Wednesday, January 18, 2012

Kodak: More Than a Disruption Story?

Monitor's Larry Keeley has written an article for Fortune titled "The Kodak Lie."   In that story, he writes:

"The demise of Kodak isn't merely the classic disruption story that everyone loves to tut tut over. Nor is the company's downfall merely a result of recent bad decisions or the mismanagement of senior executives. It is the more nuanced story of how easy it can be to get things wrong, even when trying with the best of intentions to do everything right."

Keeley points out correctly that Kodak created one of the world's first digital cameras way back in the 1970s.   In his mind, that means the Kodak story doesn't fit the classic story of a disruptive technology.  Kodak didn't miss the boat completely.   He goes on to write:

"The digital photography field not only was slow growing but it actively undermined their largest source of profits: photo and motion picture films. The tiny sideline businesses simply could not scale at a rate that might make up for the loss of film revenues, so those inside the core business were unable or unwilling to do what it took to foster drastic transformation. This exact phenomenon plagues innovation in nearly every large firm. At least once a week, top executives tell me that new growth businesses in their firms are intriguing and potentially important, but they simply "don't move the needle." 

Again, Keeley is right on the money.  However, this story is PRECISELY the disruptive technology story told by Clayton Christensen.   Clay has documented many, many examples of upstarts disrupting incumbents in industry after industry.  In many of those cases, the incumbents didn't  miss the threat completely.  They were not simply blind (Polaroid too invested in digital photography R&D in the early days).  Some executives understood the new technology and recognized that it had some promise. However, the core business and the corporation's resource allocation process undermined the firm's ability to shift effectively into new markets.   The "move the needle" problem occurs in many firms, as well as a host of other pressures in the resource allocation process that make cannibalizing the core a very difficult thing to do.

The real challenge of "move the needle" thinking is somewhat different than what Keeley has suggested.  Many large firms become dismayed when new ideas don't seemingly "move the needle" in terms of revenue growth.  However, time and again, we have instances in which executives misjudge the actual revenue potential of new business opportunities.  They overestimate some and underestimate others... by a significant amount.  Thus, dismissing a new venture because it won't move the needle proves to be a very dangerous move. 


Ann-Caryn Cleveland said...
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Ann-Caryn Cleveland said...

This reminds me of the "Innovator's Dilemma" - Whether you are an established company or a startup, you should always be searching for product-market fit. Great post!