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1/12/2012
01:11 PM
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Why Did Kodak, Motorola, And Nortel Fail?

All three were technology-driven and had a "franchise" with happy customers, yet all three are close to pushing up daisies.

Kodak co-founder George Eastman had a vision: One day the camera would be small enough so everyone would carry one in a shirt pocket. The Galvins of Motorola had an equally vibrant vision: One day we would all be connected without wires. Nortel's vision was that voice, data, and images would extend to every person and device in the world.

And all three visions were correct. It happened pretty much just as they visualized--except it wasn't these innovative incumbents that won. It was the interlopers, the new kids on the block, the attackers. But you know this story, don't you? Big company gets blindsided by upstart technology firm. Except, they weren't blindsided. They saw it coming and they all tried to react. The key word: tried.

Back as early as 1976, Kodak knew that digital was coming. It recognized that its franchise of camera/film/finishing plants would come under attack. Kodak's executives said to themselves that if anyone was going to obsolete photography, it was going to be them ... so they led the parade, developed some of the first and best digital cameras in the 1990s ... and still failed.

Kodak started a photo-sharing service, understanding social networking before there was social networking. It didn't matter, didn't move the needle. Because in the end, it was the attack on the Golden Goose of film that couldn't be repelled. It didn't matter that Kodak led or didn't lead the march to digital photography. The profits just weren't going to be there. Film was the great cocaine; nothing else was ever going to be as profitable or ubiquitous. Just as RJR Nabisco needed Marlboros, Kodak needed film.

By the 1990s, Kodak had begun to lose its edge in film to Fuji. For decades, every time a Kodak competitor, such as Bell & Howell, would come up with an improvement in film, Kodak would pluck a better answer off its R&D shelf. Fuji finally figured a way around this conundrum: It courted the photography professional and broke through the Kodak stranglehold. Once the lock on the pros was broken, the amateur market followed. But the advances in digital would make Fuji's improvements just temporary. Fuji was winning the battle just as the battle changed to digital.

Know which company was the leading camera provider over the last three years? Nokia. The camera has become just an app, an add-on, an afterthought.

Clayton Christensen of the Harvard Business School writes elegantly about the innovator's dilemma. His thesis: Well run companies are rarely run over by direct competitors. They anticipate frontal assaults and repel them. Christensen's thesis is that the most successful attacks come out of the weeds. Technology that isn't good enough for prime time, technology that the best customers wouldn't use on their worst days, becomes, over time, better and better.

Those early cellular phones could take pictures, but no one considered them as replacements for terrific 35mm cameras ... until they were.

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OK, big shot (joke), what should Kodak have done?

-- Enter the cell phone business? It tried this a bit. Didn't work.

-- Recognize that it was really in the memory business and diversify into storage? Nice try.

-- Increase its R&D? Kodak did that, spending most of the money on improving film technology.

-- Diversify into healthcare? It did that too. Didn't work.

-- Spin off its chemical business? It did that, generating some cash. But small potatoes.

-- Integrate backwards into semiconductors? Way out of its competency.

In the end, Kodak (now on the brink of bankruptcy) was a well run company that failed. It was an early technology company, and it never lost its technology roots. It then became a marketing behemoth and a superb consumer company. It then morphed into a financially run enterprise and it did that well--until it failed.

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Guest
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Guest,
User Rank: Apprentice
1/16/2012 | 7:11:58 AM
re: Why Did Kodak, Motorola, And Nortel Fail?
There is no profit in PCs for the OEMs (plenty of profit for Microsoft and Intel). Dell, which you name, has a PC business that runs at 3% net profit margins. After Microsoft gained control, all of the PCs became more or less the same. There was/is no way to differentiate from their competition on technological innovation. Price was the only differentiator, where Dell came into the picture, which killed all profitability.
Guest
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Guest,
User Rank: Apprentice
1/16/2012 | 7:01:11 AM
re: Why Did Kodak, Motorola, And Nortel Fail?
Nice article. Intel isn't really comparable with Kodak, Motorola and Nortel because they were a fairly small company before x86. Intel's Kodak moment is coming with the rise of ARM and companies deciding to design their own chips and have someone else fab them.

The rest is correct. The three companies mentioned always thought the impending shift would be manageable and allow them to hang on to their high-margin cash cow divisions. It also speaks to the difficulty in coming up with a second act, or second great idea. Many of these management teams did not have the talent or the luck of their founders. HP, as you mention, has this problem at the moment. Prink/ink, their cash cow, is going away and no one has a great idea that will make similar margins. No executive wants to admit to themselves or Wall Street that the future business model will run at lower margins than their current business model, which is why they hang on until it is too late.

@Lucymcq
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@Lucymcq,
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1/14/2012 | 6:27:44 PM
re: Why Did Kodak, Motorola, And Nortel Fail?
Proof point: in 2003 I went to Schaumberg to pitch Motorola on a music downloading service they could provide on their new windows smartphone. When I proposed we split the revenue three ways (labels get a third, motorola gets a third, we get a third) they promptly replied "Oh no, we would give our share to our carrier partners"

The iphone came out 4 years later integrated with itunes.
Wally Wombat
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Wally Wombat,
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1/14/2012 | 2:27:21 PM
re: Why Did Kodak, Motorola, And Nortel Fail?
Hired Gun, your recollections are correct, but not out of line with the "out for no profit" observation. I was with IBM during the late 70's and the 80's. You are spot on regarding the Micro Channel faux pas, perhaps eclipsed by the 10-pounds-in-5-pound bag mistake also known as OS2.

But all of this, and the rise of Mr. Dell and the phallanx of other PC makers occurred some two decades before IBM bailed on the PC business. By the 2004 sale of the PC division to Lenovo, the PC hardware business was/is indeed a thin-margin business with little opportunity for IBM value-add and/or any technology/innovation benefit back into the new engine of the corporation: services and software.

An addtional interesting note from a reent interview with ex-CEO Sam Palmasano in the Verge: "Palmisano says that despite offers from Dell and private equity firms, IBM chose selling to Lenovo because of its location in China, which helped IBM establish itself within the country's lucrative market."

Not too bad a move on the whole. Particulalrly when the original sales forecast for the PC back in 1980 was 250,000 units in total sales....
Hired Gun
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Hired Gun,
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1/13/2012 | 10:45:16 PM
re: Why Did Kodak, Motorola, And Nortel Fail?
I can fully appreciate your comment about customer service. I stopped buying Packard Bell computers (if you remember them) because I had to get up a 3 AM just to reach somebody to solve a problem. Not so with Dell. And don't even TRY to call some other manufacturers. Dell has been so incredibly successful because if you can give them a Service Tag Number (serial number) they will talk to you even after the computer is out of warranty. This is smart business because if they can identify the problem, they know you will order the part right then. DUH! (Granted, sometimes I have to talk to somebody in India, but even then, the problem is embraced by the company.)
Hired Gun
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Hired Gun,
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1/13/2012 | 10:34:55 PM
re: Why Did Kodak, Motorola, And Nortel Fail?
You wrote "IBM . . . got out of PCs because it saw that it was never going to make money in an increasingly commoditized business." I was around in those days. My first PC was an IBM with no hard drive. With a wheel printer it cost me about as much as a new car. My wife and I went into a computer store looking for something for her little word processing business. I think this was about 1982. I looked down at the magazine rack and saw 3 issues of PC Magazine. The first one was 3 months old and was about 1/8 of an inch thick. The second one was about a quarter inch thick. The most recent issue was a half inch thick. I did not even pick up the magazines. I looked at my wife and I said, "We are getting an IBM PC. All of these advertisers cannot be wrong." True story. (PC Magazine later went to biweekly when it grew to over an inch thick.)

However! IBM made the mistake of attempting to control the market like they had done with mainframes. BIG MISTAKE. They abandoned the open architecture and switched to what they called "Micro Channel". By this time there were hundreds, if not thousands of suppliers that were not about to pay royalties to IBM. Hence, the birth of dozens of PC manufacturers like CompuAdd (who sold many systems to Sears) and then Northgate and Dell.

Dell was founded by Michael Dell basically out of a garage. I think he ran the business from a University of Texas dorm room. They now employ over 100,000 people, I think.

My point is: IBM could not have done this because there is no profit? Really?
ANON1243011411578
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ANON1243011411578,
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1/13/2012 | 8:00:55 PM
re: Why Did Kodak, Motorola, And Nortel Fail?
Kodak failed because they had no concept of Customer Service. They obsoleted their products within 2 years, so that if you purchased a camera and their box to develop the shots you had taken from them, it would no longer be able to be fixed by them once 2 years had elapsed.
Beside that, if you sent something to them to repair, they were more than likely to lose the item, which was done to me personally twice and took me a year to recieve a developer for pictures I took back from them. Still it was not fixed and they did not seem to care. Then try calling them and complaining. How about waiting on hold for 45 minutes only to be hung up on.
I understand that we are in the digital age, but if customer service will not answer your request for service, then your firm deserves to fail. And Kodak has. This should be a lesson that we teach to our Business Students on why companies fail.
Alan Strong-Los Angeles, California.
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ANON1246877940818,
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1/13/2012 | 7:55:50 PM
re: Why Did Kodak, Motorola, And Nortel Fail?
Great article. I think it is also important to note how Apple was in trouble in the late 90's and with the ipod really turned the ship around. So it can be done! Microsoft is also moving hard into the Cloud (office365 and Windows8 - HTML 5) to redefine themselves out of the PC OS space. I believe they will be successful, but it will be interesting to watch.

The scary reality we live in now is the lightening speed change comes. I'm already hearing rumblings of the death of Facebook. Hmmm -- doesn't seem possible. But I wonder - I know the hype for me is over. Will FB adapt? What about Living Social and Groupon? Are these companies that will become consumer staples or go the way of the dodo bird?
TJN
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TJN,
User Rank: Apprentice
1/13/2012 | 7:43:58 PM
re: Why Did Kodak, Motorola, And Nortel Fail?
Instead of mourning the losses of old established companies, we need to look at the process of change itself. Complacency is a deadly disease. I can think of many more companies that could go broke within the decade. Is that bad? Not if new ones delivering better products at lower prices take their place. My big concern is whether they are US companies or foreign ones.
gimhoff605
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gimhoff605,
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1/13/2012 | 7:36:46 PM
re: Why Did Kodak, Motorola, And Nortel Fail?
Good article of facts. The one common thread to success may be found in just 1 word: Innovate.
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