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1/24/2012 @ 2:58PM |282 views
Think Your Business Couldn’t End Up Like Kodak? Think Again
This article is by Rita McGrath, an associate professor of management, at Columbia Business School and co-author of The Entrepreneurial Mindset (2000), MarketBusters: 40 Strategic Moves That Drive Exceptional Business Growth (2005), and Discovery Driven Growth: A Breakthrough Process to Reduce Risk and Seize Opportunities (2009).The stunning collapse of a legendary American company has left many scratching their heads. How could the custodians of this storied brand have managed things so badly? With the firm’s fate now in the hands of the courts and its creditors, one has to wonder what went wrong. Its once-humming factories are literally being blown up, and the company’s brand, which Interbrand valued at $14.8 billion in 2001, fell off the list of the top 100 brands in 2008, with a value of only $3.3 billion. Although the bankruptcy announcement is shocking in its newness, the factors that undermined Kodak’s competitiveness are not unique to the Rochester-based firm. Indeed, if you take an honest look, some may pose risks for your organization, too.Here they are:
A sense of entitlement. In its day, Kodak was not just successful; it was super-successful in a way that other companies could only dream of. It had dominant market share, was hugely profitable, and was represented by a brand that practically became a cultural meme. It seemed to be unstoppable. One could understand why its leadership felt pretty good about what they had accomplished. Problems with this? Several. First, it’s easy to confuse good luck with good management when all is going smoothly—you don’t really ever test the caliber of your leaders until they have been through a difficult patch and have learned the lessons that only failures can teach. Second, it becomes inconceivable that the profit engine might start to sputter, so leaders don’t take threats seriously. Finally, the people in power, the ones who control careers and resources, usually succeeded in the old regime. They have zero interest in even thinking it might end and are going to make sure everybody else has zero interest in even thinking about that too.
Kodak has good company in this regard. Before more astute leaders turned them around, Procter & Gamble, Xerox, and of course IBM all had leaders who simply couldn’t believe their business models could implode.
A sputtering innovation engine. You can’t say Kodak didn’t try new and innovative things. Far from it. The company bought and sold businesses in fields as varied as office automation and pharmaceuticals. It invested in a “new ventures division.” It poured money into new technologies and research and development. It did creative joint-venturing. Here’s the trouble: Like many companies, it allowed innovation to be an on-again off-again phenomenon, heavily affected by whoever the sponsor was, whatever the flavor of the minute was in terms of trends, and influenced by internal power struggles whenever a venture looked like it were going to go anywhere. The ventures never got reintegrated with the parent company. To see how it was management, not the businesses, that lay at fault, observe that after Kodak spun three businesses out of its failed acquisition of Sterling Winthrop, each of them became successful under its new owner.
Messing up innovation is so common that it would induce laughter if it weren’t so tragic. Lucent’s new ventures division actually won awards before getting shut down. Nokia, Xerox, and Fortis all launched new venture divisions only to shut them down (and relaunch them) when they didn’t produce near-term results. To keep a company healthy, innovation needs to be a systematic process, not light amusement for those running the core business.
Denial. Okay, so maybe there are some early warning signs of a pending competitiveness problem. Or maybe, as happened with Kodak, there are great big flashing neon lights spelling out “DANGER! DANGER!” Evidence? In 1984 Fortune ran an article by James Flanigan titled “Has the World Passed Kodak By?” Kodak’s response? Its leadership put out a seven-page single-spaced document, dated November 1, 1984, called the “Advisory Memorandum.” It provided detailed counterarguments to the concerns raised by the journalist about poor management, deteriorating financial performance, poor execution of new product introductions, low morale, and a myriad of other woes. The rebuttals took the unconvincing form of outright denials in the form of “Kodak does not have poor management” and “Current management has overcome any historical complacency regarding the company’s ability to meet its growth and profitability objectives.” And the pity of this is that had Kodak acted in time, many of the problems could have been addressed.
This far from unique to Kodak. Take RIM, the BlackBerry maker. When its CEO, Jim Balsillie, was asked in February 2007 about the introduction of the iPhone and how it would affect RIM, he had this to say:
“The recent launch of Apple’s iPhone does not pose a threat to Research In Motion Ltd.’s consumer-geared BlackBerry Pearl and simply marks the entry of yet another competitor into the smartphone market, RIM’s co-chief executive said in an interview,” Wojtek Dabrowski reports for Reuters. Dabrowski reports, “‘It’s kind of one more entrant into an already very busy space with lots of choice for consumers,’ Jim Balsillie said of Apple. ‘But in terms of a sort of a sea-change for BlackBerry, I would think that’s overstating it.’”
Disastrous alignment. It is a truism that organizations resist change. In the case of Kodak, even when senior leadership was desperate to create change and operate globally, powerful executives within the organization simply refused to cooperate. A Kodak insider told me about visiting a foreign subsidiary. When presented with the latest strategy from headquarters, the senior executive at the subsidiary refused to exert any effort whatever to comply with corporate directives. Thus, new business opportunities never gained traction, and the company lost the potential advantages it might have gained from building on its capabilities globally.
It is not unusual for companies to have the twin problems of middle managers not toeing the corporate line and innovations falling between the cracks of the organizational structure. At DuPont, for example, the strategic business unit strangled efforts toward significant innovation. The solution was to reorganize the company around broad growth platforms, so innovations could find a home.
Questions to ponder. Here are some questions to ask yourselfif you think your company can’t go this way. Who is responsible for identifying (really) potential risks to the core business model? Who is responsible for listening to the results and taking them seriously? Can you honestly say that in your organization innovation is a systematic, professional process that is managed consistently? How many times in the last, oh, 18 months, has someone observed that your existing structure is getting in the way of opportunities? If the answers to any of those give you pause, perhaps it’s time to take a harder look.
Before you end up blowing up your own assets.
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- Kodak moments – Lesson Learnt (rrajiv.wordpress.com)
- Kodak Files for Bankruptcy … an End to a Legendary Era in Photographic History (geardiary.com)
- Economist: Fujifilm vs. Kodak (yihongs-research.blogspot.com)
- Where the Brand Name “Kodak” Came From (todayifoundout.com)
- Why churches should be more like Kodak (geoffsurratt.typepad.com)
- Kodak pays the price for not re-inventing itself (wheresthesausage.typepad.com)
- Kodak: What led to bankruptcy (currentindiaaffairs.wordpress.com)
- What Happened To Kodak’s Moment? (managinginthedigitalera.com)
- Proof Kodak Was Doomed 14 Years Ago (theneteconomy.wordpress.com)
- Kodak hits the skids – not a pretty picture (venturebeat.com)
- Despite Long Slide by Kodak, Rochester Avoids Decay (nytimes.com)
- Adapt and prosper (3lakes.wordpress.com)
- The last Kodak moment? (antiworldnews.wordpress.com)
- What I Saw as Kodak Crumbled (forbes.com)
- As Kodak declines, small tech firms rise in Rochester (usatoday.com)