Disruption and Corporate Amnesia

Disruption and Corporate Amnesia

By Jørn Andersen

Disruptive innovations come in many disguises, and in many instances they seem self-inflicted by the incumbent companies of a given industry. The process of creative destruction has been known for decades and it roughly follows a pattern with a successful innovative company enjoying a certain period of monopoly profits. After a while more and more entrepreneurs jump on the bandwagon and try to get a piece of the business and the incumbent market leader is challenged.

Nevertheless, throughout history almost every big successful company, when confronted with the new competition, has looked surprised, and in most cases refused to acknowledge it.  We all know the story about how Kodak was disrupted by Fuji Film and other Japanese camera makers in the 1980s because of the digital camera.  But roll the film back 100 years when the CEO of Carl Zeiss, the leader of camera lenses and photography for the first time in 1888 saw the new Kodak camera around 1900 and he stated, “It’s a stupid fad and will be gone in three years.” But the name Kodak was born and the camera was launched on the market with the slogan “You press the button – we do the rest”.  This was the beginning of snapshot photography, as we know it today.  From the very beginning, Kodak’s business strategy was the same as razor and blades, selling cameras at a low price and making profits from the consumable film rolls. The Kodak Brownie was introduced later and it sold for a few dollars, the strategy being to sell cameras at a price affordable to everyone. This created the mass market for photography, and Kodak’s business design disrupted the leading German camera companies Carl Zeiss and Leica, who mainly had their focus on expensive solutions for the professional market.  Kodak was also a leader in branding and came up with the tagline “A Kodak Moment”, one of the 20th century’s best-known slogans.

There is a lot of ‘repeat history’ in the Kodak story, and a good deal to learn for incumbent companies from all industries.  Offering something at affordable prices has been and still is one of the most disruptive methods observed.  IKEA offered ‘good designed furniture at affordable prices and became a world leader. Walmart became the world’s biggest retailer due to the concept of groceries at affordable prices.  The list goes on. In the digital age, Amazon’s success with ‘Just one click away’ is almost identical to Kodak’s original ‘just press the button’.  A third lesson is that if your affordable price business design can attack the incumbent’s profit model you can almost be certain that it will disruptive. This is for example what Google did with Google Ads, with which it attacked and undermined the printed press’ revenue streams and value capture from placing ads in their newspapers.  On top of being market leader for decades, Kodak also became the industry standard among customers, signified by the slogan ‘A Kodak Moment’.  Within a few decades from its foundation, Kodak had control over several of the control points in value system of the market for photography and film, and had the ability to recombine those into new business model designs. But Kodak’s success never grew out of being technology leader.  Carl Zeiss and Leica etc. always had better lenses with superior imagery quality.  The fact that Kodak became a technology leader and first to invent e.g. digital camera technology doesn’t change the fact, that Kodak’s history of success was never about technology per se.

It seems very plausible that because of its early success with price based disruptive business model designs; technology remained a blind spot in Kodak’s innovation playbook.  To put another way,

Kodak’s theory and assumptions about its business didn’t fit the new realities of the digital age.

So what could Kodak have done differently to avoid disruption?

All large corporations like Kodak became successful because they made the right choice at a crucial point of their history and this choice allowed them to scale their business.  What large corporations could do when faced with a new market reality is to apply what is known as counterfactual history. This is a method where you ask the question What If?  Now, what if Kodak originally had tried to compete with Carl Zeiss on technology. It would probably not have succeeded, because that was the weakest part of its business model. But price and marketing was the weakest part of Carl Zeiss’ business model, and therefore Kodak had success with attacking this particular part. Kodak’s top-management could as a regular exercise have asked themselves: If I were a newcomer to the business, where would we attack Kodak?  Combining corporate history, counterfactual angles and deep knowledge about the three main competitors, it seems unlikely that technology would not have come up as a potential area from which to attack Kodak. What to do would have been obvious, like for example launch a cheap version of the digital camera and see what happens with the pilot.

Most incumbents become disrupted because they forget their own history and the business models that made them successful. By not reviewing the business model assumptions from time to time, companies will by default run into new disruptors and decline, because their business no longer fits the changing realities of the external environment, customers and technologies.  As such disruption often starts from within the corporation itself.


Image Used By Permission From: www.pixaby.com

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