Kodak pays the price for not re-inventing itself

Kodak's sorry story shows what happens when a leader brand fails to re-invent its core business in the face of "disruptive" technology that delivers a far superior value proposition, in this case rolls of film vs. digital photography.

This morning the company filed for bankruptcy. And how far the once leader brand has fallen. It went from 145,300 employees in 1988 to 19,900 in 2009.

Kodak is not the only brand to have suffered this fate. Others include Sony Walkman vs. iPod/iTunes and Blockbuster video rental vs. Netflix home delivery and streaming.

Here is some learning on why Kodak failed, pulled from a post I did back a year ago.

Kodak's fatal flaw: "marketing inertia"

Interestingly, Kodak's problem wasn't lack of technology. Did you know they invented the first digital camera in 1975? But according to an article in Wired, "Kodak executives were not enthusiastic. Early objections were intellectual." Kodak's first digital camera was not launched until 13 years later, in 1998. And the focus stayed firmly on the core film business, even though by the early noughties "Not a day went by (at Kodak) when there wasn't a discussion about when film would be replaced by digital".

Screen shot 2011-03-23 at 17.22.58
Kodak was so slow to change and failed to drive digital harder and faster not because of "marketing myopia", which is not seeing the change coming. The issue was "marketing inertia" and being stuck in the old ways:

1. The growth of the new technology was gradual at first, and…

2. … the core business was still growing, up 6.5% in 1999

3. The new technology required investing heavily in new competences, and…

4…. there was millions of dollars and years of blood, sweat and tears invested in the existing business

The leader brand's imperative : Re-inventing the core

In cases like Kodak's, refreshing the core business is futile. Its like "re-arranging the deckchairs on the Titanic". Leader brands with a terminally ill core need to re-invent the core by delivering the same benefit in a radically new way.

As the established brand leader, Kodak had great equity to leverage to become the leader of the future. But re-inventing the core is incredibly difficult, as it requires an acceptance that the established core is going to die. Management needs to go through a proper mourning process of anger, denial and acceptance. Also, there may be a need to overcome arrogance about new start-ups to treat them with the respect they deserve.

There are then several ways to go about re-inventing the core:

– One option is to re-invent from within and create the new competences and technology yourself. This is what Tesco did with online retailing, creating its own system for doing this.

– The next step is to create a "spin-off" business, with new management and the freedom to operate in a different way and even have a different culture.

– A third option, which I think has the best chance of success, is to "place bets" on new start-ups that compete with your core. These investments would be small compared to the loss in future revenue. Would Blockbuster have done better by buying a share in Netflix in the early days, rather than half-heartedly launching its own DVD by post service?

Kodak did make some belated attempts to re-invent their core. For example, their Kodak Gallery online photo storage system has 75 million users. It is an example of them using option 3 above, by buying a stake in and then 100% of a start-up, in this case Ofoto. However, this was too little too late. 

In conclusion, when your core is under threat from disruptive technology you need to act and act fast to re-invent, either by investing internally or buying stakes in promising new start-ups. Otherwise, you risk "doing a Kodak".

Share