia, often founded by ex-employees of the company.

The lessons from the declines of these giants are many.  Size and market dominance are no defence against technology innovation.  Companies which see a serious threat must react early and decisively. Half-hearted attempts with me-too products are just not enough.  Companies that have been through the pain of reinvention before are better equipped to do it again. The key questions for business leaders are,

‘What business are we in?’

‘What key skills and technologies do we have and where else can we deploy them?’

‘What is our survival strategy?’

‘What businesses or technologies do we need to acquire?’

‘What do we need to stop doing?’

Perhaps if Kodak had realised it was in the memories business and not the film business it could have founded an Instagram, a Facebook or a Pinterest. That would have been an extraordinary leap but sometimes that is what is required.

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Paul SloanePaul Sloane writes, speaks and leads workshops on creativity, innovation and leadership. He is the author of The Innovative Leader and editor of A Guide to Open Innovation and Crowdsourcing, both published by Kogan-Page.

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