Do you really know why Kodak failed?

Kodak’s failure is often used as an example of business blindness and inability to anticipate the impact of new technologies. But it is far from being so simple. Philippe Silberzahn, in his book A Manager’s Guide to Disruptive Innovation, uses Clayton Christensen Innovator’s Dilemma to analyse the challenges met by incumbent companies when they face disruption. He substantially renews our understanding of Kodak’s long debated failure to switch to digital photography.

Here’s his starting point: « How could a company like Kodak, in less than 10 years, go from being a revered business icon to landing in bankruptcy court? When this question is asked, the answer is invariably the following: Kodak was destroyed by the emergence of the digital revolution. It is just a classic textbook case of a company that was blinded by its success, unable to anticipate the future and incapable of taking necessary measures.”

But, Kodak was quite aware of the coming digital revolution as shown by an internal report stating in 1980 that the market would swing to digital photography in the 10 coming years. And indeed, Kodak did not ignore the digital revolution on the contrary, they invested in R&D and got many digital photography patents.

So, what happened? Here’s Philippe Silberzahn’s conclusion:

Kodak did not fail because it ignored, dismissed or was too slow in responding to the digital revolution. Kodak failed because it was the victim of what Clayton Christensen calls ‘the innovator’s dilemma’. In formal logic, a dilemma is an inference in which there are two contradictory premises, but choosing between them is immaterial because they both imply the same conclusion.

For an incumbent company confronted with a disruption, the innovator’s dilemma is the following: either the company embraces the disruption early on and sacrifices its existing activity (which may even represent all of its revenue) to favour an emerging yet uncertain activity; or the company ignores the disruption or embraces it too late, and risks decline or even the company’s disappearance. So a company hesitates between developing the new market, which jeopardizes its present market; and protecting its existing market, which prevents it from innovating. Between the two risks, compromising its present market and compromising its future market, the company adopts the strategy that seems the most prudent: protection of its present market. Hence, choosing to be prudent in order to reduce risks is the cause of its subsequent failure. »

The following chapters detail the most commons errors made by incumbents facing with disruption and explain, based on many rich examples, how the innovator’s dilemma could be resolved.

 

Philippe Silberzahn is Associate Professor at EMLYON Business School, focusing on innovation and high-tech entrepreneurship. He is also a Research Fellow at the Management Research Center (CRG) of the Ecole Polytechnique in Paris, France and a visiting lecturer at HEC Paris, EPFL/HEC Lausanne, and Solvay Brussels School of Business and Economics.His research interests lie at the intersection of strategy, innovation, and entrepreneurship. He studies how businesses deal with radical uncertainty and explores how large organizations manage strategic surprises and disruptions. He has authored and co-authored five books in French and English on entrepreneurship, innovation, and strategy as well as many academic articles on these topics.

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