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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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Number 6
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Number 6,
User Rank: Moderator
1/13/2012 | 6:17:07 PM
re: Why Did Kodak, Motorola, And Nortel Fail?
Good article, Howard! Thanks for reminding us that Kodak was actually one of the first to develop digital cameras. One problem is that their core competence was in chemicals, not electronics or optics.

Clayton Christensen's books are excellent at identifying both the problems that disruptive technologies pose to incumbent companies as well as suggested solutions. His research all started with the hard disk drive industry, which is familiar to many of us. Highly recommended reading based on solid research.
lefty86
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lefty86,
User Rank: Apprentice
1/12/2012 | 8:19:30 PM
re: Why Did Kodak, Motorola, And Nortel Fail?
good article - how about well known companies that changed "violently" instead of managing risks and still ended up pushing daisies?
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