Why do Companies Fail?

Kodak

Reasons for Kodak’s Initial Success in Film-based Photography

Leadership inComplex Film

Technology

Established Quality Brand Name

Economies of Scale

Kodak’s‘Razor and Blade’ Brand Name

(Price Advantage)Scale

(Cost Advantage)

Established and vastRetail relationships

‘Razor and Blade’Strategy

Why was Kodak unable to Sustain Success?

Two Main FactorsFor Kodak’s Failure

- Change in “structure” of theFilm Business

- Loss of Kodak’s Unique Position inthe Traditional Film Business

- Emergence of DigitalImaging

- Kodak’s inability to adapt to this new Business

Kodak’s Response to the Mavica

Uncertainty about Threat of Digital Technology(Extent and Timing of Threat)

Kodak’s Response(a) Creation of a new division for digital R&D

(b) Huge R&D investments in digital technology($5 billion; > 50% of total R&D spend) ($5 billion; > 50% of total R&D spend)

Good Move?

Kodak recognized the need tocreate capabilities and productsIn digital technology

Questionable Move?

(a) Huge investment not necessarygiven the uncertainty of digital tech

(b) Diversion of valuable resources fromcompeting with Fuji in film.

Kodak’s Introduction of the Photo CD

Good Decision

• Good ‘transitional”product

Questionable Decision

• Film was going to eventually decline anyways.product

• Preserves the “centrality” of film (a core/profitable business)

decline anyways.

• Other products (camera, printers) may be more critical in digital photography

Kodak’s Managers “rooted” in their traditional way of thinking( ‘Razor and blade’ strategy successful in film ���� Digital)

Sustaining Success: The Role of Inertia

Inertia(a property that causes an individual or a company to resist change)

Cognitive InertiaCognitive Inertia

- companies get locked intohabitual ways of thinkingabout their industry, and and how to succeed in it

Cognitive Inertia:The Role of Confirmation Bias

• Based on prior experience and/or success, managers develop a “point-of-view’ about their business, and what determines success in it.

• This ‘point-of view’ (mental model) is difficult to change– Because of prior success– Because of prior success– Because managers themselves are unaware that they hold such views. – Due to “confirmation bias”

• The Kodak Example:– Traditional photography is all about consumables (the “razor and blade” model)– Therefore, digital photography is also about consumables!! (the Photo CD)

Ways to Address Cognitive Inertia

Increase “Awareness”That cognitive inertia exists

Guard against the‘Experience’ Syndrome

-The ‘Forgetting Curve’-Use of Younger Managers?

Engage in “Deliberate Analysis”

-Seek ‘contradictory’ information-Invite views from outsiders

The Fisher Era

Fisher’s Actions

• Divesting businesses unrelated to the core photography biz.

• “Milk/extend” Kodak’s film business in emerging markets like

The Outcome

• Resistance to change behavior in response to new initiatives

– Deeply ingrained view of what drives successbusiness in emerging markets like

China.

• Re-position Kodak as an “imaging” company (not a film company) in every part of the digital value chain

success– Established culture (consensus

instead of confrontation)– Rewards and promotions traditionally

linked to the film business– “Company” town environment

Kodak’s Managers were “unwilling” to change theiractions and behavior quickly

Sustaining Success: The Role of Inertia

Inertia(a property that causes an individual or a company to resist change)

Cognitive Inertia Action InertiaCognitive Inertia

- companies get locked intohabitual ways of thinkingabout their industry, and how to succeed in it.

Action Inertia

- companies recognize theneed to change, but they are unable to “act” accordingly