Tuesday, February 28, 2012

Case Study - Kodak Bankruptcy Illustrates Why Status Quo is the Enemy of Innovation

January 19, 2012 was a sad day in the story of photography indeed for it was on that day that Kodak, a company founded by George Eastman back in 1888, filed for bankruptcy. It was on that day that the company that almost completely defined and created a new market of amateur photography shut down its doors. Never again will a birth, a graduation, a wedding, or a vacation be captured as a "Kodak Moment."

Kodak was born in 1888 with the introduction of the Kodak #1 camera. Invented and marketed by George Eastman (1854–1932), a former bank clerk from Rochester, New York. The Kodak #1 was a simple box camera that came loaded with a 100-exposure roll of film. When the roll was finished, the entire machine was sent back to the factory in Rochester, where it was reloaded and returned to the customer while the first roll was being processed. Eastman's real genius, however, was not in the creation of the box but in his marketing strategy. By simplifying the apparatus and even processing the film for the consumer, he made photography accessible to millions of casual amateurs with no particular professional training, technical expertise, or aesthetic credentials. To underscore the ease of the Kodak system, Eastman launched an advertising campaign featuring women and children operating the camera, and coined the memorable slogan: "You press the button, we do the rest."

George Eastman's Kodak #1 Camera in 1888
Kodak continued its leadership of the photography industry for over a century. In 1975, Kodak unveiled the first digital camera to the world. Weighing in at around eight pounds and about the size of a toaster, the hefty device was the brainchild of Kodak engineer Steve Sasson and his team from the Kodak Apparatus Division Research Laboratory. Over the years, since 1975,  Kodak amassed more than 1,000 digital-imaging patents upon which almost all modern digital cameras rely.

Kodak introduces the world's first digital camera in 1975 
So, if Kodak pioneered the market for amateur photography and invented the first digital camera, why then is it the company that ultimately filed for bankruptcy while companies such as Canon, Nikon, Pentax, Sony, and many others are thriving in this very lucrative digital amateur photography market?

While Kodak's demise is a complex tale consisting of many contributing factors, the root cause can be traced to a strong reluctance to alter the status quo. From the very beginning,  bewildered Kodak executives could not (or did not want to) understand why anyone would ever want to look at images on a TV screen. Considering that Eastman's Kodak #1 camera turned photography into a hobby for the masses way back in the 1890s, it is sad that although Kodak actually invented the "next big thing", it did not market it "seriously" enough, letting Japanese rivals dictate, drive, and ultimately own the lucrative digital-camera market. Rather than embracing the future, Kodak executives wasted their precious time and energy in trying to preserve their profitable business model of cheap cameras and expensive film. By the time they realized their mistake, it was just too late.

Interestingly enough, another iconic company that played a similar role in bringing personal computing to the masses is also going through a similar market situation. Microsoft has been a dominant player in the personal computer operating system market ever since co-founder Bill Gates won the contract to build the first operating system for IBM Corp.'s personal computer in the early 1980s. As I write this blog, Microsoft is putting the finishing touches on Windows 8 - perhaps the most important piece of software that it has written since that historic moment in the 1980s. Microsoft designed Windows 8 to help it perform a difficult balancing act. Just as Kodak tried to with its expensive camera films, Microsoft hopes to keep milking revenue from a PC market that appears to be past its prime, while trying to gain a stronger foothold in the more fertile field of mobile devices. It's a booming market that, so far, has been defined and dominated by Apple Inc.'s trend-setting iPhone and iPad, and Google Inc.'s ubiquitous Android software. Will Microsoft be able to do what Kodak wasn't by having its cake and eating it too?

The bottom line - Status Quo is the Enemy of Innovation. Kodak's demise was a direct result of its lack of willingness to "go where no man had gone before."* It was a company that got too wrapped up in "preserving its present" (revenues/profits from its sales of expensive film) rather than "creating and accepting a future" in which there would be no film. Kodak tried to survive by ignoring and stalling the future. Paradoxically, the future came anyway and just ignored Kodak!

* Principle #3 in my book "Living in the Innovation Age." I discuss many similar examples throughout the book about companies who faltered by not challenging the status quo and conversely companies that have continued their leadership by challenging existing constraints or imposing new constraints that spur innovation.  

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