Lessons Learned From Kodak: Don't Get Trapped by Your Core Business Model

Feb. 8, 2012
Innovation expert: 'Even an insightful company can go wrong if it doesn't push far enough, fast enough into uncomfortable territory.'

Contrary to popular wisdom, Kodak read the market correctly, innovated aggressively and made many good moves on the road that eventually led to its bankruptcy.

That's the assertion of innovation expert Scott Anthony, author of "Little Black Book of Innovation: How It Works, How to Do It."

"The easy narrative is that Kodak was a company just blind to the disruptive changes in its marketplace," Anthony says. "But like many easy narratives, this one is wrong."

Instead, Anthony asserts, the Kodak story is about a company that was unable to move away far enough and fast enough from its core business model.

Kodak noticed the shift from film to digital technology decades ago and poured a fortune into digital imaging. The company established a digital-photography consumer presence with its EasyShare line and launched one of the earliest corporate forays into social media when it purchased photo-sharing website Ofoto in 2001.

But the efforts were not enough to save the iconic firm, which filed for Chapter 11 protection on Jan. 19.

Kodak's failure "shows how brutally hard it is to get transformation right," says Anthony, who is managing director and head of the Asia-Pacific operation of innovation consulting firm Innosight.

According to Anthony, Kodak's bankruptcy offers several lessons for innovators:

  • Don't get trapped by your business model. "One fatal flaw of Kodak's efforts in photography is they primarily focused on photography," Anthony says. "In an alternate universe, Kodak took Ofoto and changed it from a site where people shared photos to one where people would share updates about their lives, news feeds and so on. You probably have used a site like that before, if you are one of nearly 1 billion Facebook users around the world. Instead, Kodak used Ofoto as a way to get people to print pictures. It's natural for a company to extend the business model it knows, but that can cause it to miss big growth opportunities."
  • Start innovating before you need to. "The challenge -- I call it 'The Innovator's Paradox' -- is that when you have the freedom to change, you don't feel the urgency. For example, in the early days of the market disruption caused by digital imaging -- the late 1990s -- Kodak's core film business actually was growing. A lack of urgency allows a company to treat new growth efforts as science experiments that are academically interesting but not vital. However, once the urgency grows, degrees of freedom narrow rapidly, as attention goes to staunching the bleeding in the core business."
  • Place multiple small bets, not just one big bet. "It's always hard to know which idea is going to be 'The One,' especially in fast-changing industries. A better approach is to develop a portfolio and pipeline of growth strategies -- again, started early enough that there is time to incubate, revise and grow them."
  • Don't go it alone. "Almost every great company became great by beating back a group of similarly minded startups. Victory over those competitors can cause the winners to believe in their own infallibility. But it's different for incumbents. Sometimes incumbents conceive and launch exciting, disruptive businesses. But often they don't -- innovation is more likely to come from the next wave of startups. Established companies that need to continue innovating should be promiscuous, seeking out multiple relationships with startups and investing in companies at the seeming periphery of their business."

"While bankruptcy isn't necessarily the end of the line for Kodak, the stumbles of a smart company that did a lot of things right should make us appreciate the successful transformers even more," Anthony says. "The lesson of Kodak is that innovation is just hard stuff, and that even an insightful company can go wrong if it doesn't push far enough, fast enough into uncomfortable territory."

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