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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 a 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
Reasoning. Moving from the known to the undetermined
Imagining. Envisioning the future before it arrives
Challenging. Pushing for higher and deeper thinking
Deciding. Choosing with consequences in mind
Learning. Keeping a developmental mindset
Enabling. Exercising leadership from the outside in
Reflecting. 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!

More articles by Kay Plantes

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. She resides in Madison, Wisconsin and Oslo, Norway. For more information visit her website - Business Model Innovation and read her most recent book - Beyond Price.

The opinions expressed herein or statements made in the above column are solely those of the author, and do not necessarily reflect the views of Wisconsin Technology Network, LLC. WTN accepts no legal liability or responsibility for any claims made or opinions expressed herein.

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